ISO 20022: The Payments Data Revolution

Building on the transparency and speed of SWIFT gpi, the next big improvement in cross-border payments will result from better quality payments data enabled by the adoption of the ISO 20022 standard. SWIFT has recently announced a new strategy with an enhanced approach for ISO 20022 adoption.

Financial institutions need to develop a long-term strategy and a detailed project plan for ISO 20022 adoption, and engage with their own clients for the opportunities this brings. Banks that adopt ISO 20022 early will achieve a competitive advantage across service innovation, operational efficiency, and financial crime risk mitigation.

Correspondent banking has extraordinary reach, facilitating cross-border payments the world over – and with SWIFT gpi in place since 2016, the system has become more transparent and faster, with more than 40% of payments settled within five minutes. However cross-border payments today are still constrained by poor quality data, which leads to different interpretations and can require manual intervention before processing.

The next stage of transformation will come from better-quality data in payments. This will further improve the efficiency, speed and compliance of payments, enabling better customer experience and opportunities for new client services.

To realise these benefits, a modern data standard is required that is data rich, ensures consistent interpretation and is widely accepted. ISO 20022 is that standard.

How ISO 20022 helps

Better quality data helps banks address a range of significant challenges they face today. These include increased automation, faster processing, more effective reconciliations, improved mitigation of financial crime risk, and better insights on the purpose and context for payments. Better data is also a platform for innovation, enabling new services for banks’ customers.

In its July 2020 report for the G20, the Committee on Payments and Market Infrastructures (CPMI) identified ‘data and market practices’ as one of five priority areas for enhancing cross-border payments, and recommends adopting a harmonised version of ISO 20022 for message formats.

Beyond being a standard library of messages, ISO 20022 is the agreed methodology and data dictionary used by the financial industry to create consistent data exchange standards across all the business processes of the industry. ISO 20022 is used already in over 70 countries, and forecast to be used in 80% of clearing and settlement of high value payments by 2025.

A new roadmap is available: How should you prepare?

In 2018 the SWIFT community committed to ISO 20022 for cross-border payments and reporting, and in June this year SWIFT announced an enhanced approach for ISO 20022 adoption. This approach uses new transaction management capabilities in an enhanced SWIFT platform, and enables the community to more quickly reap the benefits of rich data. The vision aims for instant and frictionless transactions where rich ISO 20022 data is the foundation.

The new adoption approach comprises 3 phases:

  • Phase 1, now to November 2022: MT messaging remains the standard for cross-border payments. Financial institutions continue to invest, in training staff for ISO 20022 market practice, and in enabling channels, payment processing and screening systems to support the ISO 20022 dataset.
  • Phase 2, from November 2022 to November 2025: SWIFT transaction management services are introduced, supporting the new dataset for ISO 20022 payments and reporting, and enabling co-existence with financial institutions that choose to stay on MT messaging.
  • Phase 3, November 2025 onwards: MT 1, 2 and 9 series messages are decommissioned for correspondent banking, and all interactions with the SWIFT platform use the new ISO 20022 dataset.

Financial institutions are recommended to prepare for ISO 20022 through a strategic and systematic evolution of their channels and transaction processing systems, establishing a long-term roadmap. Secondly, a significant, well-planned programme will be required that raises awareness and knowledge across the organisation, delivers technical implementation and testing, and achieves go-live from November 2022 onwards.

Thirdly, financial institutions should engage with their own clients, raising awareness of new features and services that will be provided and their respective timelines. An agreed roadmap should be established to move to ISO 20022-based client services over time.

Early adopters that plan well for their adoption of ISO 20022 are set to reap benefits for themselves and their clients in service innovation, operational efficiency, and financial crime risk mitigation. The time to get started is now.

Read the full paper “The Payments Data Revolution – How ISO 20022 is transforming the language of payments”, here.

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