Emerging global payment standard ISO 20022, put forth by the ISO technical committee responsible for the fields of banking and financial services, aims to create a common language and model for payments data, one that can be applied by any agent in the industry and implemented across any network. As payment data is the lifeblood of the banking industry, this introduction of this standard is a substantial milestone in the digitalization of payments. Though many organizations are approaching ISO 20022 adoption as a compliance exercise, the potential value of ISO 20022 extends far beyond regulatory demands. At the center of this wave of data standardization is an opportunity for banking customers to unlock greater value across payment chains and rethink how they can leverage data to better serve their customers.
What is ISO 20022?
With data being hailed as the new currency, we’re seen growing attention to data standards across regions and industries. Data standards govern what data is collected, how it is structured, and what that data means. When widely adopted across an industry, across regions, and across their interacting agents, standards play a foundational role in enabling users to unlock the value by enabling greater automation, delivering new insights, and facilitating more efficient collaboration. Moreover, in industries such as financial services, where trust, interoperability, and compliance are top of mind for customers, standardization can enable greater efficiency for ensuring compliance with information regulations and in preventing financial crime.
ISO 20022 is a machine-readable XML format that allows users to define tags and data types for each component of a message. It will increase the units of data for payment messages from just over 100 characters to approximately 9000 characters, significantly augmenting the amount of data that accompanies and provides context to a payment message. The expanded dictionary of data will enable messages to provide information related to payment roles (debtors, creditors, other agents), business processes (currency, execution and settlement dates, remittances), as well as descriptive data needed for business activities (purpose of payment, type of transaction). Adopting a common dictionary and a common standard is expected to introduce significant efficiencies for domains that manage payment processing systems and regulatory reporting, which have historically operated with vastly different standards and information formats. Herein lies another defining characteristic of ISO 20022: it can also act as an interoperability hub between different standards.
Benefits and current adoption
Of course, the value of standards can only be realized inasmuch as it is widely adopted. SWIFT has mandated that all banks leveraging SWIFT—that is, all actors sending and receiving wire payments—need to have adopted ISO 20022 by November 2022 for incoming wires, and by 2025 for outgoing wires. Regional rails, such as those in the UK, US, Canada, Australia, etc., are also following suit and developing mandates to incorporate ISO 20022 as part of their faster payment rails like low-value peer to peer and business transactions. According to SWIFT, already used by payment systems in over 70 countries, in the coming years it will be the de facto standard for high-value payment systems of all reserve currencies, supporting 80 percent of global volumes and 87percent of value transactions worldwide.
We’re also seeing many of our own customers incorporate ISO 20022 adoption as part of ongoing investments to modernize legacy systems across their data estate. Including ISO 20022 as part of a broader modernization strategy not only creates paths for financial services organizations to convert to the new standard, it opens opportunities for organizations to assess how to unlock the value of new, higher quality payments data. We’re seeing customers uncover opportunities for more transparency, more automation, and new services, all fueled by the richer intelligence encased in the ISO 20022 format—the benefits extend far beyond compliance.
We can group the benefits of ISO 20022 adoption into three areas: enabling automation, improving compliance and fraud prevention, and improved customer insights.
By standardizing how data is structured and collected, payment agents can streamline invoice and payment processing, requiring fewer manual interventions and enabling faster payment reporting. This can provide value in many ways, automated supplier and buyer invoicing, automated AR and PR reconciliation, AI-enabled repair automation, and accelerated mortgage closing processes, to name a few examples.
In the realm of compliance and fraud detection, standardized data, along with more granular payment data, can provide more information for evolving fraud detection models and streamlining compliance reporting. For instance, customers can leverage new ISO payment information for enhanced rules management and improved root cause analysis.
Finally, with richer intelligence, customers are uncovering new depths of customer insights and analytics around payment activity. Our customers can refine with even greater granularity customer profiles, track activities, and anticipate customer needs or behavior using advanced analytics. Furthermore, managing ISO payments data on a trusted platform, as provided by Microsoft and its partners, can provide competitive analytics while keeping customer data where it belongs and preserving privacy for all parties.
Certainly, adopting ISO 20022 is not without its complexities, as we have seen across conferences and customer conversations. However, with richer data lies the potential for richer services, unlocking innovation and enabling greater collaboration across the banking industry than ever before.
If you are interested in developing a strategy for ISO 20022 adoption for your organization, here are some suggested starting points:
- Talk to your Microsoft account team to assess opportunities for new ISO payment data and build a strategy to meet ISO 20022 requirements ahead of SWIFT and rail-driven mandates.
- Download our e-book, 4 ways that forward-thinking banks are using real-time payments to drive innovation.
- Learn more about ISO 20022