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ISO 20022; What is All the Fuss About?

If you are in the financial services industry, you may be aware that people have been talking about ISO 20022 for many years now. If you are not exactly sure what this entails, you’re in luck, because this blog serves as a quick crash course on ISO 20022 and why there is such a big hype around the topic all of a sudden. We’ll provide you with a brief background of what it is, how it came into existence, and why it is important.

What is ISO 20022?

ISO 20022

In a nutshell, ISO 20022 - pronounced ‘eye-so twenty-oh-twenty-two,’ is a global standard that outlines a methodology for the development of financial message standards – but more specifically, it focuses on the metadata that goes along with payment transactions, securities trading and settlement information, credit and debit card transactions, as well as other financial information.

Just like the various languages around the world, there are different messaging standards and formats within the current financial landscape, each specific to their own geographies or business areas. Put simply, there are a million different ways to say the same thing.

The purpose of this standard is to synchronise the language used between new systems and traditional infrastructure to help realise end-to-end processing across domains and geographies. It is designed to break down cross-border barriers and support global business needs for the foreseeable future. The standard allows us to carry rich invoice and remittance information, to logically structure and label important compliance data, and uniquely identify intermediary agents across the payments chain, thereby enabling faster processing and improved reconciliation.

So, What is the ‘ISO’ Part About?

The ‘International Organization for Standardization’ (ISO) was founded in 1947 and is an international standard-setting body composed of representatives from various national standards organisations from 165 countries. The standards that they publish cover everything from quality standards such as ISO 9001, currency codes - ISO 4217, through to engineering, electronics, manufacturing, and pretty much everything we encounter in our daily lives.

The ISO 20022 standard is actually not the first of its kind, it was preceded by ISO 15022 which in turn was the successor to ISO 7775. These standards were all largely contributed to by SWIFT, who is also the registration authority.

So, Who is SWIFT Then?

In 1973, 239 banks from 15 countries founded the ‘Society for Worldwide Interbank Financial Telecommunication’ (SWIFT) in order to create a shared worldwide data processing and communication link. One of its main tasks, is to create common standards for the transmission of financial information. Before it came into existence, international interbank telecommunication was handled through telex messages; a manual-driven process that wasn’t very secure.

SWIFT became operational in 1977, when the first message was sent over the SWIFT network. Within a year, 10 million messages had been sent and the number of customers had grown to 518. In 1987, SWIFT’s membership voted to expand the userbase to include broker dealers, exchanges, central depositories, and clearing institutions. This expanded the range of messages carried in the SWIFT network, including securities, along with the traditional payment messages.

Nowadays, 69% of SWIFT traffic concerns Europe, the Middle East, and Africa. The American continent accounts for only 19%, and the Asia Pacific region for 12% of global traffic.

It is estimated that as early as 2023, ISO 20022 will dominate higher value payments, covering 79% of volumes and 87% of values across the whole world.

Other Interesting Facts…

Aside from ISO 20022, SWIFT is also the registration authority for the following ISO standards:

  • ISO 9362: 1994 Banking telecommunication messages – Bank Identifier Codes (BIC)
  • ISO 10383: 2003 Securities and related financial instruments – Exchanges and Market Identification Codes (MIC)
  • ISO 13616: 2003 International Bank Account Number (IBAN) Registry
  • ISO 15022: 1999 Predecessor of ISO 20022

The recent hype around ISO 20022 might lead you to believe that it is a new concept, but the standard has been around for quite some time; SWIFT drafted the original specification as part of the ISO working group that developed the standard all the way back in 2000, which was published by ISO in 2004 to give the financial industry a standard platform for developing messages in one eXtensible Markup Language (XML) rule.

If it’s Been Around Since 2004, Why the Sudden Hype?

The event that got the ball rolling for the adoption of this new standard was most likely the Single Euro Payments Area (SEPA) initiative, which saw European banks as the first in the world to deploy ISO 20022 for mass payment transactions. Once a major scheme within the payments domain like SEPA mandated the use of ISO 20022, the market’s mindset shifted to interoperability, especially in a cross-border scenario.

The global body steering its adaptation, however, remain in the hands of SWIFT. In September 2018, the SWIFT board agreed to facilitate a migration to ISO 20022 for cross-border payments and cash. Starting from November 2022, they will not permit any new projects using the older MT standard. This will include all users of payments and cash management messages; MT100, 200, and 900 message types. However, support will be provided to existing solutions for a limited period, which means that MT and the new MX (ISO 20022) messages are going to coexist for four years. From November 2025, SWIFT will not permit any solutions running the older MT standard. This means all current MT solutions must be migrated to ISO 20022 by no later than November 2025 to account for the required Industry testing.

At this stage no end dates have been set for securities messages, which are category MT500, nor for the messages for trade finance, which is MT700 series.

Why ISO 20022 is Important

As FinTechs and challenger banks innovate to introduce new ways to pay in an increasingly globalised world, it’s now more essential than ever to make use of a common standard. Payments systems based on different standards result in a lack of interoperability and poses a barrier to data automation capabilities.

In many cases, payments are converted at payment gateways, often leading to the loss of relevant information. In instances where internal bank processing is not based on data-rich formats, information often has to be truncated and, after processing, enriched once again. Not only is this process labour intensive, but it also causes delays in a world where near-instant payments around the clock have become the new expectation.

Additionally, banks face regulatory challenges like at no other point in history, especially in the areas of anti-money-laundering (AML) compliance and fraud prevention, making the ability to rapidly process large amounts of data crucial.

ISO 20022 facilitates a future where banks and their clients can action payments far more efficiently and economically allowing data-rich transmission which has previously not been possible under current message standards. Information from payer to beneficiary will flow seamlessly with full data content, meaning greater customer satisfaction and an improved digital fulfilment of compliance requirements. This enables the capture of rich payment data with enhanced analytics, reduction of errors and false positives, expensive investigations, and interventions - and ultimately, a guarantee of quality compliance.

Aside from the benefits already mentioned for enriched payments data and improved compatibility across technology platforms, ISO 20022 also creates opportunities for collaboration and innovation, along with the capabilities to deliver new services.

It also provides a dictionary for payment initiation (pain), payment clearing and settlement (pacs), and cash management (camt). Just like with any dictionary, it lists components, their structure, definition, and context around how they should be used or interpreted - and because ISO 20022 is a free and open standard, anyone, anywhere can add their two cents to the dictionary to help write and build solid business standards across the globe.

Benefits Summary:

Lower operating costs

Improved payments insight and analytics

Opportunities for collaboration

Enhanced fraud prevention

Reduction of errors

Additional automation

Richer data

Global interoperability

What Now?

Numerous institutions are in the process of preparing schedules, securing resources, allocating budgets and informing senior management. Many have come to realise that this is not ‘just another IT project’ - making the most of ISO 20022 requires a significant and complex migration, affecting not just core payments processing, but many other backend systems and departments.

Fortunately, with technology available to automate ISO 20022-based integration in a maintainable fashion that reduces the cost of implementation and ongoing ownership, this goal is achievable for any type of organisation.

The Sybrin Payments Hub

Our Payments Hub has SWIFT-compliant functionality to translate between SWIFT MT and MX (ISO20022) messages, which can greatly assist existing solutions in becoming ISO20022 compliant - without the need for an exhaustive rewrite.

As our Payments Hub integrates into a large number of legacy systems, it can effectively be used to build ISO20022 messages from a variety of legacy systems and messages.

SWIFT ISO20022 messages are implemented according to the SWIFT Cross-Border Payments and Reporting (CBPR+) standard.

The ISO20022 standard is ideally suited in support of the ever-changing face of payment products. Sybrin’s Payments Hub allows quick product and message structure changes using our low-code platform, Nitro. This allows financial institutions to define ISO20022-compliant products for alternative payment initiatives like social, crypto payments, biometric payments, etc. For example, it would be possible to add a digital fingerprint image to a biometric payment message.

A ‘wait-and-see’ approach is simply not an option for banks, as they will be completely cut off from international payment systems and access to central banks.

Find out how Sybrin can help you with your ISO 20022 migration journey, or contact us for more information. To explore our digital banking solutions and Payments Hub, visit Sybrin Apex.

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