Paying suppliers. Accepting payments. Payroll. FX. Cross-border payments. All of these vital banking functions are impacted by the modernization of the global payments industry. ISO 20022, a new messaging standard, is making the payments process more efficient for banks, markets, and customers worldwide.
Banks must adopt ISO 20022 while simultaneously dealing with the increased payment volume from faster and real-time payments. In this blog, we look at the associated challenges and opportunities.
What is ISO 20022?
ISO 20022 is an international electronic messaging standard for relaying messages between financial institutions. As an international standard, it acts as a common language for sending and exchanging payment data, improving the interface between financial institutions, payment schemes, and companies globally. The more consistent the information shared between parties, the more efficient the payment process is.
ISO 20022 messages are richer than predecessors because they can contain more data that’s also more structured than previous standards. Richer data provides greater transparency, reducing delays caused by inconsistent or unstructured data that require manual intervention.
Today, ISO 20022 is one of the biggest challenges in the payments space. On the one hand, the move to a standardized global payment model is a huge win, facilitating things like automatic reconciliation and invoice payables. But for banks and corporates, ISO 20022 means upgrading all payment systems. Regardless of how easy and seamless a new global standard will be, it doesn’t make getting there any more straightforward.
Without an ISO 20022-native payment system, banks will need a translation layer between the payment system and market scheme. Not only is this slower than two ISO 20022 systems speaking directly to each other, but banks lose data in the process. As data is lost, so are some of the insights that ISO 20022 brings.
“At 10x, our payment rails are ISO 20022-native. Everything in SuperCore™, our cloud-native ledger, is 20022. If a bank migrates to a 10x core, they move to a standardized, futureproofed format, enabling them to make the most of the ISO 20022 opportunity.” James Higgins – Director of Payments at 10x
Previously provided almost exclusively by SWIFT, cross-border payments present a similar challenge for banks. SWIFT Global Payments Innovation (GPI) aims to improve the experience of making payments via the SWIFT network. By bringing visibility and tracking through the interbank network, SWIFT brings transparency to fees, charges, FX rates, and processing times. While this has improved the efficiency of cross-border payments, this brings another area for banks to keep on top of that’s still evolving.
Specialist payment providers like Currency Cloud and Visa B2B Direct offer alternative cross-border payment solutions, allowing banks to provide their corporate clients with more options. To deliver these, banks will need to integrate with multiple payment technology providers – something that’s difficult and slow with a legacy core but much more straightforward with SuperCore™: our open API-enabled core banking platform. For more on integrating payment technologies, check out our blog on ecosystem banking.
The payment opportunity
The transition to ISO 20022 evolves payments globally. Enriched payment data means less manual intervention, better resilience, the ability to carry out behavioral predictions, and tighter fraud controls. A successful adoption will reduce IT complexity, comply with local regulatory standards, and enable seamless integration with clients and tech partners.
In the short term, adding an ISO 20022 translation layer to a complex banking infrastructure may kick the problem down the road. However, as ISO-native architectures become standard across the industry in the long term, the challenge of reducing complexity will remain.
Our cloud-native core offers banks a way to migrate away from monolithic architectures that slow them down and hold them back. Instead, we can help you become a more agile, fast-paced bank that’s taking full advantage of ISO 20022, as well as industry developments that follow in the future.