ISO 20022 Adoption Benefits Banks and Their Clients

Cross-border payments are entering an exciting new era with the global implementation of the data-rich ISO 20022 standard. Here’s what banks and customers can look forward to.

The payments industry continues its rapid evolution. The adoption of the ISO 20022 data standard will help accelerate greater integration and digitisation of the entire payments space and drive enhanced interoperability to create more visible, useable data and analytics. These enable banks to better understand and serve their customers, and ultimately deliver better outcomes for the industry.

The starter pistol is ready, and we’ll soon be out of the blocks for the global migration of cross-border payments to the ISO 20022 standard, beginning in March 2023. We have several exciting years ahead, as we move nearer to having all domestic and cross-border payments use rich and structured data.

It’s essential for the global payments sector to use the same standard end-to-end, containing rich and comprehensive data and information that can travel with the payments.

Here are three key business benefits that both banks and customers can expect from the adoption of ISO 20022, including positive implications for customer experience when it comes to making payments around the world.

Improvements in payments efficiency. One of the key drivers for moving payments to ISO 20022 is its ability to provide participants with richer and more structured data than the industry currently has – and this leads to significant operational benefits, including material improvements in payments efficiency. Rich data, on its own, isn’t very helpful. It must be structured, and that is the big benefit of the standard. Having rich and structured data, allows for multiple validations required for seamless, end-to-end execution up front.

Currently, most of these important validations happen somewhere in the middle of the transaction process and aren’t always done efficiently. With ISO 20022, a bank can complete many of the required validations at the very start of the transaction process and ensure that the payment is viable. For banks, the direct client impact is that they are able to say upfront to their originating clients, “Your payment will get there as you expect it to.”

There’s a newfound confidence on what the new standard brings to both banks and end clients — important, large, and meaningful outcomes directly associated with moving money safely and securely around the world. This is real operational efficiency, eliminating pain points and friction.

A significant reduction in false positives. Structured data also means improved compliance processes that significantly reduce false positives. A false positive is akin to a false alarm, flagging transactions as ‘risky’ when in fact, they are not.  When working with huge amounts of data and screening for sanctioned entities, false positives are a significant issue because these require time, cost, and human effort to investigate and process.

Having structured data allows banks to ensure all their compliance processes are correctly aligned while the payment is in process, as well as after the transaction is completed. For instance, a system that can distinguish between a person living on ‘Cuba Street’ as opposed to living in ‘Cuba’ the country is an important distinction.

The ISO 20022 standard is expected to eliminate false positives, thereby saving banks money and allowing valuable resources to be used for analysing real risks instead. The breadth of identifiers that can be embedded in the payments allows banks to improve the quality of the risk checks they do. Eliminating the noise means eliminating costs, enabling the banks to focus more on the actual risks they want to identify.

Better payments experience for customers. Banks want to deliver better payments experience to their customers, and many of them interpret that as ‘faster payments.’ But faster doesn’t just mean between banks. It means faster payments to the point of reconciliation.

According to a study by Aite-Novarica Group in collaboration with BNY Mellon, 60 percent of businesses surveyed consider ‘faster payments’ a gap in their capabilities and offerings. From a client perspective, ‘faster payments’ doesn’t just mean ‘faster settlement’ of a transaction in a market infrastructure. It’s an end-to-end experience, from the initiation of payment to when it gets to the destination, and it is fully recognised.

Rich and structured data in the ISO 20022 message will help this by providing better checks upfront, lower friction in the middle, and better reconciliation at the end. This results in better and faster end-to-end management of payments.

This is just the beginning

High-quality payments data is becoming a reality with ISO 20022 and sets an exciting foundation for future innovation in payments.

Some of the questions banks should be asking themselves are, “What can I do for my clients when I have a clear understanding of who they transact with, when they transact, and how they transact? What actionable information can I extract from this rich and structured data?

The industry has only started scratching the surface of these questions. In addition to the real benefits of adopting ISO 20022 for payments now, banks can also look forward to exciting new possibilities in the future.