How Will ISO 20022 Impact Banking and Payment Transactions?

By 2025, ISO 20022 is set to become the global standard for high-value payment systems across major currencies. This shift aims to simplify, speed up, and secure international payments for banks and financial institutions.

Even though around 70 countries have already adopted the new standard, only about 620,000 ISO 20022 messages are currently being exchanged daily on the existing SWIFT network. This represents just 1.4% of all daily SWIFT transactions.

With the deadline approaching, financial institutions face significant tasks in transitioning to this new messaging format. Let's explore what ISO 20022 is, the benefits it offers, and the challenges that may arise during its implementation.

What is ISO 20022?

ISO 20022 is a global standard for structuring and exchanging financial messages between banks and other financial institutions. It was created by the International Organisation for Standardisation (ISO) with input from industry experts, specifically through Technical Committee 68 (TC68) for Financial Services.

The standard mandates that financial messages be formatted using XML, a widely-used, platform-independent language. This ensures that different systems can easily communicate with each other, making the transmission, receipt, and processing of financial information, such as payments, more secure and efficient for all involved parties.

ISO 20022 is a global standard designed for the electronic exchange of financial transaction data. Its primary goal is to enhance the efficiency and reliability of financial transactions across various financial institutions, systems, and geographical regions. By adopting this standard, the financial industry moves closer to greater harmonization and consistency in transaction processing. With a key deadline set for March 2025, financial institutions are working to align with this standard to ensure smoother, faster, and more secure transactions worldwide.

Learn More

 

Before ISO 20022, a German bank sending money to a bank in Japan would typically use the SWIFT MT payment standard. However, SWIFT MT has limitations, particularly in the range of message types it supports. As a result, important details like invoice numbers or detailed transaction descriptions might have been omitted. This forced the receiving bank in Japan to manually interpret or adjust the data, which could lead to errors and delays.

The benefits of ISO 20022 extend beyond traditional banks. Cryptocurrency platforms can also take advantage of the structured data and standardized messaging that ISO 20022 offers. This can enhance the efficiency, transparency, and compliance of their transactions. Digital currencies like XRP, XLM, and HBAR, which are designed for fast and secure cross-border payments, stand to gain significantly. By aligning with ISO 20022, these crypto platforms can integrate more seamlessly with traditional banking systems, fostering greater adoption and trust in cryptocurrency as a legitimate digital asset.

ISO 20022 provides a global common language for financial transactions, which simplifies processes, reduces costs, improves data quality, and accelerates transaction speeds.

The standard has already been adopted in over 70 countries, including major economies like China, India, and Japan. It is currently being rolled out by payment market infrastructures for all major currencies, with the adoption process expected to be completed by November 2025.

What Are the Benefits of Moving to ISO 20022?

Before the introduction of ISO 20022, financial institutions around the world used a variety of proprietary and region-specific messaging standards to process transactions. This lack of uniformity led to several challenges, including compatibility issues, higher operational costs, and inefficiencies in handling international payments. The absence of a unified standard also stifled innovation, making it difficult to adopt new financial technologies like cryptocurrencies.

ISO 20022 addresses these issues and offers numerous benefits to financial institutions and the broader financial ecosystem:

1. Faster Processing Times: ISO 20022 utilizes a more detailed and organized format than older standards like SWIFT MT. This structured data enables a greater number of validations and checks to be automated during the payment process, significantly speeding up transaction times.
2. Better Compliance and Risk Management: The richer data that ISO 20022 provides allows for more effective screening against sanctions lists and improved Know Your Customer (KYC) checks. This enhanced capability helps financial institutions stay compliant with regulations and reduces the risk of fraud, which is particularly important in digital currency transactions where fraud can be a significant concern.
3. Greater Transparency: ISO 20022's more granular transaction details improve transparency for all parties involved. The enhanced data structure also makes it easier to trace the payment path, providing better insight and accountability throughout the transaction process.
4. Facilitates Innovation: By allowing for more detailed and structured information, ISO 20022 paves the way for the development of innovative financial services. Financial institutions can leverage this data to offer improved financial products and services, such as enhanced cash management and tailored finance solutions.

Valuable New Use Cases for Financial Institutions with ISO 20022

The adoption of ISO 20022 brings not only the general benefits of improved efficiency, transparency, and compliance but also opens up valuable new use cases for financial institutions. Here’s how the new standard is making a difference:

1. Streamlining Financial Crime Compliance:
   • ISO 20022 offers structured data that significantly reduces false positives in sanctions screening—by an estimated 25-30%. This improvement enhances operational efficiency and data quality, allowing financial institutions to focus resources on genuine risks rather than false alarms.
2. Improving Payments Exceptions and Investigations:
   • The detailed and structured data provided by ISO 20022 can help reduce the 2-5% of payments that typically lead to inquiries. By minimizing these exceptions, financial institutions can cut down on investigation times and reduce operational costs, leading to significant efficiency gains.
3. Simplifying Regulatory Reporting:
   • With ISO 20022, transaction data is structured in a way that easily meets diverse global regulatory requirements. This simplification can lower operational costs and improve the customer experience by streamlining compliance processes, reducing the need for additional inquiries or data re-entry.
4. Enhancing Customer Insights:
   • The detailed data enabled by ISO 20022 allows financial institutions to identify trends in payment activities, link transactions to specific customers, and tailor products and services more effectively. This capability can lead to better customer engagement and the development of more targeted financial products.
5. Building Vertical Value Propositions:
   • ISO 20022 empowers financial institutions to innovate and enhance their offerings. Examples include providing automated reconciliation for high-volume transactions, improving straight-through processing (STP), supporting new payment instruments, and developing cryptocurrency-based products. These innovations can create new revenue streams and improve service quality.
6. Strengthening Corporate Treasury Activities:
   • The structured data provided by ISO 20022 enhances reconciliation and working capital management for corporate treasuries. This improvement reduces payment friction, makes cash flow forecasting more accurate, and enables support for On Behalf Of (OBO) payments, which are critical for global businesses managing complex financial operations.

These use cases demonstrate how ISO 20022 not only meets current industry standards but also opens doors for future innovations in financial services. You can explore more details about these use cases on the SWIFT website.

Challenges of Moving to ISO 20022

Transitioning to ISO 20022, a global payment standard, is a massive undertaking for financial institutions worldwide. This shift brings numerous benefits, but it also comes with significant challenges. Here are some of the key obstacles that financial institutions may face during this transition:

1. Funding the Transition:
   • Moving to ISO 20022 requires substantial financial investment. Financial institutions need to review, map, and translate their existing legacy systems to align with the new standard, which demands significant resources. This includes costs related to technology upgrades, staff training, and ongoing maintenance to ensure systems remain compliant.
2. Meeting Deadlines:
   • The global deadline for the transition to ISO 20022 is set for November 2025, aligning with the retirement of the SWIFT MT messaging standard. However, many countries have established more aggressive timelines. For example, the UK transitioned to ISO 20022 in June 2023. Meeting these externally imposed deadlines can be particularly challenging for organizations already juggling multiple transformational projects, potentially leading to resource constraints and project delays.
3. Upgrading Existing Infrastructure:
   • ISO 20022 messages are longer and more detailed compared to older standards, requiring financial institutions to upgrade their existing infrastructure. This might involve significant changes to software, hardware, and network capabilities to handle the increased data volume and complexity. Such upgrades can be technically challenging and costly, particularly for institutions with outdated or fragmented systems.
4. Adapting Compliance Processes:
   • The richer data format of ISO 20022 requires financial institutions to adapt their existing compliance processes, such as Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures. Internal processes and system configurations may need to be updated to effectively perform compliance checks on the enhanced data set. This adaptation can be complex and may involve retraining staff, updating policies, and ensuring that new processes meet regulatory requirements.

How We’re Supporting the Transition to ISO 20022

At TechZert, we understand the complexities involved in transitioning to ISO 20022, and we’re committed to helping financial institutions navigate this significant change with confidence. Our team of experts is here to provide comprehensive support throughout every step of the process, ensuring a smooth and successful transition.

What We Offer:

• Expert Consultation: Our experienced professionals are available to answer any questions you may have about ISO 20022. We provide tailored guidance to help you understand the specific requirements and challenges your institution may face.
• Custom Transition Plans: We work closely with your team to develop a customized transition plan that aligns with your organization’s goals and timelines. This includes detailed mapping of your current systems to the new ISO 20022 standards, ensuring a seamless integration.
• Infrastructure Upgrades: We assist in upgrading your existing infrastructure to handle the more complex and detailed messages of ISO 20022. This ensures that your systems are fully equipped to meet the demands of the new standard.
• Compliance Support: Our team helps you adapt your compliance processes to the richer data format of ISO 20022. We provide the tools and expertise needed to update your Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures, ensuring they meet regulatory requirements.
• Ongoing Training: We offer training sessions for your staff to ensure they are well-prepared to work with the new standard. Our training programs are designed to build confidence and competence within your team, making the transition as smooth as possible.

Let’s Make This Transition Together

At TechZert, we’re here to ensure that your transition to ISO 20022 is not just a necessary change, but an opportunity to optimize your financial operations. Our experts are ready to assist with any queries and provide the support you need to successfully navigate this global standard shift.

Reach out to us today and take the first step towards a more efficient and compliant future. Together, we can make this transition smooth and successful