ISO 20022 – Secure Payments to Transaction Management
ISO 20022 vs. the Current System ISO 15022
The ISO 20022 is a financial standard that aims to provide a universal, open and ample dictionary for financial data transmissions among systems and financial institutions. It serves as a globally accepted prescription to create new financial messages ranging from executing payments, managing accounts or arbitrage of exchange. The ISO 20022 is usually using XML (MX standard) syntax that helps create more structured and automated data.
The ISO 15022 (using MT standard), the predecessor of ISO 20022 that was introduced in 1998 and authorized in 2003, brought standardization and reusability of data into the picture with the idea of data dictionary. With the adoption of ISO 15022, the rates of Straight Through Processing (STP) increased up to 95%.
With the ISO 20022, the standardization in financial messaging will be moved to a new level with a focus on the demands and benefits of the digitalization. Transparency, flexibility, compliance, resilience, data quality and velocity are some of the advantages of the new ISO 20022 messaging over the ISO 15022. SWIFT takes the managing role in the transition process and all cross-border payments afterward.
Why do FIs need to change into ISO 20022 system?
Currently, one of the biggest challenges of the international payments is the complexity resulting from unstructured data. This leads to ambiguity and eventually requires manual intervention which indirectly means more processes, time and cost for the financial institutions.
The customers always expect simplicity in the services they use. However, they also want to make sure that they can do their payments quickly, with less cost and high security. People want payments to be simple. They want accessible payments with strong authentication, executed instantly, at low and predictable costs, reaching intended recipients regardless of platform or jurisdiction. Providing all these was a big issue for the financial institutions due to differing standards and poor interoperability.
ISO 20022 offers a dictionary for payment procedures such as payment initiation (pain), payment clearing and settlement (pacs), and cash management (camt). Thanks to this, the previous challenges that financial institutions face are solved because this standardized dictionary of data easily catches payment data, eliminates complexities by offering a more consistent customer experience and finally ensures satisfactory compliance.
Bottlenecks in current ISO 15022 system
Since the data entered in the financial messages in the current ISO 15022 system has a restricted character set, limited number of characters and unstructured form, in the process of analyzing and classifying information, complexities may arise and a manual intervention is required most of the time.
The downsides of ISO 15022 such as the lack of flexibility, the noninclusive compliance support, complex processing are compensated with the new ISO 20022 standard thanks to a more structured data and the advantages coming with it like improved efficiency thanks to the richer and more complete data, more transparency in transactions and better decision making with better data.
What ISO 20022 promises for Financial Institutions
Increased efficiency thanks to more structured data
As digitalization encompasses all the business fields, manual processing has become unpopular time-, cost- and efficiency-wise. The terms like precise, consistent and automated are desired when it comes to financial services and messaging. Therefore, there is a need to ensure a better defined and more structured data in the financial messaging systems to minimize the manual intervention and the unwanted results coming with it.
Here is an example of how the unstructured and structured data looks in MT and MX standards (SWIFT, ISO 20022: Better data means better payments, September 2019)
MT standard:
:59:/1234567890
Cuba Libre Bar and Grill
1234 Ocean Drive
90099 LA
MX (ISO 20022) standard:
<Cdtr>
<Nm>Cuba Libre Bar and Grill</Nm>
<PstlAdr>
<StrtNm>Ocean Drive</StrtNm>
<BldgNb>1234</BldgNb>
<PstCd>90099</PstCd>
<TwnNm>Los Angeles</TwnNm>
<CtrySubDvsn>CA</CtrySubDvsn>
<Ctry>US</Ctry>
</PstlAdr>
:
etc.
:
</Cdtr>
The unstructured elements in the first option may cause problems like confusing the name of the bar “Cuba” with the country. Since the word “Cuba” is used in the address section, the filters may catch and misinterpret it as the country name. However, in the ISO 20022 format, it is clearly stated that the country is “US” and “Cuba” is a part of the name of the bar.
At the end, manual intervention will not be needed, and the data/money will be transmitted smoothly.
End to end transaction monitoring
The standardization that ISO 20022 provides also increases the end-to-end consistency and transparency in the financial transactions. As the well-defined data travels through the system, it does not get lost or corrupted thanks to the structured syntax of the messaging. Eventually, increased transparency in transactions improves customer satisfaction and compliance processes.
Enriching cross-border payment with more utilized data
ISO 20022 focuses on prioritizing the quality, structure, and richness of data over the size of the message itself. Compared to the current cross-border payments standard – which is SWIFT MT – ISO 20022’s modernized and digitalized approach will help the financial industry achieve a smoother and more cost-friendly process in international transactions. By introducing a more standardized messaging system, it is aimed to eliminate the unnecessary fragmentations and achieve a more unified and simplified procedure in cross-border payments.
Conclusion
As a solution to the modern banking challenges in the digital era, the updates of the ISO 20022 offers a smoother customer experience, higher efficiency in terms of budget, time and workload, and better compliance.
The adoption of ISO 20022 is planned to start at the end of 2022. In order for ISO 20022 to be successful at its purpose, it is crucial for all the institutions playing part in the financial world to recognize it and take the necessary steps as soon as possible. Those that will take their places in the front rows in this adoption process will have the chance to upgrade the customer experience, cut the costs for the operational procedures and handle instant payments and their supporting messages faster and sooner.
As SWIFT takes a new leading role in the transition to ISO 20022, it requires a different and perfectly working structure with better digital solutions. At this point, Fineksus can offer easier and smoother transition into the new system of ISO 20022 thanks to its financial messaging tools that are fully equipped with digital solutions for SWIFT users.
Huseyin Akkaya, Software Analysis & Test Supervisor
