In part one of our blog series, we discussed how the need for fast, accurate and efficient cross-border payments is driving initiatives like ISO 20022. Here, in part two, we delve deeper into what the new payment standard means for financial institutions.
What is ISO 20022?
ISO 20022 is an open and freely available common standard language for payments messaging. This common standard, which aims to be the next model for payment messaging across the globe, provides higher quality data and speeds up the payment process, requiring fewer manual interventions.
It was developed to replace a proliferation of disparate message formats that arose over the years in line with the growth of the internet, other technological advancements, and specific jurisdictional requirements.
ISO 20022 offers a flexible infrastructure that facilitates information exchange and helps to harmonise the payments language between old and new technologies.
By getting the financial community on the same page and speaking the same language, this new standard helps to eliminate the barriers that slow down global payments, add cost, and complicate compliance.
What are the Benefits of ISO 20022?
The urgency to implement a new global standard has increased over the past few years due to the emergence of new payment methods from challenger banks, payment service providers (PSPs) and other disruptors, with the ultimate goal of achieving a fast and seamless customer experience.
The adoption of ISO 20022 will not only benefit payment teams by increasing the speed of payments, but will also help to reduce costs for compliance teams. The richer, more detailed information in messages will improve sanctions screening and help organisations detect and prevent financial crime.
Although we are still in the early stages of the transition and migration to this new global standard, the comprehensive list of benefits for financial institutions is significant. ISO 20022 will facilitate:
- Transparency and compliance – ISO 20022 messages improve transparency for better anti-money laundering and sanctions screening compliance because they carry more detailed information than SWIFT MT or other messaging formats.
- Fast, frictionless payments – More information embedded in the message reduces misunderstandings and obviates the need for back and forth email communications, leading to faster, frictionless transactions.
- Accuracy and efficiency – Information from different payment methods can be grouped and reused, so less manual input is needed along the payments chain. This results in fewer errors and inconsistencies, which enables the payment to reach its intended destination the first time.
- Seamless processing – The inherent flexibility in ISO 20022 eliminates mapping of different payment standards and boosts interoperability across payment types and payment infrastructures for greater global straight-through-processing.
- Lower costs – Eliminating global barriers and improving accuracy and efficiency reduces the overall cost of each payment transaction.
- Enhanced client service – The combined benefits of speed, accuracy and efficiency of ISO 20022 messages result in a better overall customer experience.
- More business opportunities – Interoperability makes it easier for smaller players to transact business globally and for larger institutions to continue to grow and explore new payment rails to remain competitive.
The benefits of transitioning to ISO 20022 are clear. But how will the industry get there?
Part three in our four-part series outlines the key milestones and deadlines for implementing ISO 20022, as well as some best practices for a smooth migration.
Can’t wait until next week? Download our ISO 20022 whitepaper now!
The latest whitepaper from Accuity, A Guide to ISO 20022 and its Impact on Financial Crime Screening, explores the changing market dynamics that have given rise to the need for a common payment messaging standard. It takes a closer look at the benefits of ISO 20022, outlines best practices for migration and provides insight to help organisations better understand the impact on financial crime screening.