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April 27, 2023
ISO 20022 is a global standard for sending electronic payment instructions between local, regional, and international financial institutions. It was first introduced in 2004 and has gone through multiple iterations of development across different financial domains.
As the global economy became interconnected, the data used to send information across systems and countries became increasingly diverse. There was no single language (so to speak) in which payment instructions could be exchanged between local and foreign financial institutions. The probability of misinterpretation of the instructions was high, creating friction and increased costs for all members.
Global standards are important to help ensure communication between everyone. For example, without standards in the field of telecommunication, one would not be able to talk to people whose handsets are different from ours or who are on different networks. Standards in IT help in operating different gadgets on different platforms and protects consumers by uniform repair and production.
ISO 20022 lays out the protocols for a common platform for sending messages using:
This standard covers a wide range of financial services including:
The benefits of ISO 20022 have been publicized to be many. Some of them are listed below:
With such a wide range of benefits and the number of financial services that are covered by this standard, one would have expected it to have been widely adopted across the world. Many countries have already adopted ISO 20022 in their domestic payment systems, including India, China, and Japan. SWIFT (a messaging network used by many financial institutions worldwide) has also begun the migration of its system for cross-border payments and reporting messages, in March 2023. There will be a period of overlap until November 2025, between the current SWIFT messaging system and the ISO 20022 messaging system, so that banks and other financial institutions can continue to transfer payments while their systems are being migrated.
However, many banks and financial institutions have decided not to move forward with or have had to delay the implementation of ISO 20022. Some of the reasons are outlined below:
Considering that a data goldmine will be awaiting all the financial institutions that move to the ISO 20022 standard, businesses need to start evaluating ways in which they could move to the new standard if they have not already done so. While many banks worldwide have already adopted the new standard, the same is not true of the customers and financial institutions associated with them. Most are not looking beyond the perceived immediate costs associated with revamping their current systems. However, there is a high probability that these institutions will end up incurring costs in other ways, including falsely declined transactions that impact customer experience and potential data breaches that impact security.
Support is available in the form of expert-led webinars and guidelines for successful implementation of system changes, to migrate to ISO 20022. An increasing number of existing standards are also being mapped to ISO 20022, which will make its adoption easier by allowing ISO 20022 to act as a bridging standard. It is imperative that a business case is made, in terms of adopting the new standard and migrating to a better data platform.
ISO 20022 offers richer data at its core. However, all banks and financial institutions need to make changes to the data that they receive, store, and provide, so that it contains more information on the parties involved and to ensure that the data is not truncated. Unless these changes are completed, organizations will be unable to reap the full benefits of the rich, granular data.
About the Author
Poonam Khona
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