Originally published in 2004, interest in ISO 20022 has gained momentum in recent years. SWIFT has chosen to adopt it as a payments standard while phasing out legacy MT messaging, a decision that will ensure the majority of banks are able to send and receive ISO 20022 messages by SWIFT’s 2025 deadline. The Covid-19 pandemic, and sharp growth and innovation in electronic payments, has also accelerated the adoption of a standard whose time has finally come.
While ‘send and receive’ is an important goal, it only scratches the surface when it comes to the intersection of payments and other banking systems. Why does this matter? Well, if you only ‘speak’ ISO 20022 at the payments end, you still need to translate data from all of the hundreds of other downstream systems in your bank: home loan origination, treasury, CRM, the list goes on. It’s a bit like upgrading one part of the bank to a music streaming service and then expecting it to be compatible with the rest of the business that still listens on CDs and cassettes.
It’s not a problem, ISO 20022 is a way of life
Historically, banks tend to look at standards such as ISO 20022 as a problem that needs solving. Given all the other pressures and demands on their resources, it’s not surprising that many are just going for a short-term fix. But all legacy downstream systems will eventually need to be changed in some shape or form. That’s a daunting prospect and reminiscent of GDPR which forced the industry to fundamentally rethink the way it structured its data.
Rather than a one-off project, there is an opportunity to make ISO a catalyst for addressing broader data issues in the organisation.
Take the need to speed up overall payment mechanisms. Customers today may put up with a week long wait for international payments to clear, but that isn’t sustainable in the long-term especially when you consider the expectations of digital-savvy consumers that have grown accustomed to ‘Amazon Prime’ next-day customer service as well as a myriad of other options promising faster settlement, and are largely intolerant of digital laggards in any sector. Banks that can provide a near ‘real-time’ service will become hyper competitive with this audience. But if you are still delayed while your data translates, or you find information that has been truncated, it’s going to hard to be that bank.
Interoperable payment systems
The ISO 20022 standard also has an important bearing on central bank digital currencies and interoperable payment systems. SWIFT isn’t the only payment system in the world! In the UK, for instance, you have CHAPS, the high value clearing network that is going to migrate across to ISO 20022, and there are other local domestic payment schemes around the world that have adopted the standard.
This opens the door to interoperability without the SWIFT network. As banking becomes more globalised with access to more dynamic payment systems, as well as local clearing, banks are far better placed if the entire business can adapt to the ISO 20022 standard.
Delve deeper and there are other opportunities for insights and innovation. Right now, banks typically rely on highly paid data specialists to mine insights and value from data that is held in different formats and requires cleansing and aggregation before it can be analysed.
Imagine what you could do if your teams in operations, compliance and sales had clean, structured data at their fingertips. Putting payments data into the hands of the people close to specific banking functions gives them the opportunity to extract more value from the balance sheet and improve liquidity movement using spreadsheets and other familiar tools.
Spotting fraud in real time
As well as speeding up payments and getting more value, there’s a significant opportunity to spot fraud and minimise noise with richer, more structured data. This is because it’s much easier to spot patterns that indicate financial crime when you don’t have to look across multiple systems and data formats all at once.
It is true that banks have shied away from faster payments and rely to some extent on complexity to deter fraud. But that’s counterproductive in the fast-moving world that we inhabit today. Instead of over legislating payment flows and the speed at which they transmit, banks are better off attacking the problem at the source, which means getting their data in order.
Focusing on the future
All these opportunities to deliver better customer service, reduce fraud and increase profits naturally require investment. But the potential returns are substantial. Instead of treating ISO 20022 as a one-off fix, it becomes a launch pad for data transformation and innovation across the bank and its partner ecosystem. This will require additional investment and resources, but the returns are potentially enormous.
This also impacts the choice of project partner. Their first job will be to ensure basic ISO 20022 compatibility. They should then be capable of extracting insights that help identify downstream systems that need further attention. Next, it’s all about building a transformation roadmap that has the potential to bring significant efficiencies and ROI across the business. ISO 20022 isn’t a magic bullet for absolutely everything that banks struggle with right now, but it is an opportunity for major competitive advantage and growth if you get it right.
