ISO 20022, a standard for exchanging electronic messages, is gaining more attention with the planned launch of the Federal Reserve’s FedNowService later this summer. At its core, the ISO 20022 standard provides a single scheme for financial messaging, securities, trade services, cards and foreign exchange, as well as facilitating the movement of instant payments via the RTP Network or FedNow.
This single scheme or standard is crucial for the future of payments and financial innovation.
Think about it this way: a standard like ISO 20022 is what makes it possible for different systems and networks to communicate and work together. Just like telecommunication standards that allow a consumer on one cellular network text and call another consumer on a different network, ISO20022 makes it possible for financial institutions to send and receive payments, along with the associated transaction data, regardless of the system or network used.
As a result, banks and credit unions need technology that allows their institution to take advantage of all the benefits ISO 20022 has to offer. But first, there are still some misconceptions about ISO 20022 to address.
A recent survey by Celent reports that only 63% of banks globally would be fully prepared for the launch of ISO 20022 and inNorth America, not a single bank surveyed believes the industry will be 100% ready. Planning for the transition is challenging for a number of reasons, which means clearing up the confusion around the new messaging standard and what it will take to migrate is key. Today’s blog post will start by dispelling the top five myths about ISO 20022.
This is not true, as the scope of ISO 20022 extends far beyond payments. ISO 20022 applies to multiple types of financial messaging and aims to standardize electronic data interchange between institutions. Faster payments messaging is just one of the five financial service domains covered by the standard. ISO 20022 can also be leveraged for securities, trade services, cards and foreign exchange.
ISO 20022 is used in over 70 different countries, but the idea that ISO 20022 is the same around the world is not technically true. ISO20022 is the messaging standard, but it can be tweaked or customized to work within a specific payment channel. Therefore, the ISO 20022 messaging that is used in one country may differ from what is in use in another – much like how Spanish spoken in Mexico varies slightly from Spanish spoken in Spain. While it’s still the same language, there are some nuanced differences.
ISO 20022 only suggests the format in which information is exchanged. Market infrastructures in different countries are the final determining factor.
ISO 20022 is a European initiative and only designed for cross-border payments. SEPA (Single European Payments Area) was one of the first payment schemes to adopt ISO 20022, but the use of the messaging format has not been limited to just Europe. The IS0 20022 messaging format can be used in domestic and in certain cross-border transactions. ISO 20022 is intended to be a single messaging standard for all financial communications, regardless of whether the transaction is domestic or international.
While Swift has been closely involved with the development of ISO 20022, the official body responsible for the standard is theInternational Organization for Standardization (ISO). Swift acts as the registration authority. This means they are the party responsible for maintaining and publishing a central repository of ISO 20022 content, which is geared toward helping financial services organizations prepare for the transition.
This is a tricky one, as ISO 20022 messages are usually exchanged in XML. However, ISO 20022 is not dependent on a specific message syntax. ISO 20022 was intentionally designed to be flexible, both for current syntaxes and those that have not been developed yet.
ISO 20022 provides an open global standard for financial messages, which means comprehensive, structured data can be used for all types of business transactions. The ability to exchange such important data in a consistent way supports numerous benefits, both for a financial institution’s internal operations and for the customer experience.
By debunking some of the top myths and providing greater clarity on the standard, more financial institutions can approach the transition to ISO 20022 with confidence and reap all the benefits it has to offer.