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Why is ISO 20022 so important?


Saqib Sheikh, SWIFT’s Global Head of ISO 20022 Programme, outlines why the migration to ISO 20022 is so important to the industry.

ISO 20022 provides an unprecedented opportunity for the global financial community to transform international payments. The rich, structured and granular end-to-end data enabled by the ISO 20022 data model will drive the next stage of correspondent banking transformation with improved speed, efficiency, and compliance.

With world’s major payments market infrastructures either live, or in the process of adopting ISO 20022, now is the time to adopt. Why is it so important?

The compliance case

Good data is crucial to compliance as regulators continue to raise the bar on banks in the fight against financial crime. Doing so requires granular and smart financial crime controls that are capable of efficiently identifying anomalous transactions.

Unfortunately, payments today are sometimes hampered by poor data. Misspelled, incomplete and altogether missing payments data – as the consequence of poor data practices – makes investment in compliance capabilities ineffective. Not having critical data may result in underestimating or overestimating risk, driving the wrong responses.

Capturing complete, structured, clearly-labelled and granular payments data from initiation, through settlement and confirmation is the promise of ISO 20022. The standard provides a common vocabulary to payments across corporate-to-bank, interbank and domestic payment system messages. This standard and the associated usage guidelines – that define how the standard is to be used in each context – is working towards reducing false positives, expensive investigations and interventions, and, ultimately, quality compliance.

The technology case

Machine learning and AI require large datasets that are logically grouped, labelled and digestible, to derive insights and generate recommendations. The next generation of client services will require this underlying data model to enable the banking platform of the future.

The financial ecosystem is increasingly vibrant and volatile. A variety of niche and agile fintech, and highly capable ‘big tech’ players, are participants and disruptors. Regulators, for their part, are actively facilitating this ecosystem, increasing pressure on banks to innovate. Banks will need to evolve and find partnerships with these new actors to better service their clients. Again, a common standard for data and provision of services is needed to facilitate collaboration and co-creation. ISO 20022 is that standard.

ISO 20022 will empower banks to meet these competing requirements. It will allow them to revamp their legacy systems towards a future-proof data model and standard. This will also enable them to offer a better quality of service to their clients and to do that with agility and at speed.

As banks look to evolve their architecture and technology, ISO 20022 should not be seen as an incremental and tactical project, but rather a strategic enabler for the future banking platform.

The customer case

Banks and SWIFT together form the most ubiquitous, accessible, resilient and secure value transfer platform in the world. This platform is also increasingly fast, traceable and, with ISO 20022, rich. By enabling ISO 20022, banks unlock opportunities to offer better payment experiences for their clients.

As cross-border payments and reporting moves to ISO 20022, this creates an opportunity to carry rich remittance and invoice information, end-to-end, from ultimate creditors to ultimate debtors. This solves a key challenge that corporate treasurers face today in supporting global supply chains.

With ISO 20022, a shared platform for correspondent banking will unlock new business opportunities for forward-looking banks who choose to enable full and rich ISO 20022 data early in their payments journey.

The corporate case

Given that payments data today is limited in size and unable to carry details of the business intent of the payment, corporate treasurers manage account receivables and payables with a system of complex reconciliation processes. Payments and their acknowledgements – supporting rich remittance and invoice information – will simplify these processes, allowing treasurers to more efficiently manage their supply chain and reduce waste.

Because corporate treasurers are always looking to bring efficiency to treasury operations, ISO 20022 makes perfect sense for them. Use of mandatory and structured data will enable significant automation of these reconciliation processes and greatly improve visibility of cash positions for beneficiaries.

End game for ISO 20022

SWIFT has been working closely with the community for a number of years to define common market practices and facilitate adoption of ISO 20022 in a consistent and quality manner. Over the next few years, we have the opportunity to realise a rich end-to-end payments language, heralding a new generation of seamless, instant and accessible payments. The time for adoption is now, and we are preparing with our community to make that vision a reality.

 Saqib Sheikh, Global Head of ISO 20022 Programme, SWIFT

Author: Kate Nelson