How Will ISO 20022 Affect Banks and Businesses?

The need for real-time, low-cost digital payments is increasing across the globe. The use of paper checks and cash was already decreasing at a rate of 7.2% annually before COVID. Over the last five years, this decline has increased further, and we have seen growing digitization in the payments industry affect several industries simultaneously. Financial institutions, government, and fintech organizations in the payments space are working closer than ever before to increase the speed of online transactions without compromising security. The need for increased security naturally demands more efficiency and better communication between the various stakeholders. This is where ISO 20022 comes into the picture.

In our previous blog, we discussed the importance of ISO 20022 and the technical aspects of its adoption. To summarize that blog, ISO 20022 is a governance structure that acts as a data dictionary (repository) to provide rules on developing messages and documentation for interinstitutional contact. In simpler terms, ISO 20022 is a global standard language for financial institutions to send electronic messages to each other. 

This blog covers the potential impact of ISO 20022 on banks, corporates, and the overall global payments industry:


What are the Benefits of ISO 20022 for Banks?

The ISO 20022 standard is the revised and optimized version of the SWIFT standard, which is currently used as the preferred mode of communication between financial institutions and fintech providers, especially for global payments. Most large banks and financial institutions have already completed their ISO 20022 migration to leverage the benefits of streamlined communication. November 2022 is the ideal go-live period for the adoption of ISO 20022 according to the SWIFT timeline. Here are the core benefits of adopting this newer messaging standard:

  • Data-rich financial services
  • Increased transparency
  • Enhanced compliance and integration
  • Better payment data security

Adopting the ISO 20022 standard is not a mandatory procedure. Still, most financial service providers and payment companies are actively adopting it to fit in and leverage these benefits. Studies by SWIFT show that 80% of global, high-value payments by banks will be processed through ISO 20022 messaging standards by 2025. Moreover, Stephen Lindsay, SWIFT Head of Standards, said, “Major currencies will be operating with ISO before 2025 to reap the benefits.”


What are the Challenges of ISO 20022 for Banks?

The statistics above show that adopting ISO 20022 is not only beneficial but a necessity for organizations that want to stay relevant and connected. That said, the adoption process itself is not exactly “simple.” In fact, most banks and financial institutions will likely face some of the following problems in the adoption process:

  • High adoption costs
  • Variable deadlines and partnerships
  • Validation and training for effective communication

After years of using SWIFT, we expect a steep learning curve for the stakeholders before they become experts at using the new financial messaging system effectively. They will need to calculate a room for error and need extra training to ensure the payment messages they send correctly convey the necessary information.  


How Can Banks Get Started with ISO 20022?

Banks should ideally partner with a reliable training and implementation agency that can help them adopt the new messaging system. Such agencies will take care of the following:

  • Designing messaging templates
  • Training internal stakeholders on the new system
  • Creating an organization-wide security and compliance document
  • Identifying the places where the bank would need customization and standardization 

It is critical for the bank to keep a margin of error and recheck all their messaging templates and training for a few months after completing the adoption. Adequate checks and balances will minimize mistakes and help the financial institution offer the best customer experience.


What are the Benefits of ISO 20022 for Corporations?

Apart from banks and other financial institutions, large corporations, especially the ones with multinational operations, will benefit from ISO 20022 standardization. Some benefits of the new messaging include:

  • Reduction in fraud
  • Better exception handling
  • Enhanced straight-through processing
  • Faster payment reporting and increased transparency
  • Additional prescriptive and predictive analysis with better data
  • More detailed data and reduced misinterpretation with standardization
  • Easier adoption of end-to-end automation and new payment technologies


What are the Challenges of ISO 20022 for Corporations?

Apart from the challenges that the financial institutions face, corporations may encounter the following additional challenges while adopting ISO 20022:

  • Low character limits for messaging
  • Need for extensive training of internal stakeholders
  • Compatibility issues for structured addresses in certain jurisdictions


How Does ISO 20022 Impact the Payments Industry?

The best payment processors already have technologies that help merchants and partners process payments via card networks and ACH on a single platform. They leverage the best digital payment technologies to increase efficiency and reduce costs across the board. With the effective communication lines offered by ISO 20022 and the latest open banking systems, payment processors and analytics firms can work with financial institutions better. They can leverage the benefits of:

  • Increased automation via innovative payment solutions like recurring payments, IVR payments, ACH and credit card payments, hosted payment portals, and more Download a Full Catalog of Innovative Payment Solutions
  • Effective marketing to identify customer needs
  • Low-cost cross-border payments
  • Enhanced customer experience for international money transfers
  • Better support for small business owners

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