ISO 20022: Paving the Way for Real-Time Payments and Data-Rich Messaging

At ATEM Group, we are laser-focused on ushering emerging technologies into the marketplace. Today, we’re diving into ISO 20022 and synergies within the world of Distributed Ledger Technologies and digital assets, which are quietly working behind the scenes to make ISO 20022 driven payments a reality.

But first, what exactly is ISO 20022?

In simple terms, it is a global standard for financial messaging that aims to standardize electronic data interchange between financial institutions. ISO 20022 is an open standard that anyone can use, anyone can contribute to and is free for anyone to implement on any network. ISO 20022 is a methodology for defining financial data content — it’s a standard for messaging standards as well as for APIs.

It’s not just about messages or APIs — ISO 20022 also provides a common language for machines and people to exchange information about financial business, set out in a formal dictionary. Its principal focus is on the content of the dictionary, rather than the technicalities of how data is exchanged.

You can use the dictionary to help translate between messages that use different syntaxes as well as APIs, and to solve other kinds of problems where a shared understanding of the business is important, such as internal system integration. Although ISO 20022 messages are mostly exchanged in XML, ISO 20022 doesn’t depend on a specific message syntax.

If a different syntax is required to satisfy a business or technical requirement, or if a new syntax emerges, ISO 20022 can accommodate it. The current migration to ISO 20022 by financial institutions that is occurring now, is for all institutions who send or receive payments related MTmessages over SWIFT. ISO 20022 schemas also reduce the risk of sending or receiving incorrect data. An ISO is an internationally recognized way of doing something.

So the whole ISO 20022 thing is about faster messaging.. ok, what about payments? What is the point in having super fast messages if payments still take 3 or 4 days? Payments have to be sped up too, in theory.

Faster, safer, modern and in a language/method that all understand? Yes, precisely.

The better and faster the SWIFT payments work, the more need there is for instant settlement.

Enter web3 rails.

ISO 20022 has no “native digital assets” however, there are firms that have facilitated ISO 20022 compliant infrastructures that have chosen to use digital assets for optional payment/settlement leveraging those compliant infrastructures. Some great examples of this are XinFin using $XDC, Ripple using $XRP, Stellar using $XLM, and Hedera using $HBAR, to name a few. 

We’re confident that the idea of tokenized value transfer came before rich text data messaging..

To us, it has always seemed that a way of organizing and storing data regarding messaging services for business/financial/retail sectors can encompass all forms of interchange.

So, what about the relation of ISO 20022 and settlement? To recap, ISO 20022 is a message format and business language. It’s important to understand that ISO 20022 messages are vital to instant payments and in the overall modernization of payment processes.

Specifically, they provide a structured and data-rich common language that is readily exchanged among corporates and banking systems. This means much more detailed information with fewer errors, less manual intervention and fewer delays for the end customer.

What does it look like? In an ISO 20022 message, payment beneficiary information is entered in the creditor field, which includes the name and address as well as additional structured elements including street name, building name, post code, and town name.

Is ISO 20022 related to clearing & settlement and what procedure is followed (prefunding, correspondent banking, via crypto, etc.)?

Not exactly, it only enables better communication between the systems responsible for settlement/clearing and specifies how settlement will be done.

As the convergence of wire transfers and real-time payments to ISO 20022 continues, there will be transformative changes. Here are some of the ways in which this evolution is enhancing the industry:

1) Faster and More Efficient Payments: ISO 20022 adoption accelerates wire transfers and real-time payments, reducing processing times and costs.

2) Improved Customer Experience: The convergence to ISO 20022 offers faster, more convenient, and secure payment options, leading to increased customer satisfaction and loyalty.

3) Increased Automation: The structured data exchange facilitated by ISO 20022 allows for greater automation, minimizing manual interventions and reducing errors in payment processing.

Beyond streamlining payment processes, ISO 20022 opens doors to enhanced payment analytics and new revenue opportunities. With richer transaction data at their disposal, financial institutions can:

1) Drive Improved Analytics: Accessing more detailed information about each transaction enables financial institutions to develop deeper insights, enhancing risk management, fraud detection, and compliance.

2) Innovate Products and Services: Utilize transaction data to create new, targeted products and personalized services, meeting the evolving needs of customers.

3) Enhance Risk Management: With better identification and management of risks, financial institutions can reduce losses and improve overall financial performance.

4) Simplify Compliance: ISO 20022 provides a comprehensive data set for reporting purposes, helping institutions comply with regulatory requirements more effectively and reducing compliance costs.

5) Foster Partnerships: Collaborate with other organizations to create innovative, data-driven products and services, opening up new revenue streams for both parties.

Overall, the convergence to ISO 20022 is leading to a more dynamic and efficient ecosystem. The plumbing is getting a much-needed upgrade. 

At ATEM Group, we firmly believe that this new standard presents a strategic opportunity. Those who act proactively to modernize their systems and support ISO 20022 will be best positioned to unlock the full potential of this standard and be ready to shape the future of payments and ancillary applications. 

Contact us today to learn more about our professional services and how we can assist you in your journey.