For decades, financial institutions and corporations have sought an easy and standard method of exchanging electronic financial messages. MT standards, X.25 and all the EDI formats were supposed to solve deficits in the data and finance reporting space. In 2004, when the first publication of ISO 20022 was released, payments practitioners and industry professionals all had the same thought: What a great idea!
At the time, it made absolute sense to introduce data-rich payments to improve automation, enhance reporting and analytics, improve interoperability and decrease risk through accurate reconciliation and regulatory compliance activities.
By 2018, many wondered why the industry hadn’t widely adopted ISO 20022. Although some countries adopted ISO 20022 for payments systems by 2019, most did not realize the potential of the rich data within streams. That same year, when SWIFT (link resides outside ibm.com) mandated an ISO 20022 rollout for 2021, with richer data than its old MT standard, the industry started investing more heavily in the adoption of ISO 20022. Despite this mandate, the roll-out plan was pushed out to 2022, and again more recently, to the first quarter of 2023.
These delays (and what seems like a reluctance to make ISO 20022 happen in some jurisdictions) led me to wonder, “What’s hindering the global adoption of ISO 20022 and the rich data structures it supports?” The answer may lie in the balance of benefits and costs of adoption.
Numerous publications on the topic have boasted the benefits (link resides outside ibm.com) of adopting ISO 20022. As a community, payments professionals and practitioners were promised numerous benefits (link resides outside ibm.com) from a processing and payments operations perspective, related to the rich and structured data of ISO 20022 (link resides outside ibm.com):
Theoretically, these ISO 20022 benefits are great. But to understand the big picture, we must address the challenges.
The industry has faced multiple challenges with the adoption of ISO 20022. Timelines are aggressive (though the pressure is largely due to inactivity from an ISO 20022 adoption perspective), and many institutions find themselves with a lack of resources to be able to make the roll-out deadlines. Additionally, ISO 20022 regularly updates its message standard and publishes new versions of message types regularly. How do financial institutions and FinTechs keep up with this fast-paced change? It would benefit adopters to implement a system that can adapt to change easily. FinTechs could develop software that’s made for change to stay ahead of the evolving standard.
Many well-established financial institutions and market infrastructures rely on legacy systems running on an aging infrastructure, which is a challenge the industry needs to overcome. Moreover, these legacy systems speak a language that is not easily compatible with ISO 20022, and the message formats are typically far more stringent than even ISO 20022’s predecessor ISO 15022 (with formats for CHIPS, BACS, CPA005 and ACH, to name a few). These systems were originally developed to process low-value payments at very low cost. Meanwhile adopting ISO 20022 can be very costly for the participants of the payments ecosystem—so how can we argue that the value in adopting ISO 20022 for these systems outweighs the cost?
With little to no limitation in data and a highly structured format, there is more to ISO 20022 than payments advantages. To have a truly impactful conversation, we must consider the business value that ISO 20022 adoption can provide.
Perhaps ISO 20022 shouldn’t be perceived as today’s biggest value driver, but rather as the catalyst for innovation that will accelerate value-driven growth tomorrow. In a way, ISO 20022 adoption is paving the way for the next generations of payments professionals to create opportunities for the development of the industry. It allows more players in the FinTech space to collaborate with financial institutions to innovate the payments landscapes and to co-create in a climate of competition.
70 countries have already successfully modernized payments infrastructure and implemented faster payments schemes powered by ISO 20022. Forward-thinking institutions in these countries can start developing value-added services and features like automated receivables tracking and reconciliation, real-time cash balances and forecasting, real-time multibank dashboards and more.
Ask yourself, “Do I want to wait until I lose a client to someone who can offer services on a real-time basis?” I believe that cross-border payments globalization will remain one of the trends that drives payments modernization. Standardization, consistency and rich data are key elements of this globalization initiative. Similarly to the telecommunications industry implementing the 5G network despite no obvious immediate business value or widespread end-user use cases, achieving complete interoperability in payments may take longer than we initially anticipated. However, as a part of the payments community, I challenge us to invest in a vision that goes beyond an imminent ROI and see the potential of data-rich, structured payments to create an inclusive, collaborative future for the payments industry. Let’s give ourselves the opportunity to accelerate payments innovation and make ISO 20022 table stakes.
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