With the adoption of the ISO 20022 financial messaging standard, the world is moving toward a common payment messaging system. ISO 20022, which SWIFT will enable for cross-border payments commencing August 2022, will help financial institutions greatly (FIs). However, the road to acceptance for these institutions may be difficult. To properly implement the new standard, financial institutions will require a complete solution for translating older message formats to ISO 20022.
This move provides an excellent opportunity to improve payment processing. In a world of quick payments and rising payment fraud in the digital payments industry, we must use this opportunity to decrease fraud, improve compliance, and construct a stronger, more resilient payment infrastructure. A system should ideally provide continued interoperability across all ISO-compliant payment networks.
Because the standard and its acceptance are always evolving, the solution must be future-proofed to accommodate ISO 20022 modifications as they arise. An ISO-native solution will make it simple to implement additional requirements as they become available. Businesses will be able to incorporate payments into their whole order-to-pay business operations, rather than needing to employ separate business processes to invoice, receive, and reconcile payments. The integration streamlines the procedure from beginning to end.
ISO-native communications can carry more information than prior standards. FIs may achieve a greater level of protection against financial crime, AML, and penalties by exploiting this new data. Businesses may better manage cash and liquidity risk with speedier cash applications, and businesses and financial institutions can forecast cash flows.
With better access to standardized data sets, financial institutions may do data analytics more quickly and leverage payment stream data to give business insight previously unavailable in other payment channels.
Creating an ISO API-enabled Transformation layer assists financial institutions in developing a business plan that specifies the distinct experiences and products the firm provides. Additionally, by maintaining a focus on ISO APIs, FIs may connect to their ecosystems to create distinct experiences and products.
An FI can turn its old payment system communications into an ISO 20022-specific message format for the downstream system using an ISO 20022-message-based API transformation layer solution. This is almost a must for many FIs to bridge the gap until their systems have native ISO 20022 functionality.
Because legacy proprietary formats like SWIFT MT are already well-known and widely utilized in the business, getting acclimated to ISO 20022 will take some time. There is a strategic opportunity to enable legacy and ISO standards to coexist for a few years. However, it is critical to offer end-users an interface that clearly and unambiguously displays original and converted messages, as well as features that maximize the value of ISO’s extensive message fields.
ISO 20022 implementation should achieve numerous goals, including reducing IT complexity, enabling agility, enabling partners, integrating smoothly, and complying with regulatory standards. These objectives may seem familiar: they are common goals for most FI IT systems. They become much more important when ISO 20022-enabled systems are prioritized.
This is especially true for the first goal, which is to reduce IT complexity. Simply adding an ISO 20022 layer to an existing complex system as a quick fix may resolve the immediate problem, but it does not address the longer-term strategic goal of decreasing complexity. In reality, as one goes toward ISO 20022-native architectures and processing, a tactical solution may become obsolete or even a hindrance to attaining that goal.
Concerning ISO 20022, the future of financial communications is still being written. Long-term strategy planning, on the other hand, cannot be postponed. Adapting institutions will be better equipped for future changes.
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