ISO 20022: Beyond compliance

by Tuhinabhra Mahapatra, Head of Next Generation Payments at Synechron

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The payments world is sprinting to comply with the ISO 20022 messaging standards. Beyond the compliance lies the transformational value that could be derived by utilising the rich message format.

The payments world has gone through major transformations in the past decade, especially driven by the advent of digital technologies.

However, there are several obstacles to overcome, such as the high cost of cross-border payments, lack of interoperability among payment networks, legacy applications, and technology components. Some industry developments could solve these issues and radically change how we handle payments.

We are in the midst of one such transformation – ISO 20022 messaging standards. This is finally taking shape due to the guidelines defined by the major networks for a universal standard and their commitments to implement timelines.

Beyond compliance

‘Compliance’ and ‘standards’ are two terms that don’t usually elicit excitement, but ISO 20022 is different.

This messaging standard provides a glimpse of possible future enhancements through the richness of the ISO 20022 payment messages and as the common language for the entire payments industry.

Most banking and payments firms are looking at the implementation of ISO 20022 only through the lens of compliance. Their sole focus is to get their systems ready by the timelines set by the payments networks they are connected to.

Some organisations will follow the ‘big bang’ approach where all changes are made at once. However, some will take an interim step ‘like-for-like’ approach. Either way, the larger questions remain:

  • What happens after the ISO 20022 implementation?
  • What are the immediate benefits that the payments industry would see?
  • How will financial institutions unlock the true potential of ISO 20022 to their advantage?

ISO 20022 is not a new concept to the industry. In fact, a significant number of new-age, real-time payments networks have been implemented following this open standard.

As a result, we have seen transformative changes in some pockets of the industry that decided to adopt this standard. A case in point is the applications of digital payments made possible through the ‘rich’ ISO 20022 messages.

Although payments is still a fragmented world, ISO 20022 holds the promise of integrating all corners once SWIFT and other major schemes adopt the fully-fledged ISO 20022 standards.

So, what lies beyond the compliance aspect of ISO 20022? What are the transformative values that could be derived by utilising the rich message format?

Leveraging the full potential and power of ISO 20022

Until 2025, the participants of SWIFT would be in a coexistence phase where both the old and new formats can be accepted through the network.

However, it’s largely expected that the major banks and financial institutions will be early adopters, leveraging the possibilities offered by ISO 20022 and building solutions that could help them differentiate themselves from competitors. These institutions could save a significant amount of effort because of the common regulatory standards.

An efficient reconciliation process and faster settlement would be some of the key benefits these payments companies could derive through the richer data structure. This structure would make payments significantly more frictionless and have a deep impact on cross-border payments and trade finance.

Additionally, the structured remittance data and end-to-end traceability in straight-through processing would greatly help in the reconciliation process. Hence, financial institutions could save a significant amount of operational effort in reconciliation by leveraging the power of ISO 20022.

The ISO 20022 message standard could play a key role in promoting innovation by deriving enhanced value for the participants in the networks and the end users of the payment services.

Digital payments overlay services hold huge potential for delivering such values, namely Request to Pay, mandate payments, transaction monitoring, fraud prevention, etc. For example, invoice processing is often a complicated process given the different standards followed by the parties involved. The overlay services built using the ISO 20022 messaging standards make it possible to integrate and automate the entire payments reconciliation process.

We believe these solutions would enable organisations to significantly improve the efficiency of their accounts payable and accounts receivable systems.

Request to Pay (also known as Request for Payment, or R2P) is one of the overlay services built on top of new real-time payments, and it’s gaining prominence in most of the markets where it has been introduced. This feature provides greater flexibility, assurance and efficiency of payments to the buyer-supplier, and billers in both B2C and B2B, including in e-commerce contexts.

In the near future, we will witness many similar applications around the payments world, not only restricted to one-time payments but also in recurring bill payments (e.g., the Mandated Payments Service in Australia), payments in parts, or flexibility through an extension of due dates. In fact, R2P has been highlighted as one of the key features of the upcoming real-time payments services, such as NPA (Pay.UK) and FedNow.

Breaking silos and building innovations

Open banking intended to break the silos and revolutionise the banking world by enabling fintech companies (with consent from customers) to build new solutions.

A key use case is deriving customer insights, especially their spending patterns to explore opportunities for recommendations, cross-selling, etc. ISO 20022 payments are uniformly structured and machine readable which could be leveraged to build such solutions using data analytic techniques.

ISO 20022 messages could also have data elements, such as purpose code, which help to ascertain the nature of payments and the spending behaviour of customers.

The standardisation of messages and transparency of the processes enable banks and regulatory entities to develop tools for monitoring transaction fraud through payment networks. In real-time clearing and settlement systems, it’s important to identify and prevent fraud through an immediate remediation process.

Most of the non-ISO 20022 messages have issues truncating important details including names and addresses. This increases the chances of fraud and errors while sending payments to beneficiaries. ISO 20022 standardisation addresses the limitation of data lengths. Moreover, the overlay services developed on top of ISO 20022 networks (for example, Confirmation of Payee) ensure that the payments are delivered to the intended recipients.

One of the biggest benefits offered by ISO 20022 standardisation is the interoperability of payment networks. It makes the clearing and settlement process more seamless and cost effective through the interlinked systems. It also helps to manage failure situations, thus avoiding the risks of data loss due to compatibility issues.

One of the promising use cases in discussion (and in action in a few geographies) is connecting the domestic networks or CBDCs to enable cross-border payments. ISO 20022 could play a vital role as the harmonising factor or the common language among such payment networks.

What lies ahead?

ISO 20022 will become the key enabler for innovation across the payments industry. It offers a good opportunity to overcome legacy issues.

ISO 20022 migration appears as a compliance burden right now for banks, but it will significantly transform the industry for the better. The greatest advantage would be seen by institutions quickly adopting the standards that come up with new solutions to improve their internal processes and the way they do business with external entities.

There is also  a huge space for payments fintech companies to create overlay services that enrich the ISO 20022-driven payments ecosystem, and help banks in their migration journey by enhancing the feature sets of their payments hub or payment-as-a-service solutions to accept new message types.

Which domains could be impacted next? Could Securities be the new frontier for ISO 20022?

Although SWIFT supports ISO 20022 for Securities messages, it leaves the choice of implementation to network participants rather than mandating usage.

However, with the implementation of T2/T2S Consolidation, a case for Securities is likely to gain impetus. A common, universal standard could help improve the efficiency of the intertwined business processes in the Securities domain. While we have been witnessing several programmes in migrating from ISO 15022 or MT formats to ISO 20022, the same is not observed in the retail cards space where the card networks, such as Visa and Mastercard, mainly follow the ISO 8583 standards.


ISO 20022 migration isn’t expected to be all smooth sailing. We’ve noticed ISO 20022 variations in different parts of the world, especially in the real-time payment networks.

Also, there could be confusion related to the approach to follow (e.g., big bang fully-fledged or like-for-like implementation), as well as the timelines, which could be extended a few times (e.g., CBPR+ and T2 would go live in March 2023 instead of November 2022), and where all parties involved are not ready at the same time. But significant delays are not expected once the major payment schemes migrate to ISO 20022.

Over the past few years, we’ve talked to major central banks, payment solution providers, and leading global banks about their perceptions of how ISO 20022 standards are changing the payments world. We’ve noted that mindsets are decidedly shifting from strictly addressing compliance timelines to the development of innovative solutions in solving legacy problems.

There’s much more common ground now among the payments community in understanding the value this common standard could bring to the ecosystem. The industry is on the cusp of another major transformation.

About the Author

Tuhinabhra (Tuhin) Mahapatra is the Head of Next Generation Payments at Synechron, based in Bangalore, India. He leads strategic initiatives in digital banking, open banking, real-time payments, and new-age technology areas as a key leader in the Synechron Payments practice. He has extensive experience in solution sales, business development and client services for banking and payments IT services.

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