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ISO 20022 has been written about and reported on extensively across the industry. We are facing the largest migration to a single message standard ever. Not only is CBPR+ moving us to a consistent richer data standard for cross border payments, but domestic payment schemes are also migrating to ISO 20022 as the de facto standard. Any new payment schemes implemented anywhere in the world will also choose ISO 20022 as the message standard of choice, gradually aligning all payment services internationally to one standard.
Migration of payment message formats is always a complex task, given how ingrained the format is in bank infrastructures. Different banks adopt different approaches to migration, some choosing a tactical view to enable compliance without the short-term pain of changing countless systems internally, whereas others will take a longer-term view and address changes required across the whole payments infrastructure.
ISO 20022 brings a range of benefits. The quicker the adoption of the standard across all internal services the quicker these benefits can be realised. Here are 6 key benefits that can be achieved through a consistent coherent implementation across a bank’s payment infrastructure:
- Improve processing time and accuracy – ISO 20022 has a number of structured fields such as “Address” which hold information in a specific way according to certain rules. This enables a bank system to improve and accelerate validation by looking for that information specifically in that field. ISO 20022 also holds more information on intermediaries in a structured way, enabling a bank to understand the full lifecycle of that payment and where it has been processed thus far. This enables greater accuracy, for example, in Financial Crime checks
- More efficient sanctions checking – bank sanctions screening systems scan every field in a message format to identify the country information and validate against sanction rules. That information can be sourced from the “Country” field reducing the amount of processing needed by the sanctions system and accelerating processing time
- No truncation equals maximum benefit – existing bank systems are programmed to accept the limited amount of information available in current message formats. ISO 20022 supports much greater information. In order to minimise the change needed to systems it is tempting to truncate the ISO 20022 message fields. This could result in the loss of important information, particularly in the case of financial crime detection. It is therefore critical that banks are able to process all the information in each field in order to ensure there is no business or customer impact
- Reduce risk and maintenance costs – multiple legacy systems within a bank’s infrastructure are likely using multiple legacy formats, particularly when those systems cross borders. This is high risk and cost as the maintenance of those internal formats needs a lot of oversight and management. The migration to ISO 20022 is an opportunity to standardise the internal format and reduce the risk and cost overhead
- Learn more about your customers – there are great business benefits from the adoption of ISO 20022, which require a change in the business use of the information in the message. Greater information on payment types and purpose, as well as more information on senders and receivers enables banks to better understand not just their customer’s behaviours but also trends across different sectors or geographies. This can lead to improved product development that better meets customer needs
- Reduce fraud – there are five data points within the ISO 20022 message that, when analysed, can be used to identify potentially fraudulent transactions. These are: “Purpose Code”, “Age of Account Holder”, “Tenure of Account”, “Turnover of Account”, and “Type of Account”. Collectively categorised as EFD (enhanced fraud data), these fields are already being explored at an industry level as potentially helping to reduce APP scams.
These benefits demonstrate that as the industry implements ISO 20022 it is time to move away from high level concepts and start discussing how each field in the message can provide real improvements for banks and their customers. Speak to our ISO 20022 experts to understand how we are already working with banks to implement benefits across the payments value chain.