Leveraging ISO 20022 for enhanced cross-border payments and fraud prevention

by George Iddenden, reporter, TPA

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Adopting ISO 20022 is essential for modernising cross-border payments, enhancing fraud prevention, and ensuring seamless interoperability and efficiency in international financial transactions.

Hailed as a transformative standard in the realm of financial messaging, ISO 20022 offers a robust framework for addressing the complexities and inefficiencies inherent in cross-border payments. 

Based on a whitepaper from tispayments, it is projected that 80% of domestic high-value clearing (RTGS) volumes will be ISO 20022-based by 2025, with all reserve currencies either live or having declared a live date, as estimated by Swift. 

Its adoption offers numerous benefits for financial institutions, businesses, and consumers involved in international transactions. By providing a standardised format for data interchange, ISO 20022 facilitates seamless interoperability, streamlines processing, and enriches transactional data with comprehensive metadata. 

This standardised approach not only enhances transparency and traceability but also enables more efficient straight-through processing, reducing manual intervention and associated costs.

Embracing ISO 20022 without variations stands poised to revolutionise cross-border payments, fostering greater efficiency, transparency, and reliability in global financial transactions.

Why payments leaders should leverage ISO 20022 to enhance their cross-border offering

ISO 20022 is an essential standard for modernising cross-border payments and enhancing fraud prevention efforts. According to Thistle Initiatives head of payment services, Lorraine Mouat, its widespread adoption has significantly streamlined cross-border payment processes and strengthened fraud prevention measures, providing greater peace of mind for businesses and consumers alike.

More detailed transaction information has enabled better detection and prevention of fraudulent activities, according to Mouat. She adds: “Additionally, its adoption facilitates smoother cross-border transactions by providing a common language for communication between financial institutions, reducing errors and enhancing efficiency.”

The comprehensive data fields and structured metadata in ISO 20022 messages enable richer information exchange, enhancing transparency, reconciliation processes, and visibility into payment flows. Additionally, ISO 20022 facilitates straight-through processing (STP), leading to faster processing times, lower operational costs, and improved efficiency while supporting regulatory compliance and reducing compliance-related risks.

By offering faster, more transparent, and more reliable payment services,customer satisfaction can be enhanced, trust can be built, and firms can differentiate themselves in the competitive payments landscape. 

How ISO 20022 can contribute to smoother cross-border transactions

Without a standardised approach, identifying and responding to suspicious transactions becomes more difficult, heightening the risks of fraud and financial crime. Not only this, but the lack of a uniform standard complicates regulatory compliance efforts, increasing operational burdens and compliance costs across jurisdictions. 

As a result, the absence of standardisation undermines the efficiency and security of cross-border payments, posing significant risks to the integrity and stability of the global financial system.

Mouat believes that adopting the standardised messaging format offers a solution to these challenges by enabling seamless interoperability, enhancing transparency, and strengthening fraud detection capabilities in cross-border payments.

Mouat tells Payments Review: “ISO 20022 helps mitigate the challenges associated with cross-border payments by providing a common messaging format that supports richer data sets and standardised transaction information.”

This, she explains, can help to enable more efficient processing, reduces errors, and enhances transparency, ultimately improving the overall integrity of the payment system.

Not only can the standardisation help mitigate challenges, but ISO 20022 messaging can enhance fraud prevention measures by allowing for more detailed transaction information, such as beneficiary details and transaction purposes, which can be used to perform advanced analytics and anomaly detection. 

Harmonised adoption of ISO 20022

The widespread adoption of ISO 20022 marks a significant milestone in modernising and streamlining global financial transactions. By standardising messaging protocols across different stakeholders such as financial institutions, payment systems, and regulatory bodies, this adoption ensures smooth interoperability and efficient data exchange. 

This collaborative effort is paramount in promoting greater transparency, reliability, and security in financial transactions, leading to improved innovation, competitiveness, and customer experience in the ever-changing global financial industry.

Mouat believes that harmonised adoption of ISO 20022 across the financial industry is essential for maximising the benefits of the standard. She says: “A consistent approach to adoption reduces fragmentation and complexity, streamlines communication between financial institutions, and promotes innovation in cross-border payments and fraud prevention technologies.”

Harmonised adoption of ISO 20022 has demonstrated there are plenty of tangible benefits, Mouat claims. “For example, standardised messaging formats have enabled faster transaction processing, reduced operational costs, and improved compliance with regulatory requirements.”

She adds that by adopting a common language for communication, financial institutions can provide more reliable and secure cross-border payment services, ultimately benefitting their customers and the broader financial ecosystem.

The issue of variation

The widespread adoption of ISO 20022 marks a significant milestone in modernising and streamlining global financial transactions. By standardising messaging protocols across different stakeholders such as financial institutions, payment systems, and regulatory bodies, this adoption ensures smooth interoperability and efficient data exchange.

This collaborative effort is paramount in promoting greater transparency, reliability, and security in financial transactions, leading to improved innovation, competitiveness, and customer experience in the ever-changing global financial industry.

Mouat believes that harmonised adoption of ISO 20022 across the financial industry is essential for maximising the benefits of the standard. She says: “A consistent approach to adoption reduces fragmentation and complexity, streamlines communication between financial institutions, and promotes innovation in cross-border payments and fraud prevention technologies.”

Harmonised adoption of ISO 20022 has demonstrated there are plenty of tangible benefits, Mouat claims. “For example, standardised messaging formats have enabled faster transaction processing, reduced operational costs, and improved compliance with regulatory requirements.”

She adds that by adopting a common language for communication, financial institutions can provide more reliable and secure cross-border payment services, ultimately benefitting their customers and the broader financial ecosystem.

Enhancing fraud detection and prevention with ISO 20022

ISO 20022 includes provisions for the inclusion of regulatory reporting data within payment messages. This facilitates compliance with anti-money laundering (AML) regulations and other regulatory requirements related to fraud prevention. By standardising reporting formats and data elements, ISO 20022 enhances transparency and audibility, enabling financial institutions to demonstrate compliance with regulatory obligations and respond to regulatory inquiries or investigations more effectively. 

Additionally, ISO 20022 enables financial institutions to implement transaction monitoring and reporting capabilities to detect suspicious activities, report suspicious transactions to regulatory authorities, and contribute to broader efforts to combat financial crime and terrorism financing.

In summary, ISO 20022 provides financial institutions with a robust framework and advanced capabilities to enhance fraud detection and prevention in cross-border payments. By leveraging detailed transaction information, advanced analytics techniques, real-time monitoring, and regulatory compliance features, financial institutions can strengthen their defences against fraud and safeguard the integrity of the global financial system.

Payments Review Summer 2024
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