Consumer & Commercial Payments
August 30, 2024
The implementation of ISO 20022, a unified global standard for financial information interchange, is progressing steadily. In the past two years this standard has already been adopted in over 70 countries, however that doesn’t mean that all players immediately shifted to new messaging, with the adoption rate being 18% in November 2023 and some traditional banks face building up pressure as the deadline approaches. Failure to comply could expose banks to certain risks. Hence, the goal is clear: manage to hop on the ISO 20022 train before it departs.
This transition represents more than a change in messaging standards; it is a change in the way high-value cross-border payments are processed, ensuring compliance, efficiency, and interoperability. By March 2025, all high-value payment systems in Europe must align with ISO 20022, a challenge that demands technological agility, particularly for institutions burdened by legacy systems.
The European payment system has undergone significant transformation over the past five years. Initiatives promoting cashless transactions and enhancing cross-border payment efficiency have taken centre stage. For instance, PSD2 has pushed open banking, facilitating data sharing among financial institutions and third-party providers, resulting in rising demand for standardised messaging and integrations, which resulted in ECB reporting a 7.3% increase in the volume and 12.6% increase in the value of cashless payments compared to the previous period, the growth driven by both consumer demand for contactless payments and regulatory pressures for enhanced transparency and security. In fact, the EU has long advocated for standardisation in financial messaging to improve efficiency and reduce operational risks; for example, SEPA successfully demonstrated the benefits of unified payment standards, leading to a significant reduction in transaction processing times and a decrease in costs.
The introduction of ISO 20022 aims to build on these successes, offering a more comprehensive and flexible messaging standard that supports a broader range of financial transactions. Unlike its predecessors, ISO 20022 accommodates a richer data set, enhancing transaction transparency and regulatory compliance.
While the benefits of ISO 20022 are clear, with structured data format enabling faster payment processing by facilitating straight-through processing (STP), reducing the need for manual intervention and minimising errors, as well as enabling more effective integrations of crypto payments, banks face significant challenges in achieving compliance.
Many institutions operate on outdated legacy systems that are ill-equipped to support the new standard. The cost and complexity of completely rebuilding back-office systems present a significant barrier, particularly for traditional banks with extensive infrastructure.
In contrast, with over a hundred neo banks and over ten thousand fintech companies in Europe, which are better positioned to adapt to ISO 20022 due to their agile architectures, traditional banks must seek cost-effective, future-ready solutions to remain competitive. Partnering with a technological provider that offers compliant payment processing as a service is an increasingly viable option.
Engaging a compliant payment processing partner offers banks a strategic advantage by offloading the complexities of ISO 20022 compliance to experts with integration platforms that support a variety of messaging protocols, including ISO 20022. This ensures seamless interoperability across international payment schemes.By leveraging external expertise, banks can focus on innovation and customer experience rather than the technicalities of compliance.
As the March 2025 deadline approaches, the pace of adoption for ISO 20022 is expected to accelerate. Drawing parallels from the ongoing 2024 Paris Olympics, where early leaders in long-distance races often succumb to those who pace themselves strategically, banks must approach this transition with a balanced future-proven strategy and technology by partnering with compliant payment processing providers.
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