By : Andrew Short
January 28, 2016 01:30 PM
The ISO 20022 financial messaging standard has the potential to transform payments by enabling significantly more information to travel with an electronic payment. However the level of understanding of this new payment language is lacking, particularly in markets yet to migrate away from legacy payment infrastructures, such as the US.
Here’s a look at seven ISO 20022 myths, as set out by NACHA - the National Automated Clearing House Association - in its recent paper on the standard, and my view as to the most important points to be made .
Myth 1 - ISO 20022 is an XML format
Most ISO 20022 messages are exchanged in XML format but they do not have to be. The standard is format independent, meaning it can adapt to changes in technology.
Myth 2 - ISO 20022 is a SEPA standard
The Single Euro Payments Area (SEPA) was at the heart of driving ISO 20022 adoption early on, but the use of the format is not limited to Europe. SEPA formats are merely a subset of ISO 20022.
Myth 3 - ISO 20022 is a Swift standard
Swift has been involved closely, but the official body is the International Organization for Standardization (ISO). Swift acts as a Registration Authority responsible for maintaining and publishing the central repository of ISO 20022 content. It is also part of the Common Global Initiative-Market Practice, which helps build a common industry approach to the standard.
Myth 4 - ISO 20022 is a cross-border solution only
The messaging standard can be used domestically or across borders. The Canadian Payments Association says adoption of the standard could save businesses CA$4.5 billion over five years, mainly because of reducing reliance on checks.
NACHA explains: “ISO 20022 is intended to be a single message standard for all financial communications, irrespective of the counterparty (financial institutions, market infrastructures, corporate customers, and the like), the business domain (payments, securities, treasury, trade services, etc.), or the network (public or proprietary, domestic or international).”
Myth 5 - ISO 20022 is only for payments
Payments is only one of five financial service domains covered by the standard. It also covers securities, trade services, cards and foreign exchange. More than half the current initiatives underway are in payments (26), while there are 13 in securities, two in trade services, one in cards and, as yet, none in FX.
Myth 6 - ISO 20022 means global interoperability
From the NACHA report: “Implementation of ISO 20022 in corporate-to-bank and bank-to-bank communications does not necessarily translate to global interoperability. Different markets may use different versions of the ISO 20022 messages or have local country or bank proprietary requirements.”
With so many different ISO 20022 initiatives underway globally, Global market infrastructures including Swift, The Clearing House, Euroclear, the EBA, Federal Reserve, ECB and others recently took action to end what was seen as the proliferation of different ‘flavours’ of the standard.
Myth 7 - ISO 20022 means real-time payments
Many of the world’s real-time payments systems use ISO 20022, but not all. The UK’s Faster Payments Service, for example, uses a version of the ISO 8583 card and ATM-based standard. As NACHA points out the standard “is independent of the implementation architecture that will define speed of processing and settlement.” However, all future real-time payments infrastructure will almost certainly be based on the standard.
In conclusion, while ISO 20022 has real value and will be used throughout the financial world, its variability in implementation along with its ability to adapt to new technology, will require banks to implement systems with this in mind.
Overall, I’m enthusiastic about the richness of data ISO 20022 supports and excited to help our customers in their efforts to leverage these new standards.
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