ISO 20022 is the de facto standard for faster payments
The financial services industry has seen ISO 20022 grow steadily over the last 15 years. What began as a small pocket of countries tackling migration has now become widespread adoption for domestic and international payments.
And with momentum building, it is clear that IS0 20022 is playing a foundational role for banks in the transformation of their infrastructures, with the rich messaging format delivering business benefits and enabling enhanced customer propositions.
European initiatives, such as SEPA, were the first to drive usage, but have since catalyzed a network effect in other countries. Recent examples driving adoption include the New Payments Platform in Australia and the Bank of England’s Real-Time Gross Settlement (RTGS) service doing the same in the UK.
Despite the timeline delay, the SWIFT migration to ISO 20022 for cross-border payments will drive further adoption and it is easy to see why. As the world becomes more connected, having a globally interoperable standard is attractive. ISO 20022 allows banks to have a consistent experience across geographies and provides a low-risk approach to modernization.
In the U.S. things are moving as well. With the country’s most important payments market infrastructures, the Fedwire and The Clearing House Interbank RTP system, migrating their High Value Payment (HVP) systems almost concurrently, widespread ISO 20022 has reached a tipping point.
For U.S. banks this means it is important to understand that ISO 2022 is no longer happening “somewhere else." Banks dealing with the modernization of infrastructure need to decide what will become the bedrock of their transformation efforts. ISO 20022 seems to be the only sensible choice.
While banks in the U.S. and across the world grapple with ISO 20022, it is crucial that they engage internal and external stakeholders early on in their journey to define their strategy. Resources should also be pulled from all areas of a bank, including technology, operations, AML, product and sales.
Implementation is not just a technical issue. Governance, sequencing and coordinating activities are all vital for success. Banks need to lay a foundation where legacy systems are ringfenced, but it is equally important for them to understand how to move rich data through or around legacy infrastructure as early as possible.
Deciding what to do with legacy systems is a challenge for many financial institutions. Therefore it can be useful to deploy mapping or translation services in the early stages of adoption. In fact, many market infrastructure ISO 20022 programs include a phased approach where there is a like-for-like phase (where no new functionality is used), allowing adopters to become familiar with the new standard.
This is often followed by multi-year adoption of new functionality and gradual decommissioning of legacy formats. However, mapping should not be viewed as a longer-term solution. To harness the full value of ISO 20022, supporting the standardization natively allows banks to build from the ground up. This creates a modern data model where both internal efficiency and external value can be realized.