What Is ISO 20022 and How will it Impact Banking and Payment Transactions?

You
will
find
multiple
standards
incorporated
in
our
everyday
lives
to
an
extent
that
no
one
notices
their
existence.
Standards
play
a
vital
role
in
the
modern
financial
services
ecosystem
that
includes
banking,
payments
and
crypto
assets.
One
of
the
most
important
classes
of
standards
in
the
financial
industry
focuses
on
messaging
standards.
The
fundamentals
of
ISO
20022
explained
for
beginners
will
showcase
that
it
is
a
messaging
standard
that
offers
a
common
language
for
the
financial
services
industry.

The
ISO
20022
standard
is
highly
relevant
for
cross-border
payment
services
and
high-value
payments,
the
two
prominent
areas
in
global
areas
that
have
been
through
a
major
transformation
phase.
Let
us
learn
more
about
ISO
20022
and
its
importance
along
with
a
review
of
its
advantages. 

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Prelude
to
the
Arrival
of
ISO
20022

Many
people
might
have
assumed
that
introducing
a
new
standard
in
the
financial
services
industry
will
be
a
waste
of
efforts.
On
the
contrary,
the
background
of
ISO
20022
standard
paints
a
different
picture
and
showcases
the
reason
to
introduce
a
new
standard
in
financial
services
industry.
You
can
also
find
many
ISO
20022

crypto
references
that
may
create
doubts
regarding
its
utility
for
modern
banking
and
payment
systems.
The
most
popular
messaging
standard,
MT,
made
a
splash
in
the
financial
services
market
in
1977.
SWIFT
had
introduced
the
messaging
standard
to
provide
a
common
communication
platform
and
message
exchange
for
cross-border
payments.

MT
standard
played
a
crucial
role
in
empowering
banks
to
move
over
telex
messages.
The
standard
offered
a
globally
consistent
communication
system
across
financial
services
networks
and
improved
the
efficiency
of
cross-border
payments.
It
is
also
important
to
note
that
MT
messaging
standard
prevailed
in
a
time
when
moving
digital
information
cost
fortunes. 

MT
messages
were
tailored
to
support
human
readability
alongside
ensuring
lower
data
consumption.
Initiatives
such
as
automation
in
message
exchanges
and
optimization
of
MT
message
types
have
played
a
vital
role
in
ensuring
more
comprehensive
data
validation.
However,
the
limitations
with
MT
messaging
standard
called
for
a
broader
payments
message
standard
that
can
enable
seamless
cross-border
payments
and
data
exchange.  

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Understanding
the
Fundamentals
of
ISO
20022

The
cross-border
payments
ecosystem
and
the
broader
financial
services
industry
have
been
going
through
a
phase
of
massive
transformation.
You
can
notice
the
rise
of
new
financial
instruments
and
growing
influence
of
technology
in
financial
services.
At
the
same
time,
client
expectations
are
growing
and
the
globalization
of
financial
services
has
shattered
many
conventional
barriers.
The
changes
in
regulations
have
also
been
one
of
the
notable
factors
that
challenge
legacy
standards,
operating
models
and
infrastructures. 

The
ISO
20022
banking
standard
has
emerged
as
the
ideal
solution
to
these
friction
points
for
the
modern
financial
services
industry.
It
is
a
flexible
standard
for
banking
messages
and
can
promote
interoperability
with
financial
institutions,
customers
and
market
infrastructures.
ISO
20022
supports
the
addition
of
richer
and
more
structured
transaction
data
in
payment
messages.
It
has
already
gained
attention
among
all
institutions
in
the
SWIFT
network.
With
its
capabilities
to
optimize
cross-border
payment
communication,
the
ISO
20022
standard
will
become
a
mandatory
part
of
all
major
global
payment
infrastructures.

Exploring
the
Urgency
to
Embrace
ISO
20022 

ISO
20022
serves
a
major
role
in
the
transformation
of
information
flow
by
helping
institutions
in
the
SWIFT
network
to
capitalize
on
new
technologies
and
payment
processes.
Around
87%
of
high
value
payments
messages
will
adopt
the
ISO
20022
standard
by
the
end
of
2025.
SWIFT
has
initiated
migration
to
ISO
20022
in
November
2022
and
plans
to
complete
the
transition
by
November
2025.
Successful
migration
to
the
new
standard
will
improve
end
user
experience
by
a
huge
margin
with
advantages
of
faster
processing
to
ensure
cost-effective
and
more
efficient
payment
services. 

You
might
have
some
concerns
about
the
reasons
for
which
banks
and
other
financial
institutions
will
make
the
effort
to
adopt
ISO
20022.
Existing
service
models
in
banks
for
cross-border
payments
depend
a
lot
on
human
interaction
for
interpretation,
resolution
and
delivery
of
payments.
The
major
problem
with
such
models
is
the
lack
of
efficiency
which
ultimately
translates
into
larger
costs.
On
top
of
it,
the
limitations
in
payment
message
structures
such
as
missing
data
fields
and
lack
of
clarity
in
structure
create
difficulties
in
meeting
regulatory
requirements. 

The
transition
to
ISO
20022
will
provide
an
effective
solution
to
these
problems.
The
new
standard
offers
a
better
and
more
structured
data
model
for
payment
messages
that
will
unify
many
legacy
standards
alongside
promoting
end-to-end
automation.
Some
of
the
notable
benefits
of
ISO
20022
that
will
draw
attention
of
financial
institutions
include
enhanced
interoperability,
faster
processing
and
better
reconciliation. 

Navigating
the
Design
of
the
ISO
20022
Standard 

Another
important
aspect
in
answers
to
“What
is
the
ISO
20022
standard
for
payments?”
is
the
design
of
the
standard.
The
ISO
20022
not
only
offers
a
better
standard
for
cross-border
payments
but
also
provides
an
enhanced
data
model.
It
is
an
open
standard
that
leverages
the
concept
of
hierarchy
in
its
design.
The
top
layer
of
the
ISO
20022
data
model
represents
the
important
business
processes
and
concepts
while
the
middle
layer
includes
the
message
logic.
The
bottom
layer
of
the
model
focuses
only
on
the
syntax.

ISO
20022
standard
leverages
the
descriptive
and
comprehensible
XML
format
that
is
longer
than
MT
messages
and
accommodates
more
data.
On
top
of
it,
the
hierarchical
structure
of
the
message
standard
with
different
nested
elements
enables
logical
data
organization.
The
additional
elements
in
the
message
standard
facilitate
more
efficient
data
processing
that
improves
the
scope
for
automation.
The
element
structure
of
ISO
20022
message
standard
also
enables
inclusion
of
instructions
to
support
specific
business
data
elements.

Structured
elements
in
the
XML
format
of
the
ISO
20022
standard
play
a
crucial
role
in
improving
interoperability
alongside
supporting
easier
message
exchange
between
different
geographical
regions.
The
ISO
20022
message
standard
also
offers
new
elements
with
fields
to
include
other
details.
The
unique
design
of
the
payment
message
standard
offers
the
prospects
to
maintain
consistency
in
messaging
throughout
the
payments
chain.
With
the
assurance
of
improved
consistency,
ISO
20022
can
reduce
obscure
data
alongside
ensuring
more
efficient
compliance
monitoring. 

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How
Will
Financial
Institutions
Use
ISO
20022?

The
adoption
of
a
new
ISO
standard
in
the
financial
services
industry
is
likely
to
make
heads
turn.
It
is
important
to
find
out
the
potential
ways
in
which
financial
institutions
will
adopt
the
new
standard.
The
use
cases
of
ISO
20022
payments
messaging
standard
can
also
shed
more
light
on
its
benefits
for
financial
institutions.
The
following
areas
serve
as
the
best
examples
to
showcase
the
significance
of
ISO
20022
messaging
standard
in
the
modern
financial
landscape.

• 
  Improvements
  in
  Compliance 

Traditional
payment
message
standards
do
not
have
detailed
structures
or
any
context
information.
It
can
lead
to
complications
and
challenges
in
compliance
screening
processes
due
to
lack
of
clarity
regarding
information
about
parties.
Financial
institutions
have
to
bear
the
burden
of
huge
costs
and
issues
in
payment
processing
due
to
legacy
standards.
ISO
20022
can
solve
these
problems
with
the
help
of
dedicated
elements
for
all
parties
in
a
transaction
to
offer
contextual
attributes
with
better
structuring.
Support
for
dedicated
elements
ensures
that
payment
messages
can
include
details
such
as
town
names,
country
names
and
party
names.
As
a
result,
ISO
20022
can
enable
more
efficient
transaction
screening
and
streamlining
of
operational
processes. 

• 
  Better
  Liquidity
  Management
  and
  Reconciliation

The
next
noticeable
use
case
of
ISO
20022
payment
messaging
standard
focuses
on
achieving
improved
liquidity
management
and
reconciliation.
Existing
standards
suffer
from
the
limitations
of
space
and
structure
alongside
the
inability
to
include
different
parties
in
payment
lifecycle.
It
can
lead
to
settlement
delays
alongside
preventing
corporate
customers
from
managing
their
cash
flows
effectively.
ISO
20022
can
address
these
issues
with
the
help
of
dedicated
elements
in
a
new
data
structure
for
remittance
information.
Structured
remittance
along
with
ultimate
party
fields
in
ISO
20022
can
also
enable
financial
institutions
to
promote
efficiency
with
automation. 

The
benefits
for
transactions
on
ISO
20022
messaging
standard
also
points
at
the
possibilities
for
expanding
global
reach.
You
will
also
find
a
rational
universal
message
standard
for
all
types
of
payments,
thereby
improving
interoperability.
The
facility
of
richer
data
in
the
ISO
20022
messaging
standard
also
ensures
better
safeguards
against
AML
and
fraud
controls.
Furthermore,
the
structured
data
in
the
new
standard
will
also
provide
better
transparency
that
ultimately
contributes
to
payment
efficiency.

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Final
Thoughts 

The
ISO
20022
is
an
open
standard
for
payment
messages.
It
has
the
potential
to
bridge
gaps
between
financial
institutions,
customers
and
market
infrastructures.
It
offers
a
new
data
structure
to
accommodate
information
about
payment
transactions,
thereby
improving
transparency
and
efficiency
of
cross-border
payments.
ISO
20022
aims
to
replace
the
MT
standard,
which
has
been
serving
as
the
messaging
standard
across
the
SWIFT
network.
With
efforts
to
adopt
ISO
20022
in
full
swing
across
all
major
financial
institutions,
awareness
about
the
standard
can
help
you
make
the
most
of
its
benefits.
Learn
more
about
the
benefits
of
ISO
20022
and
how
it
can
change
the
future
of
finance
now.

*Disclaimer:
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article
should
not
be
taken
as,
and
is
not
intended
to
provide
any
investment
advice.
Claims
made
in
this
article
do
not
constitute
investment
advice
and
should
not
be
taken
as
such.
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