This article is co-authored by Ruchi Bhardwaj
ISO 20022 is one of the hottest topics in the financial industry but what is it, what are the benefits and challenges, and how should you take action?
Understanding ISO 20022
In the absence of a global financial messaging standard, it seems as if everyone has developed their own unique message type to transmit payment information. As more message types invade the marketplace, the need for a widely used, financial messaging standard has become apparent.
To minimize the challenges associated with high volume data translation, the International Organization for Standardization introduced ISO 20022 in 2004. This new messaging standard aims to regulate payment messaging while providing unparalleled data quality and visibility. Currently, over 70 countries are recognizing the benefits from being early adopters. For these early adopters, a successful ISO 20022 migration has seamlessly improved data quality while opening the door for enhanced efficiencies.
The countdown to move to the ISO 20022 standard starts now.
Around the world, experts are noting that high value systems like SWIFT Worldwide, Target2, EBA, and others, are mandating the implementation of ISO 20022. To effectively manage expectations, timelines have been given for ISO 20022 adoption. In most cases, November 2022 is the date to remember. In 12 months, banks will begin to recognize ISO 20022 as the standard for high-value payments systems. It is projected that ISO 20022 will be so widely implemented that SWIFT is estimating 79% of high-value payments by volume and 87% of payments by value will already have migrated to ISO 20022 by 2023, if current deadlines are met. The time to act is now, those who continue to prolong migration efforts could risk missing the variety of benefits associated with early adoption.
What are the Benefits of ISO 20022: 5 Key Takeaways
- Standardization: Businesses constantly strive to standardize processes across multiple business units and geographies. The current lack of interoperability between legacy and new payment infrastructure leads to challenges in the standardization of data. ISO 20022 standardization helps to provide a robust view of global cash management and payments.
- Cost Reduction: The prospective cost-saving of moving from paper-based checks to electronic means of payment allows businesses to reduce costs and errors. Furthermore, ISO 20022 provides additional cost reduction and financial benefits.
- Productivity: Enriched data and remittance information improves auto reconciliations and posting rates for accounts payable and accounts receivables teams. This enables efficiency and productivity and in turn, creates opportunities for improvements in payment processing.
- Risk & Compliance: Global risk management is always top of mind for financial institutions. With a global payment messaging standard, banks can now ensure compliance with frequency changing and ambiguous standards. Risk and compliance teams will also benefit from the highly structured ISO 20022 data, providing visibility into payment origination and departure.
- Customer Experience: Global payments have proven to be a pain point for banks and their customers for years. With remittance details traveling with payments, customers can easily automate account reconciliation. Also, by standardizing message semantics and syntax, pain points associated with transmitting global transaction information are successfully mitigated.
Understanding ISO 20022 Challenges: 5 Major Challenges
- Project Prioritization: Managing the ISO 20022 migration while numerous other internal bank projects are in the pipeline can be problematic. Both human capital and financial resources are allocated to projects months, if not years in advance, finding the resources and the budget for a critical migration effort can pose major internal obstacles.
- Legacy Infrastructure: Banks struggling with multiple systems operating in silos experience difficulties moving towards one centralized payment system. Working with inflexible monolithic systems makes an already complex migration effort even more troublesome.
- Data Remediation: It cannot be stressed enough that ISO 20022 is not just another payment type, banks using legacy technology pre-dating ISO 20022, will require data transformation and enrichment especially for PAIN (payments initiation) messages.
- Cost & Effort to Modernize: ISO 20022 impacts the entire payment value chain within a bank and the cost to overhaul or modernize the current payment system is significant. Not to mention, most internal teams have not made the commitment to keep a full time ISO implementation expert on staff. Banks must quickly decide if they will solve their lack of ISO experience by hiring top talent that is required for a project of this impact or if they will outsource this undertaking.
- Customer Alignment: Transaction processing is a two-way street; banks are unable to process payments unless a corporation sends payment information. This means that the adoption of the ISO 20022 standard is equally as important for corporate entities. Corporations who are involved in transactions will look to their bank for guidance on the transition to ensure the full benefit of ISO 20022 is recognized across the entire value chain.
Over Coming Challenges: Rely on Industry Experts at OpenText Business Network
ISO 20022 migration efforts have proven to be both complex and time sensitive for everyone involved. Implications associated with improper implementation can have a long-lasting impact on clients and pose long-term reputational damage for banks. With OpenText™ Business Network, banks can seamlessly outsource all ISO 20022 migration efforts to a trusted leader in the financial services space.
OpenText™ Business Network delivers translation services for over 2.5M inbound/outbound global transactions a month, for over 3,000 clients. With years of ISO 20022 experience, our robust team of industry experts will ensure your migration efforts are conducted both seamlessly and securely, with no impact to your customers.
Looking for more digital banking solutions? Visit our website to learn more about OpenText™ Business Network solutions.