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ISO 20022 is a globally-agreed standard for exchanging messages between financial institutions.
First published in 2004 by The International Organization for Standardization (ISO) to provide the finance industry with a common messaging language, it has since seen worldwide adoption and has gone on to become widely recognised as the messaging standard of the future.
Initially first deployed by European banks for the purpose of mass payment transactions, ISO 20022 now underpins much of the banking payments infrastructure, with central banks introducing the standard for the High Value Payments Systems (HVPS) in Japan, Switzerland and China and the new instant payments systems in Australia, US, Canada and Singapore.
It is said that in the next five years it will be the main language for high-value payments, supporting 80% of the volume and 89% of the value of transactions worldwide. In fact, earlier this year, payments messaging firm, SWIFT, announced the establishment of an ISO 20022 working group (formed of international payments experts) to promote the global adoption of the payments messaging standard.
The migration to ISO 20022 for cross-border payments and cash reporting messages will follow a phased approach over the next three years, starting with Europe in November 2021, followed by the US in 2023 and the rest of the world following by 2025. When complete, MT format messages will no longer be used for payment processing.
Over the years, there have been several initiatives to achieve global payments standardisation – yet the decision by major central banks and SWIFT to migrate to ISO 20022 is the biggest breakthrough to date – and brings with it many benefits.
The shift introduces a global, harmonised standard approach, which, on its own delivers consistent procedures and formats, along with operational efficiency and cost-benefits – however, more importantly, it will allow financial institutions to deliver a faster and improved service to its customers.
One of the main advantages is the improvement to straight through processing (STP). Standardising ISO 20022 will automate the processing of a transaction, without human intervention, ultimately meaning that processing time will be shorter. In addition, a consistent messaging standard reduces data processing risks and the likelihood of error – which can eliminate significant financial losses, especially for high-value transactions.
As the banking industry moves more and more towards digitalisation, the demand and driver for faster, real-time payments and insights are ever-increasing. ISO 20022 allows for a greater level of insight when it comes to data and analytics, which will not only aid in and improve decision-making but will also contribute towards regulatory reporting, adhering to banking compliance.
ISO 20022 represents a quantum leap in data granularity [from Swift MT standards], and the benefits to be achieved for banks will be significant. Obtaining granular levels of detail will support enhanced intraday forecasting, enabling banks to manage and control their liquidity better and to respond quickly to changes in market conditions. These controls further support a bank’s ability to reduce liquidity risks and costs.
At Planixs, we have been delivering intraday liquidity management solutions to banks of all sizes across the globe for many years. Our Realiti solution has been designed to provide real-time cash, collateral and liquidity insight at any time of day. Working with banks such as Lloyds Banking Group, Barclays and Scotiabank, we are well placed to extract the advantages that ISO 20022 provides.