Since 2004, ISO 20022 has been the gold standard for financial messaging, promising a unified language for global financial communications. However, the journey to universal adoption is fraught with challenges, primarily due to the persistence of legacy systems within financial institutions. The industry’s reluctance to embrace change has led to multiple delays in implementation deadlines.
Rishi Munjal, a fintech and payments expert and Managing Director of 99Fintech, sheds light on the pivotal role of ISO 20022 in shaping the financial landscape. He underscores the imperative of swift adoption by the sector.
ISO 20022 in a Nutshell
ISO 20022, designed by the International Standards Organization 18 years ago, is a universal framework for electronic data interchange between financial entities, promoting transparency, certainty, and efficiency in payment transactions. It establishes a universal language for transmitting payment information, facilitating streamlined payment procedures among various financial bodies.
Rishi Munjal notes that ISO 20022 stands out for its comprehensive framework, adaptability, and global reach, providing a consistent, open, and structured format for financial institutions worldwide. It supports interoperability, reduces discrepancies, and carries more data, offering a comprehensive view of financial transactions.
ISO 20022 vs. Other Formats of Financial Data Exchange
Over the years, numerous formats have been developed to facilitate the exchange of financial data, each with advantages and limitations. Among them, ISO 20022 has emerged as a leading standard, renowned for its comprehensive framework and adaptability. Munjal lists down some of ISO 20022’s advantages:
- Global: Unlike many other region-specific standards, ISO 20022 boasts a global reach, ensuring a consistent experience for financial institutions worldwide.
- Open: Its open nature means it’s not proprietary to any organization, promoting collaboration and widespread adoption.
- Consistent: Consistency is key in finance. ISO 20022 provides a uniform framework that reduces discrepancies and errors.
- Structured: The structured format of ISO 20022 ensures that data is organized and easily interpretable, streamlining processes and reducing the need for manual interventions.
- Richer (with more data): One of the standout features of ISO 20022 is its ability to carry more data, offering a comprehensive view of financial transactions.
- Supports interoperability: ISO 20022 facilitates seamless interactions between different systems and platforms, paramount in today’s interconnected world.
Challenges with ISO 20022 Migrations
Munjal acknowledges that migrating to ISO 20022 is challenging. While its potential benefits are numerous, the path to full adoption reveals certain limitations that institutions grapple with. From technical intricacies to operational hurdles, the journey toward ISO 20022 migration is nuanced, demanding a deep understanding of its promises and constraints.
According to the fintech expert, legacy systems are one of the main struggles in this adaptation. Financial institutions have outdated systems not built to take advantage of ISO20022, and neither are those systems easy to modify or replace. Banks risk losing transaction information that could be used to create value-added services and drive new revenue streams.
Rishi acknowledges that most banks are overcoming these challenges by creating a translation layer that integrates the old with the new. But, very few are on their path to becoming ISO 20022 native.
Benefits of ISO 20022
One of the critical advantages of ISO 20022 migration is making cross-border payments more transparent and efficient. Munjal cites an example of Cuba Avenue in Staten Island to explain further. He says traditional payment messages are not structured to differentiate between Cuba Avenue and Cuba, which is on the OFAC sanctions list. Such ambiguity necessitates manual processing by the banks, slowing down the transaction.
However, ISO 20022 is a structured message capable of making such distinctions. With specific fields to capture address details for debtors and creditors, This helps automate compliance and anti-financial crime checks, resulting in expedited processing and a drastic reduction in manual interventions. With IS20022, the language of finance can be unified, facilitating seamless communication, reducing payment delays, and bolstering security.
Munjal also notes South Africa’s payment modernization as one of the great examples. South Africa is one of the first countries on the continent to adopt the ISO 20022 for its SAMOS (South African Multiple Options Settlement System). Supervised by The South African Reserve Bank, this move, specifically targeting domestic High-Value South African Rand transactions, has ushered in a new era of payment transparency.
Are Banks Ready for the Next Challenge?
With ISO 20022-enabled payment networks increasing globally, the question remains: are banks ready for this migration? According to Munjal, the readiness varies depending on the banks themselves. This data suggests that most banks are transitioning, aiming to bridge their existing systems with the demands of ISO 20022 vs. wholesale modernization.
“The struggle banks and financial institutions face in adapting to ISO 20022 is understandable,” Munjal mentions. “The standard, while promising, demands a comprehensive overhaul of existing systems and processes. This is precisely where experts like us step in. Our role is to demystify ISO 20022, making it accessible and actionable for financial institutions. We aim to streamline the transition, ensuring that banks can harness the full potential of this standard without being overwhelmed.”
Munjal’s Final Note
As the world heads towards a higher level of modernization, Munjal believes ISO 20022 adoption is not a choice but a must for financial institutions as they aim to serve the industry better. This global standard represents more than just a technical shift but embodies the future of financial communication and compliance, offering enhanced transparency, anti-fraud measures, interoperability, and efficiency.
As international payment systems and market infrastructures adapt, institutions that lag risk being left behind. Munjal concludes, “Embracing ISO 20022 is about future-proofing operations, ensuring competitiveness, and meeting the heightened expectations of the modern financial world.”