ISO 20022 Adoption: Enrich Your Payment Value Chain with Adastra

November 29, 2021

Within the global payments industry, there is a continuous demand for operational efficiency and user expectations for fast and value-added services. Given the changing needs of the payments landscape in the digital age, existing legacy formats lack the flexibility to adapt, support end-to-end Straight-Through Processing (STP), and integrate with Enterprise Resource Planning (ERP) systems which reduce the need for manual intervention in the payment reconciliation process.

The Canadian Payment Association and the Federal Reserve Board both announced that starting November 2022, banks and financial institutions in Canada and the US will adopt the ISO20022 payment message format.  Financial institutions across North America will be able to leverage the initial investments in ISO20022 as it rolls out across global services and systems, enhancing access to international markets and customers.

Many organizations currently use legacy Electronic Document Interchange (EDI) standards to enable automated, electronic exchange of crucial business information associated with payment processing. EDI standards provide significant value however, these standards are based on outdated technology that is expensive and difficult to implement. Many corporations can benefit from migrating over to ISO 20022 by simplifying and standardizing their treasury operations.

The Benefits of Adopting ISO 20022

The global adoption of ISO 20022 appears to be the long-awaited upgrade of the high-value payment systems and associated network functionalities as financial institutions have pursued the automation of their processes and looked for ways to generate more economies of scale. The long-standing model will benefit from the adoption of ISO 20002 as a future-proof standard is to replace the current 30-year-old MT format.

• The increased efficiency within domestic markets will benefit Small and Medium Businesses as they can easily integrate with their larger trading partners and could leverage the value-added service offered by the agency banks
• The usage of a common set of terminology, cross-domain data consistency, transparent tagging, tracking of payment, the openness of XML, and the accessibility of integration tools all make interfacing payment messages with the corporate ERP system much simpler.
• Financial institutions have an obligation to deliver a complete set of their customer’s transactions, depending entirely on data integrity. With its comprehensive data dictionary, extensibility, and capacity for message syntax validation, ISO 20022 addresses these data integrity issues.
• The use of a modern mainstream XML technology that is well supported and facilities integrations
• A more transparent and more remittance information for your customers, which in turn positively impacts customer service/experience
• Further operational benefits include improved analytics, less manual intervention, more accurate compliance processes, higher resilience, and improved fraud prevention

“The benefit of ISO 20022 is that you start with modeling the business, identifying all processes and data requirements. Once you have the business defined, you then start to discuss the communication flows, the messages, and the fields needed for information exchange. It is only at this lowest level that any physical message formats are defined. With ISO 20022, if the syntax changes, the business model and message layer do not change, and new messages can simply be generated using the new syntax.”

Stephen Lindsay, Head of Standards at SWIFT

What Does The Adoption of ISO 20022 Mean for Your Institution?

Adopting ISO 20022 will allow for enhanced efficiency on both domestic and cross-border payments and a valuable set of payment data that may help banks and other entities comply with sanctions and anti-money laundering requirements.

Starting November 2022, users will have the option to send payments and reporting messages via ISO 20022 over FINPlus. Payments-related messages will be received from the SWIFT platform as ISO 20022 messages or multi-format messages containing both ISO 20022 and MT on the FINPlus channel. Reporting messages can be received as MTs over FIN, or as ISO 20022 messages over FINPlus.” (SWIFT)

According to SWIFT, the usage of the ISO 20022 will represent 79% of the world’s total HVP volume of settled payments by the end of the migration announced by HVP systems.

Figure 1. Overview of HVP Systems across the world and migration state. The figure is based on information by SWIFT and country-specific HVP system providers.

ISO 20022 adoption represents a significant challenge for banks. The migration to ISO 20022 will require considerable investment across the end-to-end payment chain, however, many banks will need to completely overhaul their systems to ensure they have adequate data storage capabilities and leverage the data provided by ISO 20022.

Organizations will also need to ensure that ISO 20022 runs in parallel to and supports more comprehensive financial services transformation, such as the use of APIs to interact with partners and enable innovation. But as we have seen, the new standard unlocks unprecedented opportunities for the payment community. Enriched data will fuel deeper insights, while standardization will improve interoperation and open the door to innovation. With ISO 20022 transition underway, we can look forward to a much-changed payments industry in the years ahead. Financial institutions that start soon will put themselves in the best possible position.

The adoption of ISO 20022 by major markets worldwide demonstrates the strategic direction for payments globally. Financial institutions and their corporate clients in the Canadian market have the opportunity to design an efficient payment messaging format for domestic needs and actively participate in the evolution of the global standard.

How Adastra Can Help!

Earlier in 2021, Adastra entered into a partnership with PaymentComponents.  The combination of PaymentComponents products and Adastra deep proven success at solving complex data and analytics Banking related issues creates a powerhouse of solutions for Banks and Financial institutions.

The ISO20022 module from PaymentComponents can seamlessly integrate into the payment architecture of any institution and quickly upgrade to the new standards.  This seamless insertion allows for financial institutions of all sizes to conform to the new standard.

Adastra has over 20+ years of expertise in the data and data management space. During this time, our experts have worked closely with financial institutions of all sizes to plan, build, and implement customized solutions that meet the organization’s business needs, and help them comply with regulatory requirements.