ISO 20022 is a globally accepted messaging standardization approach (methodology, process, repository) to be used by all financial standards initiatives as a common platform for the development of messages. It was introduced in 2005 by the International Organization for Standardization to help financial institutions streamline their communication infrastructure by using the same language for all financial communications. 

Today, ISO 20022 is used by payment systems in over 70 countries.  It is estimated to be the defacto standard for high-value payment systems of all reserve currencies, supporting 80% of global volumes and 87% of value of all global transitions in the coming years. This common language is now an emerging global and open standard for payments data, and is the expected future standard of fintech innovation and competition. ISO 20022 utilizes richer, higher quality data than other standards, driving improved payment outcomes that can easily adapt and are not controlled by a single interest. According to SWIFT, the benefits of ISO 20022 specifically include:

• Better data - ISO 20022 enables richer, better structured, and more granular data for payments messages
• Higher quality payments - higher quality data means more transparency and more remittance information for customers, which means better customer service
• Improved analytics - less manual intervention is required, compliance processes are more accurate, and fraud prevention measures are improved
• A foundation for end-to-end automation - with a single standard for all business domains and processes, new services are more easily created, and straight-through processing is enhanced
• Uses modern technology - ISO 20022 uses XML (Extensible Markup Language) technology, which defines rules for encoding documents in a format that’s readable by both humans and machines. This allows for fast and single integration of systems, even if a financial institution is running a legacy platform. 
• Worldwide adoption - ISO 20022 is already becoming more pervasive, almost 200 market infrastructure initiatives are implementing the standard or are considering adopting it. 

What does this mean for the U.S. market?

In 2017, The Clearing House RTP network was the first new central clearing and settlement system introduced that adopted ISO 20022. In addition, The US Federal Reserve Bank has announced that it will also adopt ISO 20022 for its new FedNOW payment rails. Additionally, they will migrate its existing messaging formats to ISO 20022 by 2023. SWIFT has started migrating all cross-border and many-to-many payments onto ISO 20022. So while the U.S. market is somewhat late to the ISO 20022 game, we are rapidly adopting the standard, and financial institutions need to adapt to take advantage of all of the rich data and operational efficiency this standard brings to the market. 

Financial institutions that have recently undergone digital transformation projects will have the advantages of systems that were built around the ISO 20022 standard. Other institutions will have a lot of work to do when it comes to bringing their systems up to speed or overhauling their infrastructure altogether. However, they can mitigate their risks by partnering with the right fintech. Fintechs that employ data and message models based on the ISO 20022 standards allow financial institutions to offer real-time payments to their account holders without needing an entire infrastructure overhaul, and helps lay the foundation for a full digital transformation into the next era of payments.