Why we should be utilising the benefits of ISO 20022 

Author: Mansion House Consulting Publications

ISO 20022 is finally upon us and is set to revolutionise payments and networks. Indeed, as FinExtra reported, 90% of the world’s public and private high-value networks.

For the uninitiated, ISO 20022 is an ISO standard for electronic data interchange between financial institutions. It describes a metadata repository containing descriptions of messages and business processes, and a maintenance process for the repository content. 

These standards enable consistent data collection and tracking that will benefit payments, securities, transaction banking, treasury, risk management, operations, financial crime and AML, technology and product development.

Despite a plethora of advantages – and the promise of its ability to resolve many of the pain points which blight cross-border payment flows – outside of tier 1 firms there is hesitation to adopt.

Why? Well, some of this hesitation can be traced back to feelings of concern about the impact adoption will have on legacy systems, processes and operating models. There will also have to be investment from companies to make sense of the data and the business value that can be attained. Not to mention migration deadlines that have been understandably hit by the pandemic.

With concerns about the future, the challenges posed by ISO 20022 are blinding institutions to the business benefits that can be derived from these standards. Instead of focussing on the negatives we should be looking at the significant benefits that arise from the implementation of this highly flexible framework. These benefits include:

Higher standard of protection against financial crime, AML and sanctions

Having a uniform standard messaging structure as with ISO 20022 allows institutions to have greater granularity or payment information. It also means that organisations can get more detailed country and payee data enabling risk and compliance teams to have a better understanding of where a payment is coming from and going to.

Under the normal system, payments are flagged by a sanctions filter which triggers an investigation, under ISO 20022 the payments are automatically processed without delay. This frees up the risk and compliance team’s time to focus more on genuine queries and dangers while also reducing their workload of mundane and boring tasks.

More efficient and automated operations

ISO 20022 offers a standardised approach to messaging formats. By implementing this, financial institutions can realise a consistency to operational processes and procedures. Not only does this improve efficiencies but also can lead to cost savings with automated and streamlined settlement and reconciliations processes.

Better cash and liquidity risk management

ISO 20022 also gives better visibility of payment traffic inflows and outflows thanks to its increased granularity in payment data, faster payment processing and reconciliations. Treasury functions will have enhanced visibility over cash and near real-time perspective of liquidity flows, providing stronger forecasting capabilities. This means financial services organisations can adopt an agile approach and better manage and control their liquidity.

Get data analytics faster

We all know that data is now a vital commodity for all organisations from retail to healthcare, and the same is true of financial institutions. However, in order to recognise the value that data has, it needs to be consistent, structured and standardised – precisely what ISO 20022 delivers. Having enriched data at their fingertips will enable financial organisations to deliver a faster and improved service to its customers while developing new, tailored products based on analysis of customer behaviours.

What are the next steps?

There are many benefits of ISO 20022 and it does not need to be the challenge many see it as being. While we can expect to see broad adoption from the tier 1 banks, it is vital that challenger banks follow suit, so they are not left behind. To make the transition easier for these institutions they must find the right partner. Mansion House Consulting considers three differing approaches to an ISO 20022 migration project – Strategic, Tactical and Outsource – each of which has a different business impact and timing for delivery depending on the needs of a specific organisation. Regardless of approach, all processes begin with a detailed assessment of the current state of data and data architecture. By doing this we can ensure that the most favourable decisions are made in line with business requirements.

ISO 20022 is a landmark moment for the financial industry. While there are key challenges to be overcome for businesses, there are significant business benefits which cannot be overlooked.  Thanks to the pandemic and the delays to deadlines, SWIFT participants have no time to waste and should embark on their migration journey to the new standards as soon as possible. By doing so companies will be able to capitalise on the transition faster and get ahead of the competition.