At Sibos 2019, experts from the Bank of England, The Clearing House, European Central Bank, Federal Reserve Bank of New York and BNY Mellon gathered to discuss the transition from MT messages to ISO 20022 by the deadline of November 2021 and how to prepare for the adoption of a common payments and reporting language.
Ahead of the session on the first day of the conference, Finextra spoke to Saqib Sheikh, global head of the ISO 20022 programme at SWIFT about how financial institutions (FIs) can prepare to transition from the MT standard to ISO 20022, and the benefits it will bring to the financial industry.
Moving towards a common language
The global payments ecosystem continues to evolve at pace as technology and business model innovations are expanding reach, bringing speed, and reducing friction in previously siloed closed-loop value transfer systems, highlights Sheikh.
One key element to enable a more seamlessly integrated future is the upgrade of current standards, the language of payments. Like technology, this language also requires a transformation to lay the foundation for this future.
Sheikh explains, “The payments value chain today consists of disparate, proprietary message formats. Each was designed with local technology constraints, regulatory needs and business priorities in mind. And much like local languages, cross-border payments undergo a series of interpretations and translations. This brings unnecessary costs and delays, and ultimately affects customer experience. We cannot afford to let this persist.”
As with any language, the fewer transformations, the better the chance of preserving the original information and intent throughout the transaction, all the way through to the end beneficiary.
“ISO 20022 brings a rich, common data dictionary to payments. This significantly increases interoperability across jurisdictions, reducing costs, improving compliance and enabling us to preserve rich data end-to-end.”
The increasing significance of interoperability for messaging standards is crucial for reducing friction in payments. This is one of the key reasons the SWIFT community requested the adoption of ISO 20022 as the payments industry standard.
Better data supports an evolving industry
Key to future-proofing the industry, as the drive toward greater adoption of big data, artificial intelligence and machine learning in financial services continues apace, is the need for structured, meaningful data.
SWIFT and the financial community understood that in addition to requiring a common standard that unites industries and disparate jurisdictions, there was a need for a format that supported a higher quality of data. Better data is necessary to sustain the continuing evolution of the payments landscape.
“ISO 20022 provides a unique opportunity to improve the quality of payments data across the value chain. To realise this opportunity, our systems must be ready to source and process richer originator and beneficiary details, remittance and invoice information, the clients’ own end-to-end identification references. We should not let this be yet another technology refresh with no client benefits.” Sheikh says.
Benefits of early adoption
Those institutions that capitalise on the opportunities provided by ISO 20022 will be able to provide a better and differentiated customer experience. Rich remittance and invoice information, faster processing and lower costs are what customers expect and deserve.
ISO 20022 will also allow FIs to open themselves to new possibilities with improved interoperability in the face of continued technological changes. Future-proofing the business to meet continuing competition from new entrants means being prepared for the future of payments. Adopting the common data model of ISO 20022 is one way to ensure FIs are keeping up
with the new landscape of open banking and application programming interfaces (APIs).
Support throughout the transition
SWIFT is the registration authority for ISO 20022 and has worked closely with the financial community to agree on how the new standard will be used for FI to FI payments and reporting, but Sheikh stresses that the support doesn’t end there.
SWIFT is continuing to support the community as the implementation phase begins in a number of ways. For example, a new many-to-many network service supporting ISO 20022 is being rolled out, as well as a set of translation services for institutions unable to process ISO 20022 during the transition period.
“Still, it’s crucial to take the first step,” says Sheikh. “Financial institutions should assess the impact to their infrastructure and processes. This means systematically analysing their core banking, payments middleware, screening, reconciliation and interbank channel infrastructure to determine what needs to change during the transition. SWIFT also provides a set of adoption services for this purpose.
“The industry has decided to make a move to the standard that paves the way for the future. It’s clear that FIs that adopt ISO 20022 early will be better prepared to do business on behalf of their customers and counterparties as the transition date approaches.”