ISO 20022: The payment revolution

02 December 2022 by National Bank
Woman learning at her computer to learn more about ISO 20022

The global financial system is undergoing a major transformation, among which is the adoption of the ISO 20022 messaging standard. We sat down with CGI and RedCompass Labs, the partners supporting National Bank in its transformation, to discuss the standard that promises to revolutionize the payments industry.

What is ISO 20022?

ISO 20022 is a flexible, standard format for the exchange of financial messages globally. It allows for:

  • Richer, structured transaction data,
  • Enables interoperability between financial institutions, financial market infrastructures (FMIs) and the bank’s customers,
  • Provides a common language for the industry when exchanging information.

The ISO 20022 standard has already been adopted in various market infrastructures, with SEPA (Single Euro Payments Area) in Europe being the most visible application to date.

Today, a global initiative is being led by SWIFT (Society for Worldwide Interbank Financial Telecommunication) and global clearers to promote the implementation of the ISO 20022 standard and replace the traditional format used to exchange payment and cash management messages. The goal is to improve payment processing and thereby increase the overall efficiency of the payments industry.

This is where we are. “This is a complex technology shift,” says Karen Brown, Director of Payment Solutions at CGI. The very large multi-year transformation is starting March 20, 2023.

What are the anticipated benefits of ISO 20022?

First, access to consistent, rich, structured data that can be used by all stakeholders involved in the transfer of payments is a major benefit. “The world we live in is powered by data. It was only natural that payments would follow,” says Patrice Roy, Vice President, Payments and International Solutions at National Bank.

Secondly, the creation of a truly universal financial language with better quality and granularity of data will yield significant improvements in payment processes and increase the transparency, speed and security of transactions. “Indeed, richer data will, for example, facilitate fraud detection and help banks better target financial crime,” says Brown.

“Finally, ISO 20022 will make it easier to adapt to potential future changes. Those who have migrated to a native ISO 20022 payments infrastructure will be more responsive to market changes and quicker to align with emerging technologies such as open banking,” she adds.

What can customers expect of ISO 20022?

ISO 20022 has the potential to significantly improve the customer experience in the payments ecosystem by offering more streamlined and tailored solutions. Some examples include:

  • Richer data integrated with financial accounting or accounts receivable systems can facilitate payments reconciliation and faster cash application. 
  • STP (Straight Through Processing) may also be improved. This means less manual intervention, thus reduced payment processing times.
  • With the harmonization of the entire global payment network, the processing window for typical RTGS (real-time gross settlement system) and cross-border payments should be reduced, as they will move more seamlessly through the network and possibly across other rails. This should also reduce the operational costs of processing, thus opening the way to even more innovation opportunities in payments.

“But beyond all these advantages, banks will have a great opportunity to create value by helping customers to have a better understanding of transactions with access to this new data. And that’s the biggest driver at National Bank,” adds Roy.

Why is this so important to National Bank?

“The implementation of the ISO 20022 standard for payments has started at all banks. But those that have dared to take the leap and work on implementing ISO 20022 native payment solutions so far are decidedly more innovative,” shares Julie Guetta, Head of Payments Strategy at RedCompass Labs.

“At National Bank, it was important that we did this now. To be honest, it has brought its own challenges and complexity. But we know in the end, it’s the customer who will benefit; that’s why we’re facing the challenge head-on,” says Roy.

What will the official migration look like?

“SWIFT and many market infrastructures such as Canada’s Lynx system have adjusted their deadlines for MX (ISO 20022) and MT format messages for all banks. In the case of SWIFT and Lynx, the new MX format will be launched on March 20, 2023 and will co-exist with the current MT format until 2025. Thereafter, the MT format will no longer be supported, and anyone using these networks to conduct transactions will have to comply with the ISO 20022 standard. These deadlines are the first modernization requirement of this kind, and it will truly drive transformation,” said Brown in an interesting myth-busting CGI article on the subject.

So, how should we prepare?

Such a major migration requires careful preparation. Our experts’ advice: find the right partners with values like yours, start early and be patient: a long road lies ahead.

“The migration to ISO 20022 is a crucial step toward the modernization of payments. While it may seem complex, it can still be a smooth migration. Before you jump in, make sure your systems, whether new or upgraded, are designed for this ISO standard. This is critical to making systems and markets work together,” explains Brown at CGI.

The ISO 20022 standard, which will be officially launched on March 20, 2023 is a crucial step toward the modernization of payments. National Bank and its partners, RedCompass Labs and CGI, are ready to make it happen and, above all, to continue to innovate in order to create value for its clients.

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