Rich, quality payments: The case for ISO 20022
Saqib Sheikh, SWIFT’s global head of ISO 20022 programme, recently sat down with The Banker to outline why the migration to ISO 20022 is so important to the industry.
Saqib Sheikh, SWIFT
The global payments industry is changing rapidly. New technologies, coupled with business innovation, are reducing friction and increasing the speed at which money moves across borders. The next step-change in this evolution will come from enabling rich, quality data, end-to-end, across the ecosystem.
The convergence of all major reserve currencies and SWIFT’s cross-border rails on ISO 20022 in the coming years will herald this development. The transition from MT and proprietary formats to ISO 20022 messaging means that intensive preparation will be required by payment systems and cross-border participants. So, given the amount of preparation and investment involved, what do banks have to gain from ISO 20022?
The case for compliance
Quality data is the key to compliance. Regulators rightly continue to raise expectations on banks to support the fight against financial crime. Doing so requires granular, smart and agile financial crime controls that are capable of efficiently identifying anomalous transactions.
Unfortunately, payments today are adversely affected by poor data – often reducing the efficacy of our control capabilities. SWIFT data shows that up to 70% of payments from originating parties use free-structured fields to capture critical originator and beneficiary details. While free-structured fields provide flexibility and, arguably, ease in initiating payments, they also make the job of compliance commensurately more difficult. Misspelled, incomplete and altogether missing payments data – as the consequence of poor data practices – makes our investment in compliance capabilities redundant. Not having critical data may result in underestimating or overestimating risk, driving the wrong responses.
Capturing complete, structured, clearly-labelled and granular payments data at initiation is the promise of ISO 20022 – and in the emerging era of cross-border, real-time payments – this will be a necessity. The new standard provides a common vocabulary to payments across corporate-to-bank payment systems and interbank payments and reporting messages. This standard and the associated usage guidelines – that define how the standard is to be used in each context – is working towards reducing false positives, expensive investigations and interventions, and, ultimately, quality compliance.
At SWIFT, we are facilitating an ongoing dialogue with banks to consider the issue of poor data, the challenges imposed on compliance and how we can work together to solve this; compliance is inherently a collective effort and requires a collaborative response.
Supporting the future bank
ISO 20022 is not the XML structure commonly implemented in payment systems today. ISO 20022 is a rich financial dictionary and methodology for creating financial standards from that dictionary. Whether used for traditional XML-based messaging exchange, or to support future JSON-based API services, ISO 20022 is agnostic of syntax or technology choice.
To reap the benefits of this new standard, banks should look to fundamentally evolve their transaction banking data model from legacy, proprietary and disparate data elements to the comprehensive data dictionary offered by ISO 20022. Machine learning and AI require large datasets that are logically grouped, labelled and digestible, to derive insights and generate recommendations. The next generation of client services will require this underlying data model to enable the banking platform of the future.
The financial ecosystem is increasingly vibrant and volatile. A variety of niche and agile fintech, and highly capable ‘big tech’ players are participants and disruptors in this ecosystem. Regulators, for their part, are actively facilitating this ecosystem, increasing pressure on banks to innovate. Banks will need to evolve and find partnerships with these new actors to service their clients better. Again, a common standard for data and provision of services is needed to facilitate collaboration and co-creation with these actors. ISO 20022 is that standard.
ISO 20022 will empower banks to meet these competing requirements. It will allow them to revamp all their legacy systems towards a future-proof data model and standard. This will also enable them to offer a better quality of service to their clients and to do that with agility and at speed.
As banks look to evolve their architecture and technology stack, ISO 20022 should not be seen as an incremental and tactical project, but rather a strategic enabler for the future bank.
A platform for a better customer experience
Banks and SWIFT together form the most pervasive, accessible, resilient and secure value transfer platform in the world. This is also increasingly fast, traceable and, with ISO 20022, data-rich. By enabling ISO 20022, banks unlock opportunities to offer better payment experiences for their clients.
ISO 20022 is an established standard in corporate-to-bank payments and cash management services. This market practice is defined by the Common Global Initiative (CGI). As SWIFT cross-border payments and reporting moves to ISO 20022, this creates an opportunity to carry rich remittance and invoice information, end-to-end, from ultimate creditors to ultimate debtors. This solves a key challenge that corporate treasurers face today in supporting global supply chains.
Given that payments today are limited and unable to carry details of the business intent of the payment, corporate treasurers manage account receivables and payables with a system of complex reconciliation processes. Payments and their acknowledgements – supporting rich remittance and invoice information – will simplify these processes, allowing treasurers to more efficiently manage their supply chain and thereby reduce waste.
The next generation of payments will simplify the capture of onerous payment initiation information and authentication controls. In advanced payments markets, users have a variety of choices to transfer funds for the purchase of goods and services and disbursements to friends and family. Each requires a different set of credentials and a different set of information to initiate payments.
QR codes and biometrics are both great examples of how the customer experience is improving in this area. QR codes are capable of capturing full beneficiary details to send payments. Similarly, biometrics offer a strong authentication mechanism to authorise payments. ISO 20022 allows the capture of the rich data underlying QR codes and the transmission of authentication tokens derived from biometric information.
With ISO 20022, our shared platform for correspondent banking will unlock new business opportunities for forward-looking banks who choose to enable full and rich ISO 20022 data early in their payments journey.
New efficiency savings for corporate treasurers
Because corporate treasurers are always looking at new ways to reduce costs and make processes more efficient, ISO 20022 makes perfect sense for them due to its standardising of the payments and reporting processes. An increased use of mandatory and structured data will enable significant automation of these reconciliation processes and greatly improve visibility of cash positions for beneficiaries.
ISO 20022 also makes it easier for corporate treasurers to tighten up their supply chain. For example, you have situations where payments are going through, goods are going through, and information outside the payment is going through – all of these need to be properly reconciled and ISO 20022’s better quality data allows for this.
Now is the time to embrace ISO 20022
I am convinced that 2019 will be seen as a pivotal moment in correspondent banking. It will be the year when fast and transparent payments with gpi, and safer payments with our Customer Security Programme (CSP), became the norm. 2019 will be seen as the year when we committed to move beyond ‘fast payments’ and began our journey towards ‘instant payments’ – with the gpi instant payments service.
It will also be the year we reached a tipping point, with payment systems and the SWIFT community recommitting itself to the richer, end-to-end payments data provided by ISO 20022.
Discover why correspondent banking needs ISO 20022 now with SWIFT’s free white paper:
