31 JAN

What is ISO 20022? The New Financial Messaging Standard Explained

ISO 20022, introduced by the International Organization for Standardization, is an open global standard for exchanging electronic messages between financial institutions.

The standard was introduced in 2005 to give financial institutions a standard format for developing messages in one eXtensible Markup Language (XML) rule.

The ISO 20022 standard covers financial data between financial organizations, including payment transactions, credit and debit transactions, security trading, and other financial information.

Why is ISO 20022 Important?

Banking and financial institutions are going through an evolution as they transition their payment system from the SWIFT messages exchange network (ISO 15022) to the latest, highly structured, and data-rich ISO 20022 messaging standard.

Starting in March 2023, the way the Swift community exchanges payment messages will be transformed with ISO 20022. This will unlock enormous opportunities for financial institutions worldwide, such as increasing operational efficiency, improving customer experience, and promoting innovative new services.

Image Source: SWIFT

A global and open standard, ISO 20022 creates a common language for payments worldwide. And its higher quality data means better payments for all.

For the next three years, there will be a co-existence window where both messaging standards will run.By 2025, ISO 20022 will become the universal standard for high or large-value payment systems of all reserve currencies.

The Benefits of ISO 20022

Protection against Financial Fraud, AML, and Sanctions

ISO 20022 allows financial institutions to have a greater granularity of payment information, meaning organizations will get more detailed payee information, enabling risk and compliance teams to have a better understanding of the destination and origin of payments. Under the traditional system, payments are usually flagged by a sanctions filter which triggers an investigation

In the case of ISO 20022, payments are automatically processed without delay, enabling the compliance team to focus on genuine dangers.

Increased Efficiency and Automation

ISO 20022 can provide consistency to operational processes and procedures by offering a standardized approach to messaging formats.This standardized approach improves efficiencies and can lead to cost savings with automated and streamlined settlement and reconciliation processes.

Better cash and liquidity risk management

ISO 20022 provides better visibility of payment traffic inflows and outflows due to its increased granularity in payment data and faster payment processing and reconciliations. Treasury functions will have improved visibility over cash and near real-time perspective of liquidity flows, providing more robust forecasting capabilities

Better Data Analytics

ISO 20022 provides consistent, structured, and standardized data to institutions. Having enriched data will encourage financial organizations to deliver improved customer experience to their users.

Challenges in Implementing ISO 20022

Implementing ISO20022 as a Messaging Standard

Every financial institution must map its current payment systems to ISO 20022 standards.They will have to upgrade their existing systems to support ISO 20022 messaging standards and other systems such as Real-Time Sanctions Screening, AML, and other compliance checks.

Change in Payment Market Guidelines

Every financial institution will face challenges supporting upcoming payment practices like CBPR+, HVPS, and HVPS+.Even though these practices will follow ISO 20022 messaging standards, there will be differences in guidelines for implementing them.

Upgrading aging legacy systems

Upgrading multiple interconnected legacy systems is a tedious task that involves budgets and a long development phase. Traditional systems can’t process or support the ISO 20022 format. In these cases, the legacy systems must be updated and replaced with ISO 20022 Transformation services or platforms.

Moreover, ISO 20022 migration won't be the only high-stake transformation project in most banks.Combined with regulatory deadlines and budget constraints, the current adaptation methods would likely turn out to be a poor fit in the long run.

Comprehending the migration risks and taking action

Financial institutions must comprehend the migration risk associated with the transformational change for implementing ISO 20022.All financial institutions must evaluate and mitigate the risks of supporting legacy and ISO 20022 payments during the 2-year transitional phase.

From a regulatory compliance perspective, managing and storing the additional transaction information while retaining old data poses challenges.

How Can Millennium Help?

Millennium can help your business today with MT(ISO15022) to MX (ISO20022) and MX to MT transformations as defined by SWIFT CBPR+ guidelines.

Additionally, we offer flexibility for Financial Institutions to customize the Translation process.

The primary constraint when translating MX to MT is either data truncation, with data being lost in the translation process, or data loss because the MX elements have no corresponding fields in the MT message.

To help solve the Data Loss issue, We are providing a solution that delivers the Truncated Information and the Information lost during the translation process to the Back Office Applications via MT199 Messages or JSON messages and help them process all the necessary information from the original instructions.

Millennium’s ISO20022 Transformation Platform Features:

  • ● PACS 008 V08 - MT103
  • ● PACS 009 V08 - MT 202/MT202 COV/MT2 00
  • ● CAMT 053 V08 - MT940
  • ● CAMT 052 V08 - MT942
  • ● CAMT 054 V08 - MT900/MT910
  • ● CAMT 057 V08 – MT210

Supported Message Standard

Incoming (Receiving)
  • 1. Pacs.008 – MT103 / MT103STP
  • 2. Pacs.009 – MT202 / MT202COV
  • 3. Pacs.009 – MT200
  • 4. Camt.053 – MT940
  • 5. Camt.052 – MT942
  • 6. Camt.054 – MT900 / MT910
  • 7. Camt.057 – MT210
Outgoing (Sending)
  • 1. MT103/MT103 STP - Pacs.008
  • 2. MT202/MT202 COV/MT200 - Pacs.009
  • 3. MT200 - Pacs.009
  • 4. MT940 - Camt.053
  • 5. MT942 - Camt.052
  • 6. MT900/MT910 - Camt.054
  • 7. MT210 - Camt.057

Contact us us for more information or to Schedule a Demo Session.

Source: Forbes , Swift , AccessPay , Payment Components , Finextra , Fulcrum Digital