ISO 20022 – the bedrock for payments transformation in the US

A recent webinar, hosted by Icon Solutions, convened a panel of industry experts to explore the progress of ISO 20022 in the US and across the world, and what this means for ongoing payments transformation initiatives. In this article, Lauren Jones, Global Payments Ambassador for Icon, summarises key insights and takeaways.

The financial services industry has seen ISO 20022 grow firmly over the last 15 years. What was then a small pocket of countries tackling migration has now become widespread adoption for domestic and international payments.

Migration to ISO 20022 has the backing of many of the world’s most important payment market infrastructures, such as the Bank of England’s Real-Time Gross Settlement (RTGS) service, Fedwire (the Federal Reserve Banks’ RTGS funds-transfer system), the Clearing House Interbank RTP system and SWIFT.

With each of these systems migrating their High Value Payment (HVP) systems almost concurrently, widespread ISO 20022 adoption has reached a tipping point.

The time is now for ISO 20022

Global initiatives such as SEPA in Europe, the New Payments Platform in Australia, and The Clearing House RTP system have been driving change for some time. However, the SWIFT migration timeline is really expediting the adoption curve (despite the timeline delay).

Stacey Rosenthal, Head of Payments Product Management, Transaction Banking, at Santander Bank stated that ‘ISO 20022 is not happening somewhere else anymore’, it is happening in the US. Rosenthal noted that platforms in the US are being built and natively supporting ISO 20022, adding ‘it is not as difficult as it once was’.

Cheryl Jacobs, Global Product Manager at Wells Fargo agreed with Rosenthal, ‘Europe was the first to drive usage but now we are seeing a network effect, where banks and market infrastructures want to reuse as much as possible’.

As the world becomes more connected, having a globally interoperable standard is attractive. ISO 20022 allows banks to have a consistent experience across geographies and provides a low risk way to modernise. Jacobs remarked ‘banks are dealing with modernisation of infrastructure and need to decide what is the bedrock. ISO 20022 is the only choice’.

ISO 20022 in practice

While banks across the world are grappling with ISO 20022 and formulating a strategy around it, Rosenthal stated that ‘it is crucial that banks early on in their journey engage internal and external stakeholders to define the strategy’. Resource should be pulled from all areas of the bank including technology, operations, AML, product and sales.

Gene Neyer, Executive Advisor at Icon Solutions added that implementation is not just a technical issue, ‘governance, sequencing and coordinating activities are vital for success’. Neyer added that there is a need to lay a foundation where legacy systems are ringfenced, but organisations need to understand how to move rich data through or around legacy infrastructure as early as possible.

What to do with legacy is a challenge for many and mapping, or translation services, might well be deployed in the early stages of adoption. Many Market Infrastructure ISO 20022 programs include a phased approach where there is a like-for-like phase (where no new functionality is used), allowing adopters to become familiar with the new standard. This is often followed by multi-year adoption of new functionality and gradual decommissioning of legacy formats.

However, mapping should not be viewed as a longer-term solution. Jacobs noted that ‘to harness the full value, supporting ISO 20022 natively would allow banks to build from the ground up and in a modern data model where both internal efficiency and external value can be realised’.

ISO 20022 is the way to deliver added value

One of the major drivers for ISO 20022 adoption in the US is to remain competitive. By implementing a common standard, it allows banks to have a platform to innovate at pace and lower cost.

Rosenthal shared experience from Santander, ‘the bank already supports ISO 20022 within our strategic client services for integrated payables globally and domestically. We look at ISO 20022 as a critical foundational element to deliver value to our corporate clients’.

The benefits of ISO 20022 are not always solely external. Rosenthal remarked ‘there is much to be gained internally. Even our ancillary applications such as fraud and OFAC are being enabled with ISO 20022 in mind.’

Increasingly APIs are being used to support both deep integration within the bank but also broadly with a spectrum of fintech partners. ISO 20022 allows the capability of having a single data model across a multiplicity of computer languages. Traditionally XML has been used in the interbank space, but increasingly we are seeing JSON being used for APIs. ISO 20022 can be used for this purpose also, as well as distributed ledger technologies; allowing banks to have one data model across multiple uses.

Neyer added ‘with a shift towards data-driven architecture, ISO 20022 allows banks to generate greater amounts of standardised data to provide targeted insight’. The richer data format in ISO 20022 means it can be both a benefit and a challenge, as banks generate more data on their customers they must know what to do with it.

Prioritising payments transformation

Over the next few years, we will see payments being refocused from a commoditised proposition to a strategic, value-adding one. However, being “data-aware” is not good enough. Banks need to be powered by that data. Banks are aware that merely cutting costs is not enough to sustain themselves, they must also use payments data to deliver more appealing propositions and revenue boosting value-added services.

The move to ISO 20022 will be of paramount importance for banks to take advantage of richer, standardised data sets. With more payment volumes set to adopt ISO 20022 by 2025, discussion is moving on from the standard as transactional and more about the data that can be extracted from it.

There are questions about how to take advantage of ISO 20022 whilst adoption is still fragmented across the US. However, it is evident that ISO 20022 is coming and ‘the time is now’ to prepare.

You can listen to the webinar here.