A lack of standardisation in payments messages has been troubling banks for some time. Many MT standards have been customised to the point where additional steps and inputs are required. As standardisation is rolled out across the industry, efficiency will increase and the cost of managing your messaging should diminish. Furthermore, this standardisation ‘reset’ will also remove the ambiguity that had begun to creep in to existing message standards. When these have been customised so heavily, there is plenty of scope for misunderstanding and differing interpretations to wreak havoc.
ISO 20022 isn’t only about addressing problems or inadequacies with the existing situation though. It also enables firms to capitalise on opportunity. This is because the new format has been designed to support the modern banking and payments system and is far richer in terms of the detail it enables banks to send and receive. At a time when banks are pouring time and resources into gathering and analysing ‘big data’, ISO 20022 messages are handing this to them on a plate. Leveraged correctly, this data can form the basis of product, process, and customer innovations which enable banks to thrive in an environment made increasingly competitive by the emergence of fintechs and other new entrants.
The new standard may present practical challenges, but it also delivers practical benefits too. One area set to benefit is reconciliation, as ISO 20022 strips away the need for complex reconciliation rules to manage the highly customised style of the existing messages. The new rules are also bank and market agnostic and contain a level of detail which should make reconciliation easier, although firms will still need to navigate their way through the challenges of a likely fragmented implementation period.
We can’t talk about these benefits however without acknowledging the elephant in the room – that is, that the continuing uncertainty around COVID-19 and the future means that many banks will be facing efficiency pressures and resource constraints over the next twelve months, potentially making securing buy in and budget for large ISO 20022 projects challenging. For this reason, some banks may wish to consider using out of the box message transformation and standards libraries for the time being, which equip them to operate in an ISO 20022 world quickly and efficiently. However, as an industry we should remember that ultimately the ISO 20022 standard is here for the benefit of the payments ecosystem and ensure that firms don’t miss out on the value in adopting it.
Gresham Technologies hosted an ISO 20022 webinar on November 17 featuring Peter Hoogervorst, Managing Director Transaction Banking Products Asia at Credit Agricole Corporate and Investment Bank, and Convenor of the ISO 20022 Standards Evaluation Group for Payments. Click here to access the webinar on demand