ISO 20022: What Does it Mean for the Future?
Following our Practical Preparations for ISO 20022 webinar, we looked last week at what the top three priorities of banks should be in preparation for migration to the ISO 20022 messaging standard. One of these was to educate customers and internal stakeholders on how to get maximum benefit from ISO20022 adoption. The webinar highlighted key benefits and advantages which should be communicated ahead of the ISO 20022 migration. I explore some of these below:
Enhancing internal processes: As we have discussed previously, payments is far from the only function to be affected by ISO 20022 migration. But what is vital is that banks communicate to other departments not only the practical implications of the standard but how it can actually benefit them, particularly if a more strategic, long term approach is adopted as opposed to short term translation workarounds. For example, compliance and sanctions screening is enhanced by the richer format of the ISO 20022 message, whereas ‘dropping’ data from incoming messages in order to utilise temporary translation solutions may present problems for this function since they are unable to screen against the full provided information. If these teams are aware of what the standard means for them, they are more likely to support a strategic approach.
Increasing efficiency: As well as benefits for specific business units, ISO 20022 has the potential to drive efficiency and optimisation initiatives across the bank as a whole. The presence of more data in messages will make reconciliations easier and reduce exception rates, as well as making the process of payables and receivables more reliable, thus minimising the need for error correction. Other financial institutions and corporates stand to benefit significantly from these improvements, particularly in scenarios where there are large volumes and/or complex structures of payments flowing through the organisation. As an example, we see insurers struggle to reconcile payments partly because of the paucity of the data delivered to them by their transaction bank partners using existing standards, ISO20022 adoption by insurers could radically reduce back-office costs in this industry and could be the impetus to a wider digital transformation. Transaction banks should be proactively advertising these benefits to their customers, or risk them moving to a competitor who can deliver ISO20022 messages.
The global, standardised nature of ISO 20022 also means that it will be easier for banks to globally and holistically enhance the value of their payments services across all their operating territories and rapidly enter new markets and geographies . However, they also need to bear in mind the fact that there are multiple versions of the ISO 20022 standard available and that they are likely to find different ones running in different regions, sadly introducing a degree of intricacy in an already complex business. That being said, it is also vital that bank’s communications of ISO 20022 do not focus too much on the technical details at the expense of the business implications. This is particularly true when talking to customers - banks should focus on the business benefits rather than the technical nuts and bolts. The new, richer information also enables banks to strengthen and open relationships with their corporate customers by delivering greater transparency around payments and fees.
One of the technologies currently driving innovation in banking is the use of APIs. This has been a hot topic between banks and their corporate customers for some time. It was heartening to hear on the webinar that the ISO data standard elements are forming the basis of open APIs. In theory this allows APIs from different providers to be easily connected and provides the basis for another round of innovation as new entrants provide value on top of these APIs.
As migration increases around the world, both banks and their corporate customers should expect to see some exciting new developments and opportunities across the market place.
Gresham Technologies is helping financial institutions to prepare for ISO 20022 with both strategic transformation projects and rapid transformation solutions. To find out more please contact us below