An Overview of Australia's Transition to the ISO 20022 Standard

The adoption of the ISO 20022 standard for payments and messaging is a monumental shift for financial institutions across the globe. On March 20, 2023, over 11,000 FIs in more than 200 jurisdictions successfully went live with the standard, making it one of the most extensive migrations in history.

In Australia, this transition involved 50 major national and international institutions integrating critical elements of their payment systems, including the domestic real-time gross settlement (RTGS) system and High-Value Clearing System (HVCS), to the ISO 20022 message format. Read ahead to learn more details about this event and its impact on the country's financial landscape.

What Is ISO 20022 & Why Is the Shift Toward It Necessary?

The adoption of the ISO 20022 messaging standard globally enables interoperability between payment systems and networks by eliminating overheads associated with translation and conversion.

This promotes seamless movement of payments across different networks, increasing their reach and overcoming fragmentation found between systems based on different formats. It also future-proofs payments by facilitating efficient connections with new technologies that may be developed.

Thus, the adoption of the ISO 20022 messaging standard in Australia not only yields plenty of benefits for the local payments landscape but also is completely necessary to ensure the country is keeping in step with the times.

The Australian ISO 20022 Migration Programme Timeline

The migration to the ISO 20022 standard is a large-scale transformation for the Australian payments landscape which was years in the making and involved multiple key steps, namely:

1. Consultation Process

In April 2019, the Reserve Bank of Australia (RBA) recognized the importance of migrating the Australian payment system to the ISO 20022 messaging standard. RBA then initiated a consultation process, which recommended that AusPayNet manage the migration program.

AusPayNet is a self-regulatory body for the local payments industry. It is responsible for ensuring that the payment system in Australia is efficient, reliable, and secure.

RBA’s recommendation in AusPayNet’s favor was a significant turning point for the migration program, as it paved the way for collaboration between regulators, financial institutions, and technology teams.

AusPayNet's involvement as the lead body provided a central point of coordination and ensured that the migration was carried out in a standardized and organized manner.

2. Building and Testing

Over the next four years, 50 HVCS participants worked closely with AusPayNet to build and test key aspects of the new messaging standard. This involved extensive coordination between the self-regulatory body and FIs to ensure a seamless transition.

During the testing phase, the FIs worked closely with AusPayNet to ensure that the new messaging standard was functioning correctly and that there were no interoperability issues between different systems.

3. Implementation

Finally, in March 2023, the Australian payments industry successfully migrated critical elements of the domestic real-time gross settlement (RTGS) system and HVCS to the ISO 20022 message format. This marked a significant milestone for the industry and demonstrated the effectiveness of the collaborative efforts.

Benefits of ISO 20022 for the Australian Payments Landscape

While the adoption of the ISO 20022 messaging standard in the Australian payments landscape was a complicated process, it was worth all the invested effort and resources, as it provides numerous benefits for stakeholders in the ecosystem, namely:

• Improved efficiency. ISO 20022 provides more structured and comprehensive data, which* improves the speed and efficiency of payment processing.
• Increased automation. The standard allows for more automation in payment processing, reducing the need for manual intervention and the potential for errors.
• Enhanced transparency. The increased data richness and standardized format provide greater visibility into payment transactions, enabling better tracking and reconciliation.
• Improved international interoperability. The adoption of the standard aligns Australia with the global payments ecosystem, which helps to facilitate cross-border transactions.
• Enhanced innovation. The standard's increased data richness allows for more innovative services and products to be developed, enabling greater competition and customer choice in the payments landscape.

Overall, the adoption of the ISO 20022 messaging standard represents a significant step forward in modernizing Australia’s payment system and making it future-ready.

What’s Next for Australia’s Payment Ecosystem?

The migration to the new ISO 20022 standard is a critical transformation in the financial services industry. However, it is merely the initial stage of a journey toward a more unified standard.

For instance, Swift users will have to undergo a co-existence period between the old ISO 15022 and ISO 20022, with the expectation that the former standard will be phased out by November 2024 for domestic transactions and by November 2025 for cross-border payments.

One initiative that strives to tackle this situation is the consultation document issued by the Committee on Payments and Market Infrastructures (CPMI) in March 2023. Its goals are to address the challenges of mixed-use payment messaging standards in cross-border transfers, maximize the benefits of ISO 20022’s implementation, and mitigate variability in its global deployment.

With that said, AusPayNet's implementation of ISO 20022 in Australia's domestic RTGS and HVCS involved aligning the message format with the New Payments Platform (NPP) and cross-border payments and reporting (CBPR+) standards. This places Australia in a favorable position to ensure continuous harmonization as CPMI's developments in this area progress.