ISO 20022: Redefining Standards in Global Payment Systems

The global shift to a standard format for card and mobile payments has improved the user experience worldwide as digital payments continue to grow. There have been some advances in cash management, but the real change will come with the global use of ISO20022 across the SWIFT (Society for Worldwide Interbank Financial Telecommunications) network. This will be instrumental for further digital progress in international and high-value domestic payment systems.

For businesses, there are great opportunities to automate payments, speed up processing, and improve the reconciliation process. If this is an area you’d like to explore further, let’s get into it.

What is changing in payments?

When exchanging financial information, experts from different fields or countries tend to create their own terms, which means using different words to describe the same idea. ISO 20022 helps solve this problem by offering a common framework. It’s a global, open standard that defines how financial business areas, transactions, and message flows should be modelled without relying on any specific language or format.

The ISO 20022 process starts by creating a shared business model — a common dictionary of terms used in financial communication. Then, it builds on this model by creating messages based on these terms, like ‘InterbankSettlementAmount’ or ‘InterbankSettlementDate.’ Finally, it defines the structure or format of the messages.

For businesses, ISO 20022 offers a deeper look into customer behaviour, as more accurate and complete data makes screening, compliance, and anti-money laundering efforts more effective. It also fully supports complex payment scenarios like Payment on Behalf of.

Migration timeline and transition

The financial industry started moving from MT (Message Type) to MX (Message Exchange) formats on March 20, 2023, with just over two years to finish the transition. MT and MX are both used for financial transactions. MT is the older format, whereas MX is based on the newer ISO 20022 standard. Both formats will be used together until November 2025.

After that, SWIFT MT messages will be phased out, and ISO 20022 (MX) will become the only format for cross-border payments and reporting between financial institutions.

What’s driving payment transformation?

Cashless payments are growing fast, and innovations in this space are helping to shape the broader shift to a digital economy. At the heart of this change is the rise of digital payments, which are playing a key role in the expansion of the digital world. This shift essentially began with the internet in 1991, which paved the way for the growth of e-commerce. As new business models came about, they required new and better payment systems to keep up.

But what’s truly driving this digital shift in payments now? Let’s take a closer look at the main forces behind it:

• Regulators and compliance — Regulators are pushing for stronger market infrastructures, and the focus is on improving data use to meet compliance needs and help fight financial crime.
• Government influence — Governments are working to increase financial inclusion, encourage competition, and reduce cash usage. Their efforts are creating a more accessible and efficient payment system.
• Consumer expectations — With e-commerce and mobile technology becoming more integrated, consumers now expect payments to be fast, easy, and secure. They want simple, frictionless payment experiences, and businesses are adapting to meet these needs.
• Technology advancements — The payments world has embraced technology and is moving from traditional banking to e-banking. With the adoption of global norms such as ISO 20022, technology continues to drive more efficient and standardised payment systems.
• Move toward real-time payments — Real-time payments are becoming the new normal. Traditional payment systems no longer meet the needs of today’s fast-paced world, so this makes the shift to real-time solutions essential for businesses and consumers alike.

Benefits of ISO 20022 for Businesses

In this section, we’ll look at how the new standard impacts businesses and explain the benefits.

In-house banking and payments

In-house banking helps businesses manage cash efficiently. Adding Payments on Behalf of Entities can cut costs even more, but many systems don’t capture important “ultimate party” information for easy reconciliation. ISO 20022 XML messaging solves this by simplifying both international and domestic payments. It guarantees the right data flows through the payment chain.

Automating cash reconciliation

Reconciliation can be slow when data is unstructured or missing. ISO 20022 fixes this by providing detailed, structured data — like the camt.053 bank statement, which has 1,600 data fields. This speeds up reconciliation and makes it more automated.

Better data also helps businesses make smarter decisions and predict demand.

Simplifying cash management

Working with multiple banks is tricky due to their different file formats. ISO 20022 simplifies this by using one standard format so that it’s easier to switch banks and reduce friction in payment systems.

New guidelines from the Common Global Implementation Group also make it clearer how to handle local requirements and further ease multi-banking.

Reducing payment complexity

Different payment formats in each country create complexity. ISO 20022 is standardising formats worldwide to make payments simpler and more reliable, both locally and internationally.

More competition in software solutions

As ISO 20022 becomes the global standard, banks and FinTech companies can create better solutions for corporate treasury. Moving away from proprietary formats opens up competition and innovation, and we should see more tools helping businesses make faster and smarter decisions.

Could local differences affect ISO 20022 and its benefits?

This global standard will benefit the industry, but some high-value payment systems are introducing local changes. For example, the Bank of England focuses on the UK market and suggests specific codes and details for party information. To help with the transition, groups like HVPS+ and CBPR+ are working to standardise payment systems across regions and make cross-border, high-value payments easier for both banks and businesses.

What does this mean for banks? Even with local changes, the main benefits of ISO 20022 remain. However, managing multiple standards could prevent banks from saving costs. With new data requirements rolling out at different times in different regions, banks will need to stay flexible and update their systems to keep up with these changes.

What’s next for the industry?

The shift to ISO 20022 is a big project for banks as they update their systems. This change will also affect businesses, so it’s important for companies to understand what’s involved and make the right choices for their strategy. Working with partners who understand these changes and help businesses make the most of them will be helpful.

SWIFT is also discussing the possibility of opening its new FINplus network to businesses alongside the existing FileAct network. This could include more detailed validation so banks will be able to follow the same standards for payments in different countries. If this happens, it could make payments simpler and easier to make. It’s worth keeping an eye on this development.