More than just a messaging system: the benefits of ISO 20022 and how to approach its adoption

11 August 2021

Deborah HoskinsProgramme Director and Product Scheme Owner for Wholesale Payments, NatWest Group

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Key takeaways:

  • A common language for payments: ISO 20022 is a common language and model for exchanging payments data across the globe and is backed by the world’s major payment infrastructures
  • Greater efficiency, better risk management, and reduced costs: ISO 20022 will also help corporate treasurers get a better view of liquidity at their firm and have a positive impact on how working capital is managed
  • Early preparation is key: firms need to start preparing to implement this new standard

ISO 20022: what it is and why it’s important

ISO 20022 is the new global standard for financial messaging. It’s a universal language enabling the transfer of all kinds of financial information, covering everything from payments and securities trading to settlement between financial institutions.

In the global, interconnected world we live in, harmonisation of payment standards is essential. ISO 20022 is set to replace existing domestic legacy payment standards in more than 50 countries, and within five years we expect to see around 80% of high-value payments by volume and 90% by value using the new protocol – a truly dramatic shift.

The migration of ISO 20022 is being backed by some of the world’s major payment infrastructures, such as the Bank of England’s CHAPS system, Target2, and SWIFT, and each are migrating their high-value payment systems concurrently.

A wide range of benefits

Once implemented, ISO 20022 is going to offer corporates a far better payments experience than previous formats and a wide variety of other benefits. Processing efficiencies will result from increased straight-through processing, fewer rejections, fewer exceptions, better reconciliations and risk management. This should ultimately lead to reduced costs for the companies that adopt it.

ISO 20022 is going to be supported by all banks globally, which will enable things like portability and interoperability of payments across providers.

As the roll-out of the standard progresses and adoption grows, those efficiencies will only increase. It’s also an open standard, so it will progressively evolve to meet users’ needs over time. It should enable fast, simple integrations for corporates whether they’re running legacy or state-of-the-art IT systems, and will therefore require less maintenance and reduced future development costs.

Perhaps most importantly, ISO 20022 enables corporates to enrich how they interact with their data, facilitating better decision-making within the company and possibly even the development of new services for customers as a result. It could help firms understand their businesses better, enabling them to operate on a more real-time basis with customers.

How will corporate treasurers be affected?

Corporate treasurers are playing an increasingly strategic role in the financial success of their firms and always looking for new ways to reduce costs and make processes more efficient, so it’s only natural that many are looking to bring in this new standard for reporting and payments.

Some may initially consider ISO 20022 to be a data & reporting compliance issue, but given the wide range of potential benefits – namely improved cashflow reporting, giving treasurers a better view of liquidity across their firm – it should be viewed as an opportunity. Aligned with instant payments, ISO 20022 will have a positive impact on how working capital is managed and how treasury teams approach day-to-day liquidity management.

What actions should you be taking?

For some treasurers, the introduction of ISO 20022 means there will be a requirement to make changes to how you send and receive international and domestic payments in the near future.

 Let’s take a look at some of the main things you need to consider:

  1. Sync-up with the rest of your organisation on what ISO 20022 is and how to apply it: To make the move a success, you’ll need to map out how ISO 20022 will impact your business, engage with all the relevant stakeholders throughout your firm, and really ensure you’re fully immersed in what ISO 20022 is all about – where it applies, how it will apply, and the advantages and disadvantages of undertaking the migration.
  2. Engage with technology partners: We strongly recommend that you start discussions about the potential impacts of ISO 20022 and consequent changes you might need to make with third-party suppliers and technology partners that support your organisation’s payments operations and systems.
  3. Be adaptable: We’re at an early stage of the migration to ISO 20022, and there will be a few changes to both your inbound and outbound payment messages. We’ll work with you to support potential internal system changes, testing and operational readiness for ISO 20022 by the transition dates.

The ISO 20022 implementation timeline for financial institutions in the UK

If you don’t currently make or receive payments that are already supported by ISO 20022 such as SEPA credit transfers or direct debits: it’s important you start familiarising yourself with the changes ISO 20022 will bring to CHAPS and international transfers.

If your organisation already uses ISO 20022 messages: you may want to start investigating any changes you might need to make to your initiation or collection of CHAPS, Euro and SWIFT payments.

It’s also important to remember that ISO 20022 isn’t a standalone issue – it’s part of a broader theme of data management. Studies have shown firms with advanced data management capabilities are around five times more likely to make decisions more quickly than their peers [1]. So it’s important that you look beyond the payment implications as you’re going through the process of migrating to the new standard. The planning process represents a great opportunity to maximise efficiencies from the standardisation of data and be more proactive about how you use data in your firm.

To learn more about how ISO 20022 could impact your business and how to prepare, check out our dedicated ISO 20022 support page or get in touch with your NatWest Corporates & Institutions representative.

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