The Financial Rosetta Stone: Unlocking the Power of ISO20022 in Payments

In today's rapidly evolving financial landscape, the need for seamless and efficient payment systems has never been greater. As we move towards a world of instant and interconnected transactions, the standardization of payment messages becomes critical. As the CEO of FinTech Consulting and a seasoned payments industry veteran, I've witnessed numerous transformative technologies. However, none have excited me quite like ISO20022 - what I fondly refer to as the "Financial Rosetta Stone" of our era. This standardized messaging format isn't just another dry technical specification; it's the key to unlocking a new world of financial possibilities.

In today's rapidly evolving financial landscape, the need for seamless and efficient payment systems has never been greater. As we move towards a world of instant and interconnected transactions, the standardization of payment messages becomes critical. As the CEO of FinTech Consulting and a seasoned payments industry veteran, having witnessed numerous transformative technologies, I see ISO20022 (I'm officially dubbing it the "Financial Rosetta Stone" of our era) as not just another dry technical specification, but rather as the key to unlocking a new world of financial possibilities.

?Why ISO20022 Matters

ISO20022 is more than a mere standard - it's a universal language for financial communication. According to Kalyani Bhatia from Swift 's update at a recent payCLT webinar, as of August 2024, more than 1MM ISO20022 payment messages are sent on a daily average basis across more than 210 countries, with the expectation that about 37% of financial institutions will have migrated to the new standard by end of this year . Rich and structured data in the ISO 20022 message will help this by providing better checks upfront, lower friction in the middle, and better reconciliation at the end. And, therefore, better and faster end-to-end management of payments. This widespread adoption underscores its importance in:

• Modernizing payment systems
• Enhancing cross-border payment interoperability
• Automating business AR/AP reconciliation
• Improving cash liquidity
• Enabling embedded finance solutions

Data from Netcetera highlighted that ISO 20022 structured data can reduce false positives in sanctions screening by an estimated 25-30% enhancing operational efficiency and can reduce 2-5% of payments that lead to inquiries cutting down on investigation times and operational costs [1] . Scotia Bank saw the reduction of investigation time by 84% [2].

The NACHA Conundrum

While many payment systems are embracing ISO20022, NACHA (National Automated Clearing House Association) has been slower to adopt this new standard. However, in a recent Modern Treasury webinar "Standardizing Payments Information: A Conversation with NACHA ", NACHA's Amy Morris, AAP and Modern Treasury's Sam A. discussed innovative approaches to leverage ISO20022 concepts within the existing ACH framework.

Unlocking Hidden Potential?

Sam Aarons highlighted a fascinating workaround: embedding ISO20022 structured data within the often-overlooked CTX (Corporate Trade Exchange) field of ACH transactions. Additional payment related information can be entered in one or more addendum records. CCD and PPD are restricted to 1 addendum record, while CTX can have up to 9,999 records, and each record can hold up to 80 characters [3].

By leveraging the CTX field and sharing standardized data in these records, businesses can tap into the power of the ISO 20022 messaging field:

• Greater Operational Efficiency: Improve straight-through processing (STP) rates while reducing exceptions, and accelerating cash flow
• Better Risk Management: Richer data enables more effective screening of data, strengthening fraud detection capabilities
• Improved Customer Service: Provide transparency on payment fees, remittance details, estimated settlement time and more efficient reconciliation
• Innovation Opportunities: Use ISO 20022 to better understand your customers' needs and develop data-driven insight and reporting products
• Improved Interoperability: Clearly defined data elements partnered with AI, simplifying the mapping between payment systems and reduces data translation and truncation challenges

The Path Forward

While NACHA may not be fully embracing ISO20022 yet, they are soliciting feedback on potential new fields to add value to their system. Initial ideas shared during the webinar included fields like date of birth, ultimate sender and receiver, country identifier code (if you have an opinion on this, please share back to NACHA)

As an industry, we must continue to advocate for the adoption of this "Financial Rosetta Stone." The benefits are too significant to ignore - from improved efficiency and reduced costs to enhanced global interoperability and innovation potential.

In the meantime, savvy financial institutions and businesses should explore ways to leverage ISO20022 structured data within existing payment rails, like the CTX field in ACH transactions. This approach allows us to start reaping the benefits of standardization today, while paving the way for broader adoption tomorrow.

The future of payments is now, and it speaks the language of ISO20022. Are you ready to decode its potential and revolutionize your financial operations?

#fintech #fintechconsulting #iso20022 #financialrosettastone #ctx #paymentmodernization #bankingtransformation #thefutureisnow #instantpaymentsmaven

[1] Netcetera, "How will ISO 20022 impact banking and payment transactions? "

[2] Swift, "5 Reasons why you should adopt ISO 20022 Now ", 2024

[3] Treasury Software, "NACHA SEC Code Specifications "

Other resources:

SWIFT, "ISO 20022 for Payments for Financial Institutions ", 2024

NACHA "ISO 20022 Credit Transaction Guide to Mapping US ACH File Formats - CCD, CTX, PPD, and Outbound IAT ", 2021

ACI Worldwide, "Unlocking Opportunties with ISO20022 Migration ", 2024

Federal Reserve Bank of New York, "What is ISO 20022 and Why does it matter ?", 2022

E&Y, "How to Transition from a tactical to strategic adoption of ISO 20022 ", 2024