Getting the best out of ISO 20022

The payments industry is moving towards a new era. Banks, and non-bank financial institutions (FIs) such as payment service providers (PSPs), can now use ISO 20022 or the older MT format until November 2025, when SWIFT will retire its existing message standard for payments.

At the Lloyds Bank Payments Innovation Conference, delegates learned that while transitioning to the new standard is technically challenging it can deliver significant benefits; the focus must now be on developing use cases that leverage ISO 20022’s richer data, faster transactions, and smoother experience.

Making the most of coexistence

The more than 11,000 member institutions of SWIFT were mandated to be able to receive ISO 20022 messages by March 2023.

“While there are a handful of banks that have now transitioned almost all their outbound flows, most have not – or are just beginning that transition work in a staggered plan. Some have not yet started,” says Oonagh McGrane , Director, FI Commercialisation, Lloyds Bank.

Non-bank FIs that utilise bank channels have less control over their migration timetable but should work closely with their bank partners to clarify timelines, and ensure they are ready to receive and send not just payment instructions but also statements, and exceptions/investigations, which also use ISO 20022.

While coexistence gives the industry breathing space, it also raises challenges: having two standards in operation requires extensive translation, which frequently causes truncation problems. Moreover, at the moment banks are interpreting various ISO 20022 fields in varying ways.

Separately, schemes around the world are also adopting the standard, which causes additional complexity. In the UK, CHAPS migrated to ISO 20022 in June 2023 and Faster Payments is due to follow.

“Until the industry is natively generating and processing ISO 20022, problems are inevitable, especially with the use of Translators in the process,” says McGrane. “The onus is on SWIFT members to tackle these challenges sooner rather than later, so they can support their FI client base’s own migration journey. Certainly, migration should not be left until November 2025 when MT messages are switched off.”

Delivering benefits for all

The move to ISO 20022 will deliver faster payments, straight through processing, and enriched data. These characteristics will help banks to improve operational efficiency through streamlined data exchange and lower costs from automation, delivering benefits in areas such as:

• Financial crime compliance: Enhanced transparency and a better understanding of payment chain relationships, combined with a targeted approach to screening facilitated by structured data fields, will reduce false positives and friction, improving customer experience.
• Exceptions and investigations: Less time and fewer resources will need to be spent on manual investigations as ISO 20022 includes a new category of messages for enquiries and investigations. Clearer communication/faster responses will improve customer experiences.
• Compliance: Richer, more structured data will facilitate better reporting, risk management, and more straightforward regulatory compliance.

“However, the building blocks of ISO 20022 also create opportunities for client use cases,” explains Nathan Martin , Head of Payment Sales, Financial Services, Lloyds Bank.

“Banks and non-bank FIs need to look beyond benefits to the industry.” Potential use cases include:

• Corporate treasury activities for clients: Improved reconciliation and real-time liquidity positions can increase treasury efficiency, bolster working capital and facilitate better decision-making by corporate treasurers.
• Opportunities for innovation/value propositions: Enhanced, structured data makes it easier to quickly and accurately interrogate customer information, giving banks and non-bank FIs better insight into customer payment trends.

This information can be used to develop new products or solutions. For instance, a hyperlink in transaction data could connect to an e-invoice or information about an insurance payout, or trade transactions could be streamlined by using data fields to share Know Your Customer and Anti-Money Laundering information. Enriched data could even bring order to the current complex arrangements associated with buying a house in the UK by netting out payments when a transaction completes.

Conclusion: Cooperation and collaboration are key

The coexistence period has highlighted the interdependence of the payments ecosystem. “Progress is not dictated solely by the fastest participant,” explains Nick Mellish , Engineering Lead, Next Gen International and High Value Payments at Lloyds Bank. “Rather, it requires collaborative effort to iron out problems when we see things going wrong.”

Similarly, there is much to gain from cooperation and collaboration when it comes to use cases. “Banks, non-bank FIs, and corporate clients need to collaborate more so that ISO 20022 can deliver on the promise of rich data,” says Nathan Martin . “That’s why Lloyds Bank believes it is important to stimulate debate now.”

This article, and quotes within, are based on discussions at the Lloyds Bank Payments Innovation Conference held on 30 April. The views expressed are those of the speakers and do not necessarily reflect the views of Lloyds Bank.