The future of payments is ISO 20022

How will you transition? Table of contents

Foreword...... 3 The impact on the industry...... 13 The applications of ISO 20022...... 13 Introduction: The future of payments is ISO 20022...... 4 Which is the best deployment model?...... 13 Section one: What are the operational considerations?...... 5 Benefits for all...... 14 ISO 20022 adoption: enriching the payments value chain...... 6 The integration challenge for banks...... 15 Changing the face of payments...... 7 SWIFT, fintechs and industry innovation...... 15 Section two: The view from Infosys...... 8 Driving innovation...... 15 The many opportunities of data...... 9 Global Services...... 16 The opportunities ISO 20022 migration...... 9 Conclusion...... 17 The challenges of migration...... 10 ISO 20022 implementation best practices...... 11

Section three: The view from SWIFT...... 12

2 Finastra ISO 20022 White Paper Foreword

Digitalization comes to payments

In 1995, Don Tapscott wrote The Digital Banks, meanwhile, will be able to get closer processes and operations to adapt to Economy. In this landmark work Tapscott to their customers and offer better services. asynchronous messaging. This will in turn accurately predicted the digitalization of require new systems, such as Confirmation As this happens, the nature of the entire business, at a time when most people still of Payee and Request to Pay. ISO 20022’s payments supply chain will change: there referred to the internet as the ‘information global implementation will be the defining will be no one owner. Instead, consumers, superhighway’. Twenty-five years on, and moment that empowers the industry to corporates, banks, software vendors, fintechs the payments industry is finally ready to go move forward with these standards. and other stakeholders will all play a part. through the digitalization Tapscott predicted Finastra and the wider payments industry and which much of the business world ISO 20022 messages will be the glue is already working on solutions to this started long ago. The catalyst is ISO 20022. that binds this ecosystem together. challenge, and it will be overcome. Leveraging the structured data enabled The current edition of the standard was And as this white paper makes clear, the by the standard – the first time such data published in May 2013, and it’s been clear rewards of ISO 20022 make any temporary has been available for payments – and since then that the standard represents the disruption more than worth it. We’re drawing on credible partners like Finastra, all future of payments messaging. This is due entering a new era of payments messaging players in the payments supply chain will be to the rich information and process that will drive competition, innovation able to work together, enrich their messages automation it enables. Indeed, Finastra’s and efficiency through interlinked partner for new added-value applications, and payments hub is ISO 20022 native – built ecosystems. For our part, we’re already enhance their business processes. in readiness for the wider industry adoption helping a broad variety of stakeholders that’s now gathering pace. That’s not to say that the adoption of ISO process and enrich their payments, and 20022 will be plain sailing. One challenge is we look forward to continuing this work Once this adoption is complete, all that the standard describes an asynchronous as digitalization takes hold in the wake stakeholders within the payments supply messaging process. For banks, which of ISO 20022’s implementation. chain will benefit from truly digital payments currently rely on return messages to confirm messaging and, as a result, much more Enjoy the report. the successful completion of a payment efficient payments processing. Corporates transaction, this will cause significant Paul Thomalla will benefit from data-rich messages that upheaval, and is a change that underscores Global Head of Payments, Finastra will provide them with all the information the need for everyone in the payments they need to automatically reconcile ecosystem to get ISO 20022 migration right. transactions the moment they happen. Banks will need to overhaul their business

3 Finastra Beyond Platform White Paper Introduction

The future of payments is ISO 20022: How will you transition? The changeover from the legacy FIN MT messaging standard to the data-rich ISO MX standard is a positive step forward for all participants in the payments value chain. It does, however, introduce a number of complications stemming from the significant differences between the two standards. So how are banks approaching this task?

Migration to ISO 20022 is moving During a period of like-for-like support, big bang route, Fedwire and CHIPS at pace. What started off in the only those ISO 20022 fields that are now consulting around the merits Automated Clearing House (ACH) correspond to the legacy format are of such an approach themselves world with the Single European used, which makes the migration – albeit with a longer timeframe. Payments Area (SEPA) is increasingly simple and safe (this is the approach Hong Kong HV is another system becoming the de-facto standard being taken by CHAPS, for example). moving to ISO 20022 in one big bang, for Instant payments (IP) and, Conversely, a big bang approach so even given further debates on the in particular, for high value (HV) involves an immediate move to full ISO like-for-like model, we envision that payments. Today, many clearing 20022 support with all the associated all these systems and currencies will system users and operators benefits (as is the case for TARGET2 have moved over to ISO 20022 by end recognize the benefit of moving and EURO1). The situation is more of 2023. away from proprietary formats to complex in the UK, as the country’s In this paper, experts from Finastra, a global standard that facilitates planned New Payments Architecture Infosys and SWIFT provide interoperability, rich data and (NPA) covers the transition of multiple perspectives around the challenges increased automation. retail rails to ISO 20022 alongside that and opportunities around ISO 20022 of the Real-Time Gross Settlement The approach to adoption varies, with adoption as the industry steps up its (RTGS) system. one of two models being taken: preparations for the new standard. In the US market, both Fedwire and 1. A one-step, or “big bang”, migration CHIPS initially planned a like-for-like 2. A multiple-step, or “like-for-like”, transition period. However, given that migration (where data fields and the Eurozone systems are taking the messages are gradually moved over)

4 Finastra ISO 20022 White Paper Section one

What are the operational considerations?

SWIFT is planning to introduce ISO A number of challenges exist that are For banks, it will not only be important submitting payments through 20022 messaging for the many- “While migration to ISO 20022 mutually shared amongst financial to take the impact of adherence on the bank’s proprietary channels, to-many service it operates by end isn’t mandatory for corporates, institutions, such as the ability to their back-office into account, but Eurozone banks are now familiar of 2022. This will be implemented it’s likely that many will choose transfer the full set of payment also how the transition timelines with ISO standards through their use alongside the existing FIN MT service, remittance details to the next agent. impact their customer propositions. of FileAct, which supports the ISO giving institutions a window of time to adopt the standard to benefit To help alleviate the total effort For corporate customers and Non- 20022 format and has been widely to adopt the new format. SWIFT is from faster Straight Through of its community and provide an Banking Financial Institutions (NBFIs) used for these payments since the developing solutions to minimize or Processing. In my experience, efficient solution, SWIFT is employing that aren’t directly connected to the introduction of SEPA. To date, this avoid data truncation, a consequence new measures to assist with such clearing schemes and who want use has tended to be limited to the of conversion requiring a prioritization large enterprises are happy to get scenarios. However, institutions must to move to the new standard, the payment files, and reporting has of which information from ISO on board with ISO 20022 when investigate their own situations and transition should be largely invisible as frequently remained the domain of 20022 payments is mapped into the they realize they can collect more should assess this early within their the bank is already defining how the MT9xx series messages (although this condensed MT message. SWIFT project planning. payment instruction is represented will likely change as corporates gain a data through MX messaging, works closely with its community (through the online channel, for better understanding of the benefits of The good news is that from a of banks from around the globe to which can then be applied to areas example), and does the necessary enriched messaging data for reporting sanctions screening perspective, ISO define clear usage guidelines and transformation into the messaging and other functions). such as internal reconciliation and 20022 will provide immediate benefits document common market practices formats demanded by the clearing in treasury management. to banks. This is because the enriched Some of the largest gains for banks to address these issues and bring the ” the background. information enabled by the standard can be expected from the introduction immediate benefits of enriched data to Harcus Copper will help reduce false positives, which From a bank’s perspective, while there of better structured, granular party correspondent banking. Head of Integration and Information in turn will reduce costs for banks and is initial heavy-lifting to do as today information supported by ISO 20022 Services, Digital Banking, Barclays As part of the transition, there will help accelerate the Straight Through there is a wide mix of ISO, proprietary that will be introduced to payment be a three-year co-existence period Processing (STP) rate. and MT-based channels, consolidation submission; this will have a major where systems can continue to send on ISO 20022 will ultimately result in impact on STP rates and avoid It is also worth noting that the SWIFT and receive using MT format so SWIFT is further enhancing its message great efficiency gains, with all payment false positive hits and the manual gpi initiative will work across both MT long as they are prepared to receive translation capabilities which can run in types having a standard representation. intervention arising from poor and MX standards and so, for example, and operate with the additional data several modes (such as via an Application quality data. the gpi Tracker will be able to stitch Also, while as already mentioned the coming from those institutions who Programming Interface (API), or on-premise) together messages via the UETR for impact should be low on customers adopt and implement ISO 20022 from to support institutions of all sizes in the both message types. the start. adoption process.

5 Finastra ISO 20022 White Paper ISO 20022 adoption: enriching the payments value chain

The adoption of ISO 20022 is part of a wider global trend towards payments processing standardization. Through standardization, banks across the world hope to drive business efficiencies and catch up with fast-changing market trends.

ISO 20022 has been around for However, change is required. This is nearly two decades, yet banks have because the payments landscape now mostly been reluctant to switch to the operates on a scale not seen before. standard completely. The outdated If a payment transaction in the 1980s yet still functional MT framework has can be equated to a single person therefore proved to be enduring. riding a bicycle and carrying a single bag, today’s payments transactions Built in an era where it was necessary are like high-speed trains carrying to use every single byte of message thousands of passengers and a whole sparingly, MT had – and some think heap of luggage. Indeed, the total still does have – the advantage of volume of payments data processed being a no-nonsense format thanks to in the whole of 1980 is now processed its underlying principle of sharing only every single hour. what’s absolutely needed. Moreover, given that banks have billions invested in MT-like architectures, a decision to switch is a board level issue with critical implications. It’s little wonder therefore that MT is still with us.

6 Finastra ISO 20022 White Paper Changing the face of payments

While barely noticeable to consumers, being able to transmit and receive a much larger set of data points within a single payment is a game changer for players in the payments value chain.

This is because additional data 1. The translation model Deciding which approach to take is unlocks a range of benefits including: This approach involves translating incoming MX messages to the MT only the beginning. Banks must also format and vice versa for outgoing messages. Doing so reduces disruption, ensure their payments operations • Deeper insights into customers as banks can keep on using their legacy internal systems. A range of IT strategy is aligned with their chosen and partners providers and solutions are available to help enable this model. model. Here they have multiple • Better accounting and financial data choices varying from upskilling for • More flexibility  Pros: Less disruptive. Lower upfront cost. MX (hybrid), hiring for MX (overhaul) • More transparent payments  Cons: Heavy dependence on third parties. Less interoperability or putting change off to a later date These benefits can only be accessed with fintechs. No new customer insight. (translation). We are currently too through the MX format and there is no early in the transition journey to 2. The complete overhaul model way to postpone the switch any longer. determine which approach is best. In this approach, organizations prepare then execute a wholesale That said, it does now seem clear that We have seen three different transition architecture transformation based on the latest payments and continued avoidance of the transition models being deployed on the market: accounting systems. requirement is the least safe bet.  Pros: Able to leverage rich data across the business. New insights on the market and customers.

 Cons: Quite disruptive. Heavy upfront investment.

3. The hybrid model Large banks that are present in dozens of geographies have opted for a hybrid approach where translation is used in some markets and complete overhauls in others. The choice varies according to the risk appetite or the regulatory situation in each market.

 Pros: Flexibility. Ability to localize strategic response.

 Cons: Added complexity.

7 Finastra ISO 20022 White Paper Section two

The view from Infosys

The challenges of MX migration are The answers to these questions will People Business outcome (i.e. impact much more serious than some banks help banks understand whether the Do I have people with the on customers): perceive. This is because the transition translation model, complete overhaul knowledge needed to deliver • How important is my payments service isn’t as simple as a format change or hybrid approach is best suited to this transformation? for my business/customers? or a “tick box” compliance effort. • Are my customers going to appreciate their needs. Rather, the new format underpins a the value added by the enriched data Overall, we believe that installing a

fundamental transformation of the considerations provided by the MX messages? translation application at the end of payments world. Banks can either

External External the payments channel is a good option take a “wait and see” approach and for all banks as it reduces the risk of do the bare minimum required of Processes Market/competition: them failing to ready themselves in them, or they can use this opportunity Can I review and adapt all • How does the ISO 20022 time. Such applications enable banks to completely rethink their end-to-end

my back office functions Internal migration project fit into my to decouple further internal change in payments service. and operations to the portfolio? How much can I do their downstream applications from Opposite are some key questions new model? considerations with my resources and budget? the mandatory migration dates. banks must ask themselves to decide • How can I leverage this change to create/increase market share? However, implementing translation which approach to take. They can applications should not be seen as an be framed using both internal and end in itself: it is merely a stopgap to allow external considerations: banks time to conduct a full assessment Technology Regulatory constraints / timeline: of their operations and back office • Do I have a homogeneous payments service across Can I complete the required changes on time? applications. This assessment should be my branches and territories? used to map the full potential of the new • Does my system allow the use of a translating tool? format to improve interbank operations “This is not only a format • Is my current system able to retrieve the additional information provided by ISO 20022? and bank-to-customer interaction. change project but a full • Can the migration project be a good opportunity to change in the payments decommission some legacy payments applications? • Should I build in-house or buy a third-party solution? service paradigm.” Thierry Fezeu Payments Principal, Infosys

8 Finastra ISO 20022 White Paper The many opportunities of data The opportunities of ISO 20022 migration As outlined earlier in this report, it’s important for banks to consider the opportunities arising from the additional data generated by the ISO 20022 migration brings with it a range of benefits for new format. Banks are investing heavily in data management systems all players in the payments value chain. and the area has been identified as one of the hottest topics for banks and fintechs in 2020. More structured data and standardization 1 Moving to the MX standard allows payments to carry significantly more structured data, and introduces standardization across previously different types of MX messaging unlocks a raft of under SEPA and have gained lot of successful milestones have payments. Apart from standardization, the richer data capabilities of the ISO 20022 new data that can be used by experience in managing ISO been achieved (with SEPA being based messages allow for increasing the value delivered to customers of banks. banks to better profile and target 20022. Migrating TARGET2 to one of the most important). Of their customers and deliver ISO 20022 should not, therefore, course, there’s still much work to Greater efficiency enhanced customer experiences. present much of a challenge. be done and the transition will eat ISO 20022 will deliver major benefits for banks in terms of efficiency, cost and STP up a lot of resource and budget. 2 The MT to MX migration Although UK banks have used rates. The likelihood of errors is also lower, especially if the entire payment chain uses But as long as they make the right shouldn’t be viewed as an SEPA for most of their cross- a uniform format. Finally, the extra information that’s provided for in ISO 20022 choices, banks and corporates onerous and resource-intensive border payments, they will messaging can be used to enable easier real-time tracking of a payment message will experience a growing compliance exercise. Rather, it need additional effort to adapt across multiple banks and payment systems. range of benefits associated should be welcomed as a great TARGET2 as the format is deeply with moving their payment opportunity for organizations to: entrenched in legacy applications. Openness and interoperability schemes to ISO 20022. UK banks should use this ISO 20022 is an open standard. Anyone can contribute new candidate models and • Explore the decommissioning 3 transition as an opportunity to A bright future of full integration messages for approval by the ISO 20022 registration bodies, and the standard of legacy applications learn important and relevant between different payment operates across both legacy and emerging technologies. SWIFT is leading cross- • Enhance current propositions lessons for the future migration schemes, more efficient industry work to ensure implementations of the standard are harmonized. with value added services that of the domestic schemes. sanctions screening, better leverage the extended information knowledge of customer habits Better customer service provided by ISO 20022 The TARGET2 migration from and needs, fraud reduction, more With ISO 20022, complete remittance details may be carried with a payment so • Consolidate the core legacy MT to MX ISO 20022 is 4 effective cash management, customers can more easily automate account reconciliation or manage payments payments service for the just another step in the path to cross-border payments “on behalf of” other entities. For gpi payments, rich data can be carried and different payment schemes standardization that the new completed in minutes, easier viewed in the Tracker. ISO 20022 will also help to deliver the requirements of open scheme will provide. Globally, Eurozone banks are well ahead of and faster integration between banking by making it easier for data to be exchanged with other service providers, banks and corporates alike have UK banks since they have already banks and fintech companies, technology partners and customers. ISO 20022 messages can also accommodate been moving out of MT and into consolidated their domestic and much, much more is getting non-Latin character sets. ISO 20022 for some years. A lot of payments and direct debits closer by the day. work has already been done and a

9 Finastra ISO 20022 White Paper The challenges of migration

The benefits of ISO 20022 can only be unlocked in full if banks are able to overcome several challenges around the migration.

First, banks will need to manage a number customers is constrained if they do not conventional legacy formats (two or three global or regional, and depending on their of complex changes to their IT environment. prepare for full alignment with MX by 2025. times the amount). Bank infrastructure level of involvement with payments. The This not only includes back-office (systems, databases, lines etc.) will need impact will be greatest for global banks, There are also operational considerations components, but also front-ends used to be capable of processing these larger affecting all aspects of the payment chain to bear in mind. The migration to ISO for payment initiation, reporting and cash data volumes and also at faster speeds from their handling of structured payment- 20022 not only affects IT systems, but also management (treasury) systems. All of for real-time payments, intraday liquidity party information at the initiation stage business rules and process workflows. these components must be adapted to the management, compliance checks, and to the provision of camt statements once Here, special attention should be paid to new field length, additional fields, character fraud detection and prevention. the payment has been settled. As a result, individual business and operating models, set, and the new message format that global banks will need to establish a global as there are different implications for banks Given the significant impact on IT comes with ISO 20022. This complexity will project and assess the impact the migration that are direct clearing participants as architecture, it is natural that some banks be multiplied by the number of applications will have on their commercial model and opposed to those that process payments may consider workarounds. As mentioned that need to be adapted, as different local entities. via correspondent banking. earlier in this paper, one possibility is the application components have different use of translation applications at the inlet/ Like their global counterparts, regional banks owners, users, roadmaps, priorities, and These implications include communication outlets of the payments processing, or at will be mandated to implement a number compliance procedures. methods and ISO 20022 usage guidelines, the interfaces to other systems, in order of changes across their payment chain – but also coverage to accommodate new Second, the timeline to complete the to convert existing formats into ISO 20022 though with slightly enhanced optionality. operating hours. The IT migration will transition is very challenging. The EU’s or vice-versa. However, with this approach As such, the impact of the migration will have an impact that goes far beyond core migration from FIN to ISO in November there’s a concern that important information also be high for regional banks – particularly payments processing, affecting peripheral 2021 is set to be followed by the US in 2023, might be lost in transmission which, in turn, those in Europe which have a hard deadline systems such as anti-financial-crime with the full global switchover scheduled for may mean a competitive disadvantage or in November 2021 for the RTGS renewal. applications (especially embargo/sanctions completion in 2025. Within just five years, compliance problems. Meanwhile, banks operating outside screening as well as AML systems), liquidity payments processing and reconciliation will Europe will have more time and flexibility to management, billing, account reporting, Finally, there are broader challenges from need to be based fully on ISO 20022. While complete their migration. nostro reconciliation and archive systems. ISO 20022 that all market participants it might be possible to handle the overflow will need to consider. The options and ISO data in the short term via workarounds, When it comes to infrastructure, banks will recommendations for market participants banks may find their ability to develop need to consider the fact that ISO 20022 migrating to ISO 20022 will vary depending competitive and compelling services for contains substantially more data than on whether they are bank or corporate,

10 Finastra ISO 20022 White Paper ISO 20022 implementation best practices

To make the most of the opportunities on offer with the transition while mitigating the challenges, it’s clear that banks will need to come up with a robust migration strategy.

We believe there are four key areas that banks should 2018 2019 2020 2021 consider when building their strategies: Dec Mar Jul Oct Dec Mar Sep Oct Nov 1. Should the connections to the respective  infrastructures (direct/indirect) be maintained or 1. T2/T2S consolidation project set-up adapted? What are the consequences and risks 2. Internal adaptation/assessment is started  associated with the respective changes? 3. Network Service Providers procured  2. Should the migration be carried out in phased steps, 4. Completion of the software development for the required or should as much as possible be performed in a  adaptation changes to T2 (CLM and RTGS) single step? 5. Completion of the internal testing before end-to-end market  3. Should the entire architecture be migrated to testing ISO 20022 or should some tactical workaround 6. Completion of network connectivity tests and ready to start the solutions be integrated into the overall strategy?  end-to-end market testing activities 4. Which IT changes are most appropriate: make, 7. Completion of user testing activities (including community and

use or buy? Milestones  dress rehearsals for the migration) The answers to these questions should be clarified 8. Completion of contractual and legal adaptation  within the framework of a pre-transition evaluation. During this phase, it’s important to involve clients 9. Internal staff trained  and external partners (such as vendors) and other 10. Completion of operational procedures adaptation  stakeholders. It will also be necessary to compile any information published by the respective 11. Ready to start migration activities on production environment  payment infrastructures. 12. Completion of migration activities 

13. Go-live of T2 

11 Finastra ISO 20022 White Paper Section three “In today’s world, processing a transaction is becoming The view from SWIFT increasingly complex, competitive and commoditized. The challenge for banks is to harness information First published in 2004, ISO 20022 has already from the payment flows to provide been adopted in more than 70 countries, replacing intelligence and value-added domestic and legacy formats. services to clients.” Ryan McAuliffe As banks and other financial institutions The timing has never been better Payment Initiatives Expert, SWIFT look to leverage payments data to drive for the global financial community value for clients, the key challenge will to move forward with this new be to rationalize the current medley standard. Already, the Eurosystem of standards and proprietary formats and EBA Clearing have started taking used around the globe in an efficient measures to renew their Target2 and strategic manner. and EURO1 payment schemes with the adoption of ISO 20022 as a ISO 20022 directly supports this fundamental component. Other major aim, as it prioritizes richness of data market infrastructures such as those over message size and operational operated by the US Federal Reserve, constraints of older systems. the Clearing House, Bank of England, As technology advances, this change the Hong Kong Monetary Authority and represents a natural evolution that will the Monetary Authority of Singapore assist with efficient and successful are also planning their shift to the transactions and enable data- new standard. driven insights gleaned from global payments businesses.

12 Finastra ISO 20022 White Paper The impact on the industry The applications of ISO 20022 Which is the best deployment model? Once these key payment systems The rich data enabled by ISO 20022 will have migrated to ISO 20022, feed into a wide range of new use cases Organizations can choose approximately 80% of transactional for players in the payments value chain. to adopt ISO 20022 either volume worldwide will be utilizing the in a phased, “like-for-like” new standard. But more is to come. • In the short term, gains will quickly be realized through the manner, or to do it all in one ability to include additional party and remittance information to In 2018, the SWIFT community resolved to adopt help reconcile transactions. For example, QR codes are being “big bang” approach. ISO 20022 for cross-border payments and cash used more frequently within invoices to clearly identify the reporting to enable banks to maximize their investment beneficiary and facilitate automation in their back office. The full From our perspective, the like-for-like model, which and further reap the benefits of better data. As recently details of the creditor reference derived from the QR code can allows institutions to initially re-use current data announced, adoption will take place over a three-year now be maintained throughout the payment chain without fear elements from SWIFT MT or proprietary to the new coexistence period starting at the end of 2022. SWIFT of truncation. format and then enable rich data at a later stage, is is taking measures to help facilitate a harmonized • In the medium term, institutions will be able to limit the good for participants that can’t process new data experience as different ‘legs’ of a payment can happen resources they have to dedicate to exception handling elements immediately. While less disruptive, this across domestic systems and correspondent banking. and one-off investigations due to missing information or strategy requires two migrations towards rich ISO As discussed elsewhere in this paper, the adoption unstructured input that cannot be easily integrated into 20022-enabled data, which adds cost. However, when of ISO 20022 allows for additional, enriched data automated workflows. In a world fully embracing ISO 20022, migrating a large and diverse community, this approach to be transferred within the payment instruction. such exceptions can be easily avoided at the time of origination can be pragmatic to accommodate for the planning This new format has more granular and better by leveraging the new standard’s additional data elements constraints and resource requirements of those organized data elements, and a consistent data and codification of inputs. impacted. dictionary across the payments chain to speed • In the long term, data that is properly structured and adhered to Given that there is a convergence of market processing and improve compliance. This prevents will support better regulatory compliance practices and financial infrastructures moving to ISO 20022 in coming years, misinterpretation, and expensive manual interventions. crime monitoring. The ISO 20022 payment standards allow we believe the big-bang approach, where institutions All of this will facilitate improved processing and allow for end-to-end transparency and contain elements specifically enable rich data from the start, may be more efficient. all agents in the payment to make more informed designated for items such as purpose codes, regulatory reporting Market infrastructures and financial institutions compliance decisions. and tax identification. Additionally, ISO 20022 will enable a should carefully consider the benefits and costs more comprehensive and actionable view of an institution’s of either approach before making a choice. transactions based on these detailed data elements and will complement existing analytics tools such as payments tracking.

13 Finastra ISO 20022 White Paper Benefits for all

The new standard will bring with it a broad range of benefits that will be felt “Who benefits from ISO Use case: ISO 20022 Extended right across the payments community: Remittance Information 20022: fintechs, banks Imagine a corporate sends an • Financial institutions can increase or customers? Dare I invoice for several items of different operational efficiency by leveraging types. If some were damaged in new data elements and structured say everyone? ” transit, the amount of the payment party identification details, as well Ryan McAuliffe might not reconcile with the invoice. as derive further intelligence on Payment Initiatives Expert, SWIFT Today, manual intervention on both their transactions, extending those sides – phone calls, emails, faxes – is insights to their clients. required to resolve the discrepancy. • Fintechs will be able to leverage ISO 20022 Extended Remittance their financial institution partners Information (ERI), on the other hand, in a new way, working closely Networks will benefit from will allow complete and detailed together to provide increasingly harmonizing their local standards information about the transaction customized services to clients with a globally defined framework, to be included with the payment, with the opportunity to synthesize and the enhanced structure of data including structured references to data coming from multiple to allow for centralized services to linked documents, line items, etc., sources, or to explore multiple be redesigned to accommodate extending the potential for automated markets while leveraging a singular more of their users. reconciliation. In recent research development effort. • Software providers will be able by Payments Canada and EY, the • Clients will have a better experience to extract learnings from the estimated five-year cost of low in terms of Straight Through now structured data to provide automated reconciliation rates ranges Processing for their payments business insights and create from $7.4B to $13.6B CAD in Canada and reduced complexity for the value-added services, which can alone, so the global potential for originating party, benefiting from be deployed widely without major savings is huge. a more comprehensive way to additional developments for local identify their counter-party for the format variations. transaction, helping to reduce errors and minimize manual tasks.

14 Finastra ISO 20022 White Paper The integration challenge SWIFT, fintechs and Driving innovation for banks industry innovation As ISO 20022 standards continue to evolve to One challenge facing many As ISO 20022 provides a support a greater number of payments services institutions is the necessity to adapt common, rich dictionary for for retail and small & medium enterprises, card the structure of their current datasets, the exchange of financial data and mobile payments to name a few, fintechs such as underlying client information across the payment ecosystem, will play a role as part of a more diverse (name, address, account information, traditional financial institutions financial ecosystem. etc.) to be aligned in a way that and new fintech players will be correlates to the standardized better able to collaborate and Unifying standards can be an enabler to allow for innovative market entrants to speak the same language as banks and local payment systems, facilitating elements of ISO 20022. innovate across multiple mediums. them to grow their operations, expand financial inclusion, help mobilize untapped assets and provide financing for un-banked and under-banked This reorganization of client information may be from Whether used in XML format for traditional messaging, populations. To this end, wider and more inclusive community engagement various internal sources and therefore require a project to JSON format for API exchanges, or within new and closer industry experimentation and collaboration are essential. aggregate or amalgamate data within these systems. technology yet to emerge, the payments community Entrenched as a common business language for the financial marketplace, will have a more transparent and structured way to Financial institutions should establish a consistent data ISO 20022 is firmly positioned as an element of coalescence for new and communicate and transact. model for all financial transactions based on ISO 20022, contrasting fintech innovations, such as DLT, smart contracts and APIs. whether instantiated as ISO 20022 XML messages, JSON Fintechs will be able to maximize their ability to scale Considered the de facto, universal business language for financial industry formats over API or new data formats in the future. by implementing ISO 20022 from their foundation, initiatives, ISO 20022 acts as an enabler for new and emerging innovations. thus allowing for a streamlined operational expansion What’s clear is that there is every reason to overcome such For example, one could imagine rich data mining solutions responding into new markets where ISO 20022 is adopted as their challenges. ISO 20022 isn’t a ‘must do’ obligation, it’s a ‘must to regulatory requirements that are easily adaptable across multiple business expands and new services are deployed. have’ asset. The beauty of ISO 20022 is that it will facilitate business lines for domestic, intra-regional, and international transactions. the industry creating new ways of addressing concerns as SWIFT will continue to play a key role in this story as Similarly, such business alignment would make it easier to create universal they occur in a mutually agreed global manner. The standard Registration Authority and we will continue to engage web and mobile payments or machine learning solutions – all thanks to the thereby promises to end an the challenges of aligning our community to help facilitate the global adoption robust and deep trove of information that can be distilled from the transaction different, unique information formats across geographies. of the standard in the cross-border payment space. details available in ISO 20022. Equally, adopting the prevalent financial services business standard would contribute to seamless deployment of a fintech solution, as they complement and build upon existing payments infrastructure with new value propositions and business models.

15 Finastra ISO 20022 White Paper Global Services Global Services for MT to MX transition

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16 Finastra ISO 20022 White Paper Conclusion

ISO 20022 adoption represents a significant challenge for banks. The timelines are aggressive and the scale of the systemic transformation considerable.

The migration to ISO 20022 will require significant investment across the end-to- end payment chain. Many banks will need to completely overhaul their systems to ensure they have adequate data storage capabilities and the ability to leverage the data that will be provided by ISO 20022 interoperability. Organizations will also need to ensure that ISO 20022 adoption runs in parallel to and supports wider financial services transformation, such as the use of APIs to interact with partners and enable innovation.

But as we have seen, the new standard unlocks unprecedented opportunities for the payments community. Enriched data will fuel deeper insights, while standardization will improve interoperability and open the door to innovation.

With the ISO 20022 transition underway we can look forward to a much changed payments industry in the years ahead. Financial institutions that start soonest will put themselves in the best possible position to succeed in this new world.

17 Finastra ISO 20022 White Paper Finastra is unlocking the power of finance for everyone by creating a platform for open innovation in the world of financial services. Meet the authors

Suraj Bothe Thierry Fezeu Jose Gresa Paul Thomalla Ryan McAuliffe Harcus Copper Payments Lead Payments Principal, Payments Principal Global Head of Payment Initiatives Director – Head Consultant, Infosys Infosys at Infosys Consulting Payments, Finastra Expert, SWIFT of Integration and Information Services, Digital Banking, Barclays

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