Data interoperability has become an essential part of a world shaped by algorithms, especially in the financial industry. Banks and other financial institutions are set to transition their payment systems through SWIFT messages to the highly structured and data-rich ISO 20022 standard. It will become a universal standard for large and high-value payments systems of all reserve currencies by 2025. Besides, it will support 87% transaction value and 80% of transaction volumes over the world.
So what is ISO 20022? And why ISO 20022 standardization for financial data interoperability is important?
Let’s start with the basics!
What is ISO 20022?
ISO also known as International Organization for Standardization is a global federation of national standard bodies. It is a standard framework for financial services based on XML and other concurrent technologies. ISO repository holds several payment message standards and approved remittance message standards to replace legacy EDI (Electronic Data Interchange) standards for organizations that are interested.
Currently, the global payment system doesn’t have a single standard for the instruction on payment exchange between local and foreign financial institutions. Introduced in 2004, ISO 20022 (pronounced ISO twenty oh two-two) will provide a set of standard rules and practices to enhance international, regional and local payments. It gives a common platform for developing messages using a set of XML & ASN.1 design rules, modelling methodology and a central dictionary.
Put simply, ISO 20022 is an emerging standard for sending payment instructions and offers guidelines for different financial institutions for exchanging financial data between numerous marketing structures. ISO 20022 flexible framework offers business message syntax and semantics that are agreed upon internationally.
Apart from that, ISO 20022 will increase the interoperability of financial data by following XML-based approaches, non-Latin alphabets, and coordinating formats that couldn’t work with each other previously.
Why Use ISO 20022?
ISO 20022 publishes and stores resulting models, patterns and derived messages in its financial repository. ISO 20022 also allows members of the financial communities to describe and expand sets of messages depending on the business syntax.
Network members have designed separate regional task forces that can come up with the message guidelines for cross-border payment, reporting, high-value payment systems and so on. ISO 20022 have already been implemented in the instant payment market of Australia, Singapore, Canada and the US and countries with the modern infrastructure of payments like India, Switzerland and China for high-value payment system.
ISO 20022 will majorly affect banking processes from KYC checks to liquidity management and from electronic banking to reporting. The success of a bank will depend on the strategy and commitment of the bank and investing considerable time and resources into the migration process.
Keeping the variety of approaches in different countries, banks will have to closely monitor and adapt changes to the adoption of ISO 20022. The more banks embrace technology for their processes the better other market associates will aim their payments through banks with ISO 20022.
Benefits of ISO 20022
Adoption of ISO 20022 globally will produce a common language and model for data of payments. With the implementation of ISO 20022, an open standard will be created to be adapted according to new approaches and evolving needs within the financial industry. Some of the major benefits ISO 20022 can offer a financial institution are:
Better transparency with better remittance data for improved customer experience.
With automation, ISO 20022 will encircle end-to-end business processes and entire business domains to increase straight-through processing and new services.
Highly granular data end-to-end payment system.
Improved flexibility and data for product innovation.
ISO 20022 enables efficient support and referencing for non-Latin alphabets.
ISO 20022 is here to change the concept of financial banking and provide better standards for innovation. If you are a bank representative and looking for implementation of ISO 20022 in your banking application, then you can hire an experienced developer who has years of experience.
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