The silent Revolution

The silent Revolution

The impact of ISO 20022 on payments services in general and SEPA in particular

27 January 10

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The signs of the times spell out ISO 20022

Today, actors in the payments markets increasingly exchange transactions across any jurisdictions in any currency with counterparties located anywhere on the planet. Multi-country customers and multi-country financial institutions seek to use the same platforms for their transactions based on the same standards. Individual consumers transcend national borders buying goods and services via the Internet and expect standardised services to pay their bills. The signs of the times are clear: it is the responsibility of the financial services industry to deliver solutions which allow smooth sailing in the modern market place.

Such solutions, however, require standardisation, e.g. the agreement on business rules and technical standards of market participants. The roll-out of services by the European banking industry illustrates this trend to put in place uniform business rules - such as the schemes - and open standards - such as the ISO 20022 message standards - that facilitate fast, efficient and secure processing of payment transactions between customers across a multitude of markets. Most importantly, the decision of the European Payments Council ( ) to deploy the ISO 20022 message standards for the exchange of information between the parties involved in a payment transaction ensures that solutions do not constitute a proprietary European standard but are globally compatible*.

Standardisation creates value over time for suppliers and customers as they will enjoy more reach and a more integrated financial process. Standardisation, however, means that players must upgrade their systems. Specifically, financial institutions, infrastructures providing clearing and settlement services and bank customers including businesses and public administrations have to upgrade their systems or services in accordance with new standards. Board members of financial institutions, corporate decision-makers and administrators in the public sector should recognise the signs of the times: proprietary solutions applicable exclusively within the limitations of national payment systems are about to be history in the euro area.

The ISO 20022 recipe: the global answer to local needs

The ISO 20022 approach to standard setting is the answer to today's customers' needs. ISO 20022 is not only a suite of message standards but a recipe proposed by ISO to develop message standards for all domains of the financial industry. The most innovative characteristic of ISO 20022 is its modelling methodology which decouples the business rules from the physical message formats. The models evolve with the business, while the formats evolve with the technology to benefit from the latest innovations and thus ensuring the highest possible degree of automation, ease of implementation, openness and cost-efficiency. The ISO 20022 recipe, therefore, offers a more efficient and faster way of developing and implementing message standards.

ISO 20022 reflects the global nature of the financial services industry bringing together diverse commercial and financial needs. ISO 20022 creates a level playing field empowering a broad group of stakeholders including end users, suppliers, and IT service providers to express their interests in a common work product whilst ensuring maximum transparency in the process. This cooperative and inclusive approach furthermore avoids a situation where multiple standards are developed by different groups in response to the same business need that may materialise in different areas or domains across the globe. At the same time, ISO 20022 supports multiple languages and character sets.

In addition, ISO 20022 is based on modern tools for scheme creation, publication and use, allowing for even more efficient updates. The standard is aligned with the technologies of the Internet and targeted to address increasing industry requirements for application integration.

Last but not least, the standard offers the necessary flexibility to incorporate additional requirements as it will evolve reflecting market needs.

ISO 20022: creating value through standards

ISO 20022 standards offer the potential to create value for their users in a variety of ways:

  • Automation of communications.
  • The development and use of the exceptions and investigations handling and bank account messages from banks to corporates or other customers. These messages could also be utilised in the area of card payments.
  • Incorporation of new functions and features once agreed.
  • Availability of all of the above in a common, comprehensive package.

Where standards are a community event, community members need to move as one to realise these benefits. However, ISO 20022 offers opportunities to create value for those exhibiting individual initiative as well: the standard allows differentiating services to end users, connects to market infrastructures and empowers an organisation to align internal and external communications.

ISO 20022 conforms to regulators' push for open standards in the financial sector

In the area of standardisation of financial services the public sector has an important role to play. As a major market participant on the demand side and as the regulator of financial services, public authorities are increasingly pushing for the adoption of standards supporting interoperability of services in the financial sector.

Central banks promote standardisation of payments instruments with a view to increase the use of efficient electronic payment services. As such, the European Central Bank acts as a catalyst in the process.

The European regulators regard open, non-proprietary standards in the area of financial services as a precondition for open market access. The European Competition Network chaired by the European Commission concluded that the ISO 20022 message standards used for the processing of transactions meet these competition requirements.

Consensus-building in action: the ISO standard setting process

The ISO standard setting process provides all stakeholders with the opportunity to contribute to the development of global and interoperable standards in the financial supply chain. In this way, suppliers and customers create together the data highways that allow communication between any players across all financial markets.

Increasingly, ISO 20022 standards are used to exchange messages between financial institutions, their customers and their market infrastructures. There are currently 200 approved financial message standards available. Other ISO standards deployed in the process include ISO 13616 (IBAN - International Account Number), ISO 9362 (BIC - Bank Identifier Code), ISO 3166 (Country Code), ISO 4217 (Currency Code List) and ISO 11649 (structured creditor reference to remittance information).

With the launch of the schemes the European banking industry is leading the way in terms of innovation in global payments in being the first to implement the ISO 20022 message standards. Others will follow. The trend is irreversible - don't get left behind.

Gerard Hartsink is the Chair of the and the Convenor of the ISO Registration Management Group (RMG). Petri Aalto is the Chair of the Standards Support Group and member of the ISO Registration Management Group.

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Take Payments to the next Level. Benefits of ISO 20022 for bank customers: improved control and increased efficiency.

Improving the bottom line.  ISO 20022 meets key corporate expectations

* The Data Formats are a valid subset of the ISO 20022 message standards. These formats are binding for the exchange of payments between banks. It is recommended that business customers use the Data Formats to initiate payments.

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