Seven Reasons Credit Should Welcome ISO20022

By David Schmidt

The payments industry has seen significant innovation in recent years, driven by the demand for faster and more efficient payment methods. One key innovation is ISO 20022, a standardized messaging format that facilitates the exchange of financial transaction data with a richer and more robust data structure.

ISO 20022 aims to replace proprietary messaging formats with a common industry language based on well-defined data elements. This standardization will reduce translation requirements, eliminate costs associated with exceptions, and reduce errors in payment processing. The transition from the older MT (FIN message types) to the newer MX (FIN+ message types) will enable further innovations, such as automating inquiry and service processes and flexible payment routing across different payment rails. Here are some of the key advantages the MX format provides:

1. Richer Data Structure: MX messages have a more granular and structured data format than MT messages. This allows for more detailed and comprehensive information to be included in payment messages.
   
   
2. Support for Complex Payment Use Cases: MX messages support larger data payloads (up to 100 kilobytes), making them suitable for handling complex payment scenarios involving multiple parties, multiple invoices, and various payment options. This flexibility allows businesses to handle a broader range of payment transactions seamlessly.
   
   
3. Improved Straight-Through Processing (STP): The enhanced data structure of MX messages reduces the need for manual intervention and parsing of data. This results in smoother and faster straight-through processing, where payment instructions can be automatically processed end-to-end without manual intervention, leading to greater efficiency and cost savings.
   
   
4. Automation Opportunities: The increased specificity in data elements and structured information in MX messages opens up opportunities for greater automation in various processes. Compliance screening processes can be streamlined, reducing false positives and enabling faster and more reliable risk management.
   
   
5. Enhanced Reconciliation: With the inclusion of more detailed information in MX messages, reconciliation processes become more accurate and efficient. Businesses can easily match payments with corresponding invoices, reducing the need for manual matching and investigation.
   
   
6. Standardization and Interoperability: ISO 20022, including the MX payment types, promotes standardization across the financial industry. This common language facilitates seamless communication and interoperability between different financial institutions, systems, and countries, reducing the complexity and costs associated with translation and adaptation.
7. Future-Proofing: As the financial industry evolves, the MX payment types provide a more modern and adaptable framework for future innovations and enhancements. They lay the foundation for further advancements in payment processing, automation, and integrating new payment rails like instant payments and CBDC.

Overall, the MX payment types offer substantial advantages regarding data richness, automation potential, and compatibility with modern payment needs. As the industry moves towards broader adoption of ISO 20022, businesses and financial institutions stand to benefit from improved efficiency, reduced errors, and a more seamless payment experience.

While ISO 20022 promises many benefits, its implementation may present challenges for organizations, including the need to boost skill levels, significant investment in modernizing legacy platforms, and complex scaling of technology and testing. To prepare for ISO 20022 adoption, organizations should focus on education, engaging with bank partners and vendors, exploiting the rich data available, and making ISO 20022 part of their order-to-cash modernization strategy.