Extending ISO standard 20022 to international payment messages
Widespread implementation of ISO* standard 20022 already adopted by 70 countries in the SEPA zone
The ISO 20022 standard was rolled out for the Single Euro Payments Area (SEPA) in 2014, facilitating the standardization of payment rules in Europe, while also enhancing payment data as a result of the scalability of Extensible Markup Language (XML) – a text-based format used to represent documents and data.
The standard is now poised for extension by 2025 to all payments carried out on organized systems, as well as to payments in foreign currencies on the Swift network via correspondent banking.
ISO formats will therefore become the universal standard for both banks and businesses. November 2022 will mark the first stage in this process when Target2, the European system for large-value and urgent euro-denominated payments, fully migrates to the ISO standard. A second transitional stage will take place between 2022 and 2025 for the gradual migration of international payments to ISO format.
This change in standard is designed to address two challenges:
- The need to standardize communication between payments stakeholders worldwide (banks/corporations/trading and settlement systems) and offer a more seamless processes across the payment chain. In addition, a single format will ensure richer data right from the order giver to the beneficiary, with no information loss or disruption.
- The requirement to improve financial security systems on anti-money laundering and countering the financing of terrorism (AML/CFT). This demands greater insight into the parties involved in payment i.e. who is paying, to whom, and on whose behalf? What is the purpose of the payment?
Advantages of ISO 20022 XML for international business
“This standard has multiple advantages for our clients as they will enjoy better structured and more granular data, along with more transparency and more remittance information: the richer the data, the more details beneficiaries have on the payment” notes Christian Gaume, Expert Leader, Global Trade -Treasury Solutions, Natixis CIB.
Another advantage is the use of a single format, which makes for easier straight-through processing (STP), thereby reducing delays and rejections.
Along with obligations for ordering clients ...
Clients will need to identify each payment participant involved and provide their name and address, particularly for the beneficiary.
Mandatory recording and structuring for addresses will affect clients, but will also improve AML-CFT screening, and in turn, lead to swifter payment execution.
Banks will gradually require their clients to provide the beneficiary’s name and address. Parties’ addresses are already required for some countries, including for US dollar payments and payments in any currencies into the United States.
“We have been using the same formats for several decades, so this change will allow for more efficient data use as a result of richer and more structured data. Clients will enjoy greater interoperability as a result of a single payment format worldwide” concludes Fady Weessa, Head of Sales, Global Trade -Treasury Solutions - Natixis CIB.
Migration to a world ISO standard marks a major shift for the payments industry, which is broadly driven by a combination of technological innovation and regulatory pressure.
This new stage brings 40 years of SWIFT MT messages to an end and will facilitate business transactions while addressing client needs by reducing disruption, improving payment times and predictability, and supporting payment tracking.
* ISO is the International Organization for Standardization
Seamless international payments transactions
In collaboration with SWIFT, Natixis CIB is working on innovation to support its clients in offering a payment pre-validation service, reducing the friction areas in cross-border payments.
“With SWIFT GPI, we met our customers’ needs by improving the speed, transparency and end-to-end tracking of cross-border payments. This pre-validation service would allow us to go further by offering our clients a smooth and seamless experience in terms of international payments,” notes Karine Audoux, Head of Innovation and Solution Development - Global Trade, Natixis CIB.