Digitization comes to payments

Digitization comes to paymentsDigitization comes to payments

In 1995, Don Tapscott wrote The Digital Economy. In this landmark work Tapscott accurately predicted the digitalization of business, at a time when most people still referred to the internet as the ‘information superhighway’. Twenty-five years on, and the payments industry is finally ready to go through the digitalization Tapscott predicted and which much of the business world started long ago. The catalyst is ISO 20022.

The current edition of the standard was published in May 2013, and it’s been clear since then that the standard represents the future of payments messaging. This is due to the rich information and process automation it enables. Indeed, Finastra’s payments hub is ISO 20022 native – built in readiness for the wider industry adoption that’s now gathering pace.

Once this adoption is complete, all stakeholders within the payments supply chain will benefit from truly digital payments messaging and, as a result, much more efficient payments processing. Corporates will benefit from data-rich messages that will provide them with all the information they need to automatically reconcile transactions the moment they happen.

Some of the opportunities from the migration to ISO 20022 include:

More structured data and standardization

Moving to the MX standard allows payments to carry significantly more structured data, and introduces standardization across previously different types of payments. Apart from standardization, the richer data capabilities of the ISO 20022 based messages allow for increasing the value delivered to customers of banks.

Greater efficiency

ISO 20022 will deliver major benefits for banks in terms of efficiency, cost and STP rates. The likelihood of errors is also lower, especially if the entire payment chain uses a uniform format. Finally, the extra information that’s provided for in ISO 20022 messaging can be used to enable easier real-time tracking of a payment message across multiple banks and payment systems.

Openness and interoperability

ISO 20022 is an open standard. Anyone can contribute new candidate models and messages for approval by the ISO 20022 registration bodies, and the standard operates across both legacy and emerging technologies. SWIFT is leading cross-industry work to ensure implementations of the standard are harmonized.

Banks, meanwhile, will be able to get closer to their customers and offer better services. As this happens, the nature of the entire payments supply chain will change: there will be no one owner. Instead, consumers, corporates, banks, software vendors, fintechs and other stakeholders will all play a part.

ISO 20022 messages will be the glue that binds this ecosystem together. Leveraging the structured data enabled by the standard – the first time such data has been available for payments – and drawing on credible partners like Finastra, all players in the payments supply chain will be able to work together, enrich their messages for new added-value applications, and enhance their business processes.

That’s not to say that the adoption of ISO 20022 will be plain sailing. One challenge is that the standard describes an asynchronous messaging process. For banks, which currently rely on return messages to confirm the successful completion of a payment transaction, this will cause significant upheaval, and is a change that underscores the need for everyone in the payments ecosystem to get ISO 20022 migration right. Banks will need to overhaul their business processes and operations to adapt to asynchronous messaging. This will in turn require new systems, such as Confirmation of Payee and Request to Pay. ISO 20022’s global implementation will be the defining moment that empowers the industry to move forward with these standards.

Finastra and the wider payments industry is already working on solutions to this challenge, and it will be overcome. And as this white paper makes clear, the rewards of ISO 20022 make any temporary disruption more than worth it. We’re entering a new era of payments messaging that will drive competition, innovation and efficiency through interlinked partner ecosystems. For our part, we’re already helping a broad variety of stakeholders process and enrich their payments, and we look forward to continuing this work as digitalization takes hold in the wake of ISO 20022’s implementation.

To find out the true impact of ISO 20022 and how you can prepare for the transition, make sure you read our latest white paper.