The far from catchy designation of IS020022 refers to a worldwide standard for financial institutions to communicate with each other regarding the transfer of funds and data. It seeks to be a benchmark for global financial bodies that will eradicate mistakes made because of language confusion or differing ways of presenting financial data.
The ’ISO’ part of the title of this set of standards is an abbreviation of International Organization for Standardization (https://www.iso.org/home.html). It is an organisation that was founded in 1947 and currently has its headquarters in Geneva, Switzerland. It is composed of representatives from the National Standards Organisations from member countries. Its remit covers the development of standards in all technical and nontechnical fields excluding electrical, electronic and engineering fields. By 2022 it was working in 167 countries. It is thus a firmly established and authoritative body devoted to making sure we are all globally on the same page when it comes to standards.
In 2004 the ISO published ISO20022. It provides a unified language for communication on financial matters so that misunderstandings caused by the use of multiple languages in a transaction can be avoided. The standard can be applied at all levels of financial transaction such as retail payments to corporate banking, cross-country payments and corporate banking.
The development of this standard is a recognition that the SWIFT payment processing system is not up to the challenges of the 21st Century and beyond.
Improvements on the SWIFT system
ISO20022 was very much designed with the SWIFT system in mind. It seeks to address deficiencies widely noted in the SWIFT system.
- ISO20022 offers customisation options that allow for more flexibility in implementation. Financial institutions can tailor their information exchanges to suit their specific requirements.
- ISO20022 aims to provide global harmonisation. Cross-border transactions are simplified and costs reduced.
- This standard facilitates better tracking and reporting of transactions. Governments and trading blocks have different regulatory frameworks: ISO20022 makes it easier for banks to avoid being penalised for failing to comply with regulations.
- This standard is designed to limit system failures. It has error handling and recovery mechanisms. It also reduces manual inputting of data, and thus reduces errors in financial reporting.
- Following on from the last point, ISO20022 totally automates electronic transfers, thus removing the possibility of error caused by human intermediaries manually facilitating transfers from one body or person to another.
- And finally, ISO20022 is a more digitally facing standard that allows for better analysis through enhanced analytics. The more in-depth data set allows financial experts to make better decisions and spot fraudulent activity.
The focus on automation and digitalisation in this standard has greatly benefitted fintech, allowing for new players to enter the space. Examples of this are FINaplo that provides a portal for financial messages and Payment Hub that uses financial messaging libraries to facilitate payment routing and processing between multiple payment providers.
In Summary
ISO20022 is an important standard developed by the International Organization for Standardization. Its goal is to provide a global standard for financial transactions and messages that eliminates errors caused by language confusion and human error.
It is a standard that uses technology to enable straight-through processing and better analytics. It also allows for customization and makes conforming to regulatory systems easier. This standard is designed to both reduce fraud and money laundering as well as open up the financial sector to new fintechs.
