SWIFT’s ISO 20022 financial messaging standard is on everyone’s lips by now, and as complicated as it may sound, it is actually very simple. In the world of finance, communicating is very difficult and confusing. One can misunderstand messages or simply get lost in translating them. In a world where a lot of money circulates, the stakes are really high and communication problems often coincide with losing money. This is where the ISO 20022 standard comes in.
What is ISO 20022? And what crypto are compliant?
The ISO 20022 protocol is a standard for electronic data exchange between financial services in the payments industry. The technology involved, is called DLT (Distributed Ledger Technology) and the use of ISO 20022 is related to a messaging mechanism.
Banks around the world have already committed to this global regulatory framework, which supports SWIFT and the Federal Reserve. As of today, with these new additions in the world of finance, anyone who wants to interact with banks must be able to use the ISO 20022 format.
As early as 2025, the ISO will in fact be the global standard for high and large-value payment systems.
The projected acceptance of the new messaging model globally will greatly influence financial institutions, corporations, and anyone in the world of finance and large transactions. More than 70 countries have adopted ISO 20022 in their payment systems, including Switzerland, China, India and Japan. And with more than 200 payment types in scope, it harmonizes formats and data components from different payment methods that previously could not work together.
The ISO 20022-compliant cryptocurrencies are:
- Stellar (XLM)
- Hedera (HBAR)
- IOTA (MIOTA)
- XDC network (XDC)
- Ripple (XRP)
- Algorand (ALGO)
- Quant (QNT)
Each of these cryptocurrencies was developed to make global transactions more accessible and, because of this, they could comply more quickly with the ISO 20022 standard. In the near future, however, more and more cryptocurrencies will move toward ISO 20022 compliance to stay abreast of the industry, the list of crypto will grow by leaps and bounds in the short term.
The global impact
The standardization of financial messaging through ISO 20022 not only provides a common, global language for companies and financial institutions, but also brings 3 main benefits:
- Linking messages to business processes means making them easily and universally recognizable.
- Reusing components means institutions only have to map them to internal data structures once.
- Using xml syntax as an open international standard promotes interoperability, enabling automated transfers and direct processing across entire processing chains.
Eventually, standardization will lead to enriching the data contained in payment messages to improve analytics, compatibility and reliability, compliance across technology platforms, improve fraud prevention measures, and create opportunities for collaboration.
Most countries are still working to introduce an ISO 20022-ready payments architecture, despite the impact of Covid-19 on the financial industry and corporate payments trends. The UK and the US are expected to adopt the standard in 2023, respectively, with phases of improvement and maturity underway.
Since ISO 20022 is a more modern and versatile standard than conventional legacy formats, it requires significantly more data volume processing. As a result, banking systems and databases will need to be able to handle these larger volumes at higher speeds for real-time payments, day-to-day cash management, compliance checks, and fraud detection and prevention.
Conclusions on ISO 20022
ISO 2022, without any doubt, can be considered a big step forward in the world of financial reporting. However, this kind of upgrade takes time to adapt globally. It is critical to allow sufficient time for testing so that syntax and formatting information is accurate and data migration across all related payment and clearing systems.
Consider also the world before the current messaging standard: SWIFT. Before SWIFT, telex was the only available means of message confirmation for international funds transfers. Telex was hampered by low speed, security issues, and a free message format. In other words, telex did not have a unified code system like SWIFT to name banks and describe transactions. Telex senders had to describe each transaction in sentences that were then interpreted and executed by the recipient. This led to many human errors as well as slower processing times.
Now, this can change, though there is a need for time, testing and good cooperation from the banks.