Published: April 01, 2008
It’s hard for most people to get excited about a standard - especially when it rejoices in the title of ISO 20022 - but this new standard for financial messaging is quietly gaining acceptance, and does have the potential to bring significant efficiency gains to all of the stakeholders involved in our payments ‘ecosystem’.
Messaging standards developed under ISO 20022 have been published and are indeed in use today.
Many of us in the payments business have recognised for some time that our current standards have severe limitations and have failed to keep up with changes which our industry has seen in the past 10 to 20 years. In addition, many of them are country-specific and not well-suited to the volume of cross-border activity we see today and which will only increase further in the future. With this in mind, a dedicated group of standards-enthusiasts have been hard at work - mostly on a voluntary basis - to create a set of standards appropriate for (at least the first decade of) the 21st century.
Whilst ISO 20022 is a broad family of standards covering the financial services industry, here we will only consider the subset which relates to making and reporting payments.
In the payments-related domain, ISO 20022 covers the initiation of payments (in both the customer-to-bank and the bank-to-bank arenas) as well as bank account reporting and transaction advising. Payments can be divided into Credit Transfers and Direct Debits - the standard covers both of these, as well as additional related activities such as returns, mandates, cancellations, etc. Reporting can be broken down into payment status, account balances and transaction details in both intra-day and end-of-day situations - again the standard covers all of these. Thus it is an alternative to (or replacement for, depending on your perspective) all or parts of existing standards including SWIFT MT messages, EDIFACT, BAI, AFB, ANSI and also some proprietary standards such as SAP’s iDOC.
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Yes, messaging standards developed under ISO 20022 have been published and are indeed in use today. Further work is continuing to refine and expand the standard and in particular to create the all-important Usage and Implementation Guides which accompany the standards and define how they should be used in specific business contexts and locales which the broad standard deliberately does not cover. For example, when making a credit transfer, the standard may define a ‘bank identifier’ field for the beneficiary bank; but the Implementation Guide will further refine this by stating that if the beneficiary bank is in a specific country, a specified local ‘Bank Sort Code’ must be used as the identifier and nothing else. Many perfectly good standards have failed due to the lack of a thorough and current Implementation Guide, leading to ‘standards abuse’ such as bilateral agreements to use a particular field in a particular way, when the standard is not explicit. The ISO 20022 stakeholders are keenly aware of how important this effort is and are determined to make the overall usage as unambiguous as possible.
Mandatory use of a standard is considered by some to be a sign of weakness (if a standard is not adopted voluntarily, then it must be not fit for purpose) and by others as a good way to encourage its adoption. In the case of this standard, there seems to be healthy balance between the two. For example SEPA transactions which are bank-to-bank, and bank-to-clearing system must use the standard, whereas bank clients initiating SEPA payments are not required to do so - although some banks are already offering this as an option and there is increasing interest from their clients in using it for this purpose.
SWIFT is a key participant in the development of the standard and brings significant standards expertise to the working groups.
A good standard is owned by its users. Many financial services industry standards groups are engaged in the ISO 20022 work including SWIFT, the bank standards body, which is the ‘registration agent’ but not the owner. The standards have enjoyed the support and participation of corporates and software vendors as well as the banks themselves - all equal stakeholders. This is in marked contrast to the existing SWIFT MT standards, which were defined by the banks and have struggled to keep up with, for example, the demands of corporates. Ownership of the ISO standard by all its stakeholders is another of its key attributes and gives rise to optimism that it will gain significant adoption. For anyone who wants to get involved in the process, the door is open.
As mentioned above, SWIFT is a key participant in the development of the standard and brings significant standards expertise to the working groups. SWIFT is also adopting the standard in some situations by making it mandatory for use in some of its ‘MX’ messages which are set to replace MT messages over the longer term. SWIFT is not mandating the standard in all situations, however, so on its FileAct file transfer service for example, use of the standard is entirely optional. This supports clients who choose an alternative, or wish to use the SWIFT network whilst migrating gradually to the new standard.
Although frequently described as an XML standard, in its purest form the standard is not limited to XML. It is defined as a series of business parties who are ‘actors’ who interact in a defined ‘choreography’ to achieve a business goal. This process is then expressed as XML, but in theory it could be expressed in another ‘language’ whilst the interactions would remain the same. Having said that, for most of us who use the standard we can expect it to remain in XML for the foreseeable future. The XML ‘schema’ defines which fields are in a message, and their characteristics (optional, etc) and formats. This schema is then used by the software on either end of the message exchange to interpret the messages correctly.
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The standard (including the implementation and user guides) should allow us all to build systems which can interoperate with external parties without the need for the customisation that is so common today. It also should allow us to connect our disparate internal systems together efficiently using the same ‘language’ we use with external parties. More than this, it should allow us to define the information we exchange in a very detailed and granular fashion leading to significantly increased levels of automation and efficiency. This is probably the first time the banking industry has been involved in the creation of such a wide-ranging cash management standard since the heady days of EDI back in the 1980s. This time we are informed by our previous experience and know that no single stakeholder can call the tune.
There are no losers if we get it right, and this standard has a lot going for it already. But there is still a lot of work to be done. On the positive side, there are many parties who sense that this is a standard whose time has come. The payments landscape is changing (SEPA, Faster Payments, etc.) and so many participants are open to the idea of a new standard - especially since the current set of standards has limitations. I for one was pleasantly surprised at the 2007 SWIFT SIBOS conference to discover that the standard has already gained some acceptance in South Africa - even though the adopters have not been directly involved in its development. Could ISO 20022 become the Internet Protocol equivalent of the cash management industry? If we all take more interest in promoting it and participating in its evolution, we will all benefit.
If you are a corporate interested to learn more you might first want to contact one of your payments banks for more information. If you are engaged in or contemplating a project involving re-engineering or restructuring your treasury or payments process, I would strongly advise looking further into the new standard.
Nothing to lose and everything to gain - be a part of the standards evolution.
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