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ISO 20022: How the Next Era of Cross-Border Payments Will Benefit Businesses

The global payments ecosystem is on the verge of becoming faster, more secure and more efficient than ever, and while financial institutions will see the impact firsthand, businesses that engage in cross-border and even domestic transactions will reap benefits as well.

Welcome to the World of ISO 20022

A new global standard for electronic data interchange between financial institutions, ISO 20022 creates a unified, data-rich format for banks to use when sending and receiving payment information and messages, enabling international transactions to be completed with more proficiency and fewer potential roadblocks. In a business environment, speed, security and efficiency are integral to success, and the standard is expected to support banks in keeping pace with client demands.

Why is a New Standard Necessary?

Today, thousands of banks use a messaging system developed by the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, to facilitate international money and securities transfers, but processing those payments is more difficult when institutions use different digital formats and languages to communicate. With trillions of dollars exchanged through international payments each day, a simple misunderstanding between systems can have significant ripple effects on businesses, including costly delays. ISO 20022, however, creates a single format that accounts for multiple languages and alphabets, making cross-border payments far more efficient and streamlined.

The new standard consolidates payment systems and drives down international banking institutions’ operational and infrastructure costs, which can run high with multiple interfaces. It also improves data quality, interpretation and analysis and reduces the need for manual intervention during transactions.

Although not explicitly required to do so, banks are strongly encouraged to adopt ISO 20022-based messaging by 2025. SWIFT is already migrating its system to the new standard, and many institutions worldwide, including FNB, are following suit.

How Does ISO 20022 Affect Businesses?

Faster transactions: Reduced translation time may lead to more consistent, reliable cash flow and real-time visibility into daily and short-term cash positions. Streamlining also should reduce transaction costs and fees for clients.

More — and better — data: Perhaps most notably, ISO 20022 creates the opportunity for banks to collect more complex, yet easily comprehensible, remittance data. A business’ accounts payable and accounts receivable teams then can use this data to gain clarity about the transaction status, the types of payments being processed and the other parties in a transaction. It also may enable businesses to better forecast short- and long-term liquidity needs, quickly onboard business units in other geographies and gain insights into internal processes. Additionally, banks can use the information to understand how clients are using products and services and better cater future service offerings to their specific needs.

Stronger security: Security is paramount in the financial services industry, with firms constantly investing in innovations and upgrades to mitigate and stay ahead of threats. ISO 20022 utilizes enhanced protocols and reporting and will support institutions with authenticating payments, identifying potential fraud and reducing risk. The relative ease of communication also should lessen processing errors that may occur if multiple messaging formats are used.

What to Expect

For most businesses that frequently perform international transactions, ISO 20022’s impact will be largely invisible. The important piece to know is that the standard is set to create a far more robust and flexible system with great potential to improve operations, even if it occurs behind-the-scenes.

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