There’s a big change on the horizon in the payments industry: the migration to ISO 20022. Banks, ERPs (Enterprise Resource Planning), and payment networks around the world are working to make the transition to this single global standard for payments and information reporting.

ISO 20022 is a common language used for payments and reporting that financial institutions, businesses, and clearing channels can leverage in the U.S. and globally. It will replace many legacy formats, such as EDI, BAI, SWIFT MTs, and others as the payments industry converges to a single standard. The SWIFT network has mandated a global adoption of the ISO 20022 standard for all cross-border payments by 2025 (although this mandate does not apply to corporate-to-bank SWIFT traffic, and vice versa). In the U.S., CHIPS and Fedwire will also migrate within the next few years, and the Clearing House’s® Real-Time Payments (RTP®) network and the Federal Reserve’s new FedNow instant payments service were both built from the ground up with ISO 20022. 

“Traditionally, each country or region has maintained their own payment standards and requirements,” said George Hoffman, a product advisor manager in PNC Treasury Management. “ISO 20022 will replace existing bank-proprietary formats with the goal of streamlining inter-bank communication domestically and across international borders.”

Communication efficiencies are at the heart of the appeal of the ISO standard. ISO provides richer, more complete payment data than legacy formats, enabling businesses to improve reconciliations, consolidate transactions, reduce compliance holds, and benefit from better straight-through processing rates. When using ISO 20022 in conjunction with SWIFT or other ISO-enabled third-party service providers, businesses can achieve a single connection with financial institutions around the globe.

“Another great thing about ISO 20022 is that innovative tools are being built with an ISO foundation, such as SWIFT gpi, which now can provide visibility into the status of a payment,” said Hoffman. “One way to think about it is like tracking a package – you have a tracking number that allows you to see where that package is at any given time. Payers will be able to see via bank web portals leveraging SWIFT gpi exactly where the payment is each step of the way, as well as access the full details of the payment.”

In addition to its advantages in international payments, ISO 20022 can also help streamline domestic payment capabilities, particularly for businesses that have relationships with multiple U.S.-based banks. Many companies are leveraging the ISO format when sending files to their various financial institutions, rather than creating transmissions proprietary to each bank’s formats and channels. The enhanced reporting information available through the format offers additional efficiencies, as it integrates smoothly with many ERP and TMS (Treasury Management System) platforms.

Upgrading an ERP or TMS system, or implementing other treasury technology platforms, may present an opportunity for businesses to integrate ISO 20022 into their payment processes. According to Hoffman, businesses taking this step should carefully evaluate the ISO 20022 literacy and preparedness of their financial institutions and work with solution providers who have demonstrated experience in implementing the necessary technology. It’s also important to remember that while ISO 20022 is becoming a common format and many banks have coordinated to develop a “common global implementation” of the format, each bank may still implement it slightly differently or offer different levels of underlying business functionality. Businesses should review in detail with each of their banks their specific business functionality and ISO 20022 formatting.

“This global migration to ISO 20022 presents a great opportunity, because this format really offers a host of benefits that accrue when everyone in the payment chain is on board,” said Hoffman. “There’s an intersection between businesses, banks, payment networks, and ERPs. When all of them merge into this universal standard, it’s going to make payments more efficient for all involved.”

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