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ISO 20022 Is an Opportunity for UK Challenger Banks to Modernise Their Payment Infrastructure

ISO 20022 is predicted to be the world’s major payments messaging standard by 2023, but beyond core payments processing, the new standard could open the door to new opportunities.

A fan of these payments messaging standards is Mark Kane, financial services expert at PA Consulting (PA), the global innovation and transformation consultancy. Here, he explains how ISO 20022 will help financial firms communicate better, improve accuracy and reduce operational risks.

Mark Kane, financial services expect, PA Consulting

ISO 20022 is an internationally recognised standard for payments messaging and reporting that’s transforming the payments industry. While existing message type (MT) proprietary standards compete with each other, ISO 20022 is unifying financial institutions. In fact, we predict that over 90% of the world’s financial transactions will be using the standard by 2023.

Financial firms that adopt the ISO 20022 common language will be able to communicate richer, more structured remittance data in a universally agreed manner. This better data will help them improve accuracy in sanctions screening and reconciliations, reduce the operational risks associated with multiple messaging standards, and identify differentiated products, services and value propositions that meet real customer needs.

But implementation isn’t easy. Migration to the standard requires significant work and isn’t only a cash management problem; it impacts more than just core payments processing.

The global payments standard is more than a corporate banking challenge 

The Bank of England’s Real Time Gross Settlement (RTGS) renewal is driving readiness for CHAPS participants, and SWIFT are mobilising change for ISO 20022 CBPR+/cross border payment and reporting messages. But the ISO 20022 challenge is far wider than corporate banking.

For smaller challenger banks that are indirect participants of RTGS, Pay.UK is proposing a Common UK Credit Message (CCM) across both CHAPS and the New Payments Architecture (as the replacement for Bacs and Faster Payments). CCM provides ISO 20022 standard definitions, structures and rules for payment service providers and end users to input data into a payment message. Furthermore, indirect CHAPS Participants (such as smaller banks and building societies) will have to work with their correspondent banks to understand how they connect to their Direct Participants during the ISO 20022 cutover.

The migration to ISO 20022 affects more than just payment flows. As well as supporting enhanced data, companies will need to define new processing rules, indicators and validation flows, as the new standard impacts payments channels, core banking systems, transaction monitoring, the integration layer and archive management systems.

Within each of these system capabilities, ISO 20022 asks firms to do something they haven’t done before. They’ll need to be able to store, generate, process, forward and reject payment messages and reports that carry two to three times the amount of data compared to today; therefore firms must decide whether application upgrades, complete system re-writes or the introduction of translation services will allow them to achieve the benefits they seek.

To be successful, firms need to complete end-to-end impact assessments to understand how the increase in data, and structure of that data, will affect systems, processes and people. By identifying all impacted channels and touchpoints, firms can create an understanding of what requires change and how to change it. This will let them fully grasp their starting point and determine whether they need full scale system re-writes or application upgrades.

Redefine data ambitions 

ISO 20022 message data contains enhanced character sets and lengths in an improved structure. With ISO 20022 messages set to standardise data fields, such as BICs and full legal names, and introduce the use of Legal Entity Identifiers (LEIs) and Unique End-to-End Transaction References (UETR), firms must reconsider how they process, store and utilise the enhanced data by looking at:

  • data management – creating a standard way of managing ISO 20022 data to ensure they can source, maintain and distribute it
  • data cleansing – assessing the quality of reference data to ensure consistency across source systems
  • data analytics – enabling data analytics on the enhanced data to improve management information and drive more informed decisions.

Firms need to look at using the payment data to deliver more appealing propositions and revenue-boosting services. By mobilising internal readiness programmes and analysing the current state vs ISO message type delta, firms will be able to define value-adding services based on enriched, structured remittance data early. This could help banks build new revenue models and improve compliance and customer experience.

Prioritise business needs for internal readiness 

Banks already face a tsunami of regulator, operational and business-critical imperatives. As well as moving from legacy formats, updating payments architecture and business processes, and changing system-to-system payments flows, there are crucial ISO 20022 compliance issues beyond technology:

  • update key artefacts – understand how to manage internal readiness, such as the rewriting of SLAs and T&Cs with third-party suppliers
  • upskill people – operators must understand how payments move through the lifecycle of the transactions and continue to offer status updates to customers
  • adapt risk and compliance – identify new internal and external risks, and cross programme dependencies, in line with your risk management framework

Understanding who ultimately owns the transition to ISO 20022 and achieving continued sponsorship of the change is a challenge when the internal impact is wide ranging, yet determining this responsibility is key when it will influence multiple capabilities and projects.

To understand the full scope and scale of ISO 20022’s impact on firms, detailed planning is essential. By undertaking technology and business impact assessments of operating procedures and process instructions, they can understand the core project and join the dots across multiple business domains, including technology, operations, Anti-Money Laundering, product and sales. This can help the enterprise determine its key priorities and inter-programme dependencies, and help mitigate resource, cost and milestone conflicts.

ISO 20022 provides a new way of operating 

Over the next few years, we’re going to see a shift in how banks view, process and use payment information. We’ll see a shift from payments being a commoditised proposition to payments being a strategic, value-adding one. ISO 20022 offers that trigger for change.

The possibility of creating new business models, such as straight-through processing of payments and the facilitation of on-boarding new corporates, requires firms to act. They need to scope the size, scale, impact and severity of ISO 20022 on their systems, processes, data and internal readiness, and start acting now.


  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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