ISO 20022 protocol is a standard for electronic data interchange between financial services in the payment industry. It is based on DLT and uses ISO 20022 as a messaging mechanism. ISO 20022 is a more advanced format based on the XML protocol and the Abstract Syntax Notation One (ASN.1). It better reflects today’s financial activities and transactions, locally, regionally, and globally. Banks worldwide have already committed to this regulatory framework, which backs SWIFT and the Federal Reserve. There’s no question that ISO 20022 will be a significant catalyst for investors.
Banks and financial institutions worldwide are entering a new era as they gear up to switch their payment systems from using SWIFT messages to ISO 20022. It is a much more structured and data-rich financial messaging standard. In 2025, ISO will be the global standard for high- or large-value payment systems in all reserve currencies. It is set to handle 80% of transactions and 87% of transaction value globally.
Each of these cryptos was developed to make global transactions more accessible, and because of this, they could comply with the ISO 20022 standard more quickly. They include Stellar, Hedera, IOTA, XDC Network, Ripple, Algorand, and Algorand. However, note that just because they follow ISO 20022 doesn’t necessarily mean they’re suitable investments. Ripple is an excellent example of crypto with numerous disadvantages compared to benefits.
It is anticipated that this worldwide acceptance of similar financial messaging will significantly influence financial institutions, companies, and any organization with a stake in the finance and large value payments sector. Over 70 countries have adopted ISO 20022 in their payment systems. The ISO 20022 standard will apply to domestic, ACH, real-time, high-value, and cross-border payments. With over 200 payment types, it will combine formats and data components from numerous payment techniques that could not previously communicate with one another due to differences in standards.
Banks will need to upgrade their messaging interfaces and test them before November 2022 to ensure they are compatible with the new payment communication standard. Because ISO 20022 is a more modernized and versatile standard than conventional legacy formats, it requires significantly greater data volume processing. As a result, bank systems and databases will need to be capable of handling these larger volumes at quicker speeds for real-time payments, daily liquidity management, compliance checks, and fraud detection and prevention.
It’s critical to allow enough time for testing so that syntax and formatting information is accurate, and the data’s migration into all linked payment and clearing systems. Testing should ideally be completed by the second quarter of 2022 at the latest. Banks must inform their corporate customers about the additional data that may be accessible, as well as how it will be utilized. In addition, those clients should be completely informed and involved in end-to-end testing.
To establish a road map to standardization for high-value payments and real-time gross settlement (RTGS), the SWIFT, global central banks and market infrastructures have established the HVPS+ market practice, task group. HVP systems are crucial to international finance, so monitoring these significant value transfers with the appropriate monitoring and performance management solution is critical.
Keeping up with new technologies, legal changes, and the introduction of new international payments standards is difficult. With ISO migration just around the corner, organizations can turn data into knowledge to ensure that worldwide payment systems run safely and effectively.