In Search of Answers:What Can My Bank Do with ISO 20022?

Starting in March of 2023, a new type of data began flowing through the Swift network — meaning that many financial institutions in the US also began processing this new data format.  

You may hear it referred to as MX (short for Message XML), and it supersedes the MT (MessageType) format that has been the standard for decades.

But Swift is an international payments network. Why should financial institutions (Fis) that operate in the domestic US pay any attention to such a change?

Because the use of MX also heralds the widespread adoption of the ISO 20022 standard for certain financial transactions. The shift toward ISO 20022 will have big implications on the global scale. It’s also transforming domestic payments. For instance, theFedNow® Service for instant payments uses the ISO 20022 standard. Mastercard and Visa are embracing ISO 20022 as a way to help FIs differentiate in the payments space.  

In this article, we’ll explore some of the ways this international standard can help even the smallest institutions serve their US-based customers safer and faster. 

‍Cooperation Is the Best Standard

‍The case for standardization is a fairly simple one: The more people or businesses that adhere to a common set of protocols, constraints, or measurements, the easier it is to conduct business, communicate, and build robust systems.

The US banking industry has relied on the standards developed by the Accredited Standards Committee X9 (ASC X9) since the 1970s. And those standards have helped maintain America’s position as the most successful economy in the world.

In recent years, ASC X9 has helped promote the benefits and use of ISO 20022 for US financial institutions.

The adoption of ISO 20022 holds huge potential, because it enables banks, credit unions, and businesses to handle payment data in a way that’s more comprehensive, versatile, and secure.

Faster Payments Can’t Come Fast Enough
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Today’s financial services industry is almost unrecognizable compared to what it was half a century ago. Consumers move money with the swipe of a finger and expect to see the results in their accounts just as fast. Up until recently, instant money movement has been a simulation made possible by companies such as Block’s Cash App, PayPal, Zelle, and Venmo.

Instant payment services such as the Clearing House’s RealTime Payments (RTP) Network and the Federal Reserve’s FedNow Service are making true instant payments a reality in a way that consumers and businesses can use directly from their bank or credit union.

This means that with the right strategic approach, any FI can offer real-time payments as a differentiated service for their commercial and retail account holders. The first step to succeeding with faster payments is to learn what the ISO 20022 standard entails and update your operations accordingly.

You Can Do a Lot with ISO 20022

The ISO 20022 standard is even appearing in established services such as FedWire Funds Service, which is replacing the previous messaging entirely.

Here’s what makes ISO 20022 so useful and appealing:

Transparency
Because it uses a standardized set of structured data fields, FIs can request and transmit much richer data for each transaction they handle. This comprehensive approach to transaction data is the foundation of the subsequent benefits.

Efficiency 
As more FIs use ISO 20022 for various financial transactions, integrating and automating it into their back-office processes, the additional data will lead to innovative services and faster workflows. It will also greatly simplify compliance and reporting duties.

Security
As FIs develop internal systems for handling the additional data, they’ll also be better able to analyze it and flag suspicious activity. This can even include pre-emptive measures such as requesting additional information or verification for “data-thin” transactions.

Resiliency 
Although systems such as RTP and FedNow are not interoperable (meaning a transaction can’t be passed directly between without a mediating interface), they both use the ISO 20022 standard. That makes it easier for your team to work in those systems. It also paves the way for new technology solutions built on ISO 20022 protocols.

In Search of a Better Future for FIs

Even though adopting a new standard may not feel convenient or easy on the front end, it’s still worthwhile. Often, it’s just a matter of getting out of a comfort zone and gaining a new vision of how good things can get.

Rather than treating the transition as an inevitable chore, consider reframing it for your team as an opportunity to make their jobs easier and faster in the long run. Consumers may be eager for the age of instant payments, but thanks to ISO 20022, FIs will have their own reasons to appreciate the change.