In an increasingly complex and interconnected world, the richness of the data required for fast and secure processing of cross-border payments continues to grow as well.
That’s why the financial industry is taking steps to significantly enhance end-to-end data quality with richer and more structured payments and reporting message data. This is being achieved by taking advantage of the opportunities presented by ISO 20022.
No more need for workarounds
Many of the data fields available in MT messages today are size restricted or optional for use, leading to business data restrictions, omissions, or truncation. And for some information, dedicated fields simply aren’t available when using existing messaging formats.
Financial institutions have adapted by finding workarounds and stretching the use of the available fields to the limit. But with different institutions and market infrastructures having adopted standards differently, or using different workarounds, this approach inevitably creates additional friction. And this can result in high levels of rejected messages, investigations, operational overheads and, ultimately, a poor customer experience.
For example, regulators are increasingly looking for more transparency on the parties involved in a payment and its purpose. However, today’s MT formats typically define unstructured name and address fields for basic parties, and don’t allocate fields for parties involved in more sophisticated use cases at all. Nor do they allocate fields for payment purpose codes. And with no specific data field available – or with character restrictions limiting the information that can be included – institutions tend to add anti-money laundering (AML) information wherever they can fit it in.
This might involve combining a regulatory purpose and ultimate parties in a remittance information field, or adopting an unstructured format for name and address. Either way, this creates challenges.
Combining names and addresses in the same field can lead to friction in sanctions screening checks and when attempting to capture the context of the data. And the limits of existing formats mean that quality parsing of contextual elements is degraded. For instance, an unstructured element “CA” in the party field could mean either Canada’s country code, or California.
The result: manual effort, increased friction, high levels of investigations and false positives, and delayed customer payments.
How can ISO 20022 help?
By adopting ISO 20022, financial institutions gain certainty on the purpose and definition of data. This leads to:
- Greater operational efficiency – ISO 20022 messages support higher straight-through processing (STP) rates while reducing exceptions.
- Better risk management – richer data enables more effective screening, such as targeted data screening and faster deployment of software releases.
- Improved customer service – meet your customers’ demands for transparency of payment fees, clear remittance information, and estimated settlement times, leading to more efficient reconciliation.
- Innovation opportunities – use ISO 20022 to better understand your customers’ needs and innovate your products through data-driven insights and richer reporting.
- More interoperability – the unambiguous mapping of cross-border payments data elements spanning various networks, formats, and market practices (including corporate-to-bank and domestic payment systems) reduces data translation and truncation challenges.
- Increased flexibility – ISO 20022 is agile enough to accommodate different technical syntaxes (XML and JSON) and different integration styles (messaging and APIs).
ISO 20022 also addresses existing challenges in nostro reconciliation. Most unmatched nostro items result from a lack of underlying data in statements and reporting. By enabling all data associated with a transaction to be reported, ISO 20022 can help to minimise the number of unmatched items.
The importance of an end-to-end approach
ISO 20022 provides a common, interoperable standard for all steps in the payments value chain, from payment initiation (corporate-to-bank) to correspondent banking and market infrastructure settlement processes, and ultimately cash reporting.
For the cross-border steps, Swift ensures that once rich and/or structured ISO 20022 data is present in the payment transaction, it’s protected all the way to the end.
So, to benefit fully from ISO 20022, it’s important that rich, structured, and correct transaction data is captured at source. Full details of the debtor (ordering customer) will typically be populated from the customer details held by the originating bank, and data remediation might be needed to ensure that this information is as clear and well-structured as it can be.
Much of the remaining data – creditor account and identification details, remittance information, and purpose codes – is provided by the debtor via the bank’s channels. Best practices are to:
- Ensure that as much data as possible is pre-validated to minimise the risk of downstream automation breaks.
- Ensure your customer channels support ISO 20022 data structures, whether your channels are message-based (where ISO 20022 payment initiation messages can be used directly), APIs, eBanking GUIs or smartphone apps.