Down the line, banks would be able to, among other enhancements, analyze customer data much more effectively to understand payment trends and customer preferences. Banks could then leverage that information in new and promising ways to make for a richer client experience, using “Things like enhancing customer statements and [using] APIs to exchange information with customers, and providing data analytics to them,” explains Tim O’Donnell, managing director at Accenture in New York.
SWIFT’s messaging systems and MT format have changed little in the past 40 years, and payment orders continue to pass through numerous correspondent banking institutions, which may impose unanticipated fees or whose software may confuse addresses; Cuba St. in Wellington, New Zealand, with the U.S. sanctioned country, for example.
Delays can potentially disrupt companies’ intricate supply chains that often stretch worldwide. The MT messaging format has limited data fields, allowing for a maximum of only 140 characters, creating significant challenges and potential errors for payment providers and receivers in their efforts to sort out who is paying whom.
Seeing the upside of new messaging protocols, banks have not been dragging their heels. With common, open standards for electronic communication, it could become possible to automate routine compliance checks and controls. Data can be arranged in logical hierarchies, aligned with different payment destinations and pre-validated, minimizing unexpected correspondent-banking fees.
“In the longer term, we would certainly hope this reduces the number of investigations and delays in payments when the payment gets stopped somewhere in the chain,” says Amy Sahm, manager for the international group at Lancaster, Pennsylvania’s Fulton Bank, which has $25 billion in assets.
Despite its clear advantages, however, the cost to the industry and other priorities have delayed the adoption of it for cross-border payments, where many of the initiative’s benefits could be realized. Local payment infrastructures have moved much sooner, with more than 70 of them already having adopted ISO 20022.
Education and training will also play a major role, not just for the IT and operational staff pursuing technical aspects of the migration but also for upper management to consider in their strategic plans and the sales staff to convey the benefits to clients and what they need to do.
Business clients, for example, will have to make sure their enterprise resource planning (ERP) and other systems are ISO 20022 compatible, opening the door for banks to provide a helping hand. “That’s where the financial institution hopefully will be able to step in with services to help them make that transition as easy as possible,” notes Goodvin.
Banks should also develop myriad new products, services and other customer benefits from the new anonymized data they will collect, said Kenneth Wong, head of product strategy and innovation at Canada’s TD Securities. The more data there is, the more analytics they can pursue, perhaps analyzing why customers choose one type of payment over another, and for what purpose.
Looking further ahead, widespread adoption of the new standard— particularly for more complex cross-border transactions—appears likely to level the playing field in terms of the economic value of getting payments completed (see Figure 5).
This may take a while, notes Sigal at ISO 20022 Labs, but eventually profits are likely to go to the institutions that most effectively and creatively take advantage of the enriched and structured data to develop products and services.
“With the new data, there will be tremendous things we can do in terms of new products and enhancing existing products to do even more, with a better level of accuracy,” Wong said.
John Hintze is a freelance writer based in New Jersey.