Implementation of the ISO 20022 messaging standard for electronic payments could produce savings worth billions. This is the message from the Canadian Payments Association (CPA), which foresees significant benefits from migration to the standard.
The CPA reckons that adopting ISO 20022 would lead to costs savings of as much as CA$4.5 billion over five years simply from the elimination of checks – a billion of which were written last year.
As the organization notes, businesses continue to rely on checks because of the rich information that can accompany a payment. “The ISO 20022 standard, once implemented, will allow significantly more information to travel with electronic payments, enabling greater automation and improved efficiency for businesses and financial institutions alike,” it notes.
But this is merely the tip of the iceberg for ISO 20022. There are many more advantages although, as the CPA admits, these are harder to quantify.
“Since the standard creates the potential for one payment language, it can facilitate payments innovation, more efficient cross-border payments, improved fraud detection, better service line integration for businesses, and more streamlined operations. The list of possible benefits goes on,” says the CPA.
‘Enabler of innovation’
It’s easy to think about ISO 20022 as nothing more than a technical standard. But this could not be further from the reality.
“Messaging standards should not be underestimated for the value they can unlock across the whole payments value chain,” notes Payments NZ in its report on ‘Re-mastering payments messaging’, which the CPA cites in its discussion paper.
“They define the electronic information, data and digital content used to process payments, as well as what information can be made available to and used by customers. Messaging standards also set the boundaries of how flexible those in the payments community can be when innovating, both independently and collectively, and how they can use the wealth of electronic information available.”
In other words, ISO 20022 could completely reshape the way we handle payments from start to end. The CPA suggests that the amount of data that can accompany basic payment details could offer new insights into customers and create new revenue streams for providers.
ISO 20022 will also be the messaging standard underpinning real-time payments systems being developed in the US and across Europe. The economic benefits of this are hard to quantify, but few would disagree that they will be significant.
Global interoperability challenges
Among the chief advantages of ISO 20022 is its global nature. The CPA notes that it is “evolving at a pace that will eventually make it the standard of choice for electronic funds transfers and wire payments worldwide”.
It adds: “In the ideal scenario, harmonized and consistent processes should be present from payment initiation through reporting, regardless of region, currency, platform or channel.”
However, there are worries about fragmentation already. Swift has taken action to stop the proliferation of different ‘flavours’ of the ISO 20022 standard. There are more than 200 initiatives in the process of implementing ISO 20022 across payments, cash management, securities, trade and treasury.
“We need to balance inherent flexibility and the resultant fragmentation, versus loss of freedom, the need for a more persistent process and the need to drive market interoperability,” said Edwin De Pauw, head of product management at Euroclear.