Switzerland is now officially on its way to executing the country’s biggest financial infrastructure project for 30 years.
The globally connected financial center is replacing all of its current payment slips, formats and procedures with ISO 20022 – the internationally recognized financial messaging standard.
This changeover project is being driven by two key factors: digitization and regulation. SIX, Switzerland’s financial market infrastructure provider, noted that 74 percent of consumer payments are now executed electronically, but the country is still lacking a fully integrated transaction cycle from billing to payment receipt.
The ISO 20022 standard will also make it easier for the Swiss payments sector to improve the efficiency with which it complies with changing regulatory requirements.
An ISO 20022 refresher
ISO 20022 is a standard developed by the International Organization for Standardization for electronic data interchange between financial institutions. It can effectively be seen as a next-generation payment language that allows more information to travel with an electronic payment.
Adoption of the standard was initially pioneered with the SEPA (Single Euro Payments Area) wide payment systems and it is now used around the world, in markets including Japan and Australia. However, this does not necessarily mean full global interoperability, as it’s possible for different markets to use different kinds of ISO 20022 messages.
ISO 20022 is extensively – but not exclusively – used as the driver of real-time payments systems around the world. Until fairly recently, the UK’s Faster Payments scheme used a version of the ISO 8583 card and ATM-based messaging protocol. Faster Payments announced in January this year that it had “taken an important step towards ISO 20022” with the release of a free mapping tool for software developers. The tool allows developers working for organizations such as fintechs and emerging banks to complete the conversion from ISO 8583 to ISO 20022.
‘Proven and future-proof’
Switzerland’s aim in making the transition to ISO 20022 is to migrate its currently fragmented system of formats, procedures and payment slips onto a “proven and future-proof standard”.
The project will see the seven different payment slips currently in use replaced by a digitally readable QR code containing all of the data required for the transaction. This ‘QR-bill’ system will allow companies to print bills themselves, while recipients can initiate payment with a few taps on a smartphone or other device. It will still be possible for payments to be completed at post office counters or by mail.
There are many potential benefits to be gained from the new system, such as quicker identification and correction of errors in payment information and more efficient cash management for corporate customers.
However, there will also be some major changes for Swiss financial institutions and their customers to navigate over the coming months and years. Corporate customers with enterprise resource planning or operating systems will need to adapt their infrastructure to align with ISO 20022, in readiness for it replacing all previously used systems for processing transactions with their banks.
All payees and payers will also have to replace old account numbers with standardized international bank account numbers.
However complex and challenging the transition could prove, SIX is clearly convinced that it will be worth the effort.
“The harmonization of payment traffic will support the digital transformation currently taking place throughout Switzerland’s economy and society,” the institution said. “Payment traffic thus makes a significant contribution to the consistent digitization of Switzerland. At the same time, the modern payment system is geared towards complying efficiently with future technological and regulatory requirements.”
Financial institutions are aiming to complete the migration to ISO 20022 by the end of 2017, with corporate customers following suit by mid-2018.