As the adoption of the ISO 20022 standard gathers pace for payments around the world, corporate treasurers would do well to think beyond the immediate benefits for them, and for financial institutions, and consider the numerous innovations it could bring.

Working out what a payment is for is not always easy. We’ve all been there: maybe you look at the bank statement, then click for more information, or maybe you need to rummage through some other documents.

Those days should be over once ISO 20022 becomes a global standard for payments. Although the messaging standard has been around for more than 15 years, its adoption is now set to gather pace and soon become the de facto standard worldwide for high-value payments.

At a simple level, ISO 20022 means that all the parties in the payments chain are talking the same language, explains Edward Ireland, Senior Market Development Manager at Bottomline Technologies. Also, the standard increases the quality and amount of data that can accompany a payment. It can also bring visibility on what payments are for, and efficiencies in operational processes. “So many times you have to go back to find out why this payment has been made,” Ireland comments.

Typically, payment data has only been the account number, the amount, and the name, but now a lot more will be possible. Invoices could be referred to. Or with a car sale, for example, the vehicle registration and road tax documents could accompany the transaction. “That then means you have transaction information and not payment information,” says Ireland.

A trade finance transaction could carry a link to a portal where you could view all the relevant documentation, comments Ireland. Or a house sale could carry data about the ‘purpose of funds’, the type of property it is, or even the title deeds. If used to its full potential, the messaging could help fight against fraud and money laundering, or if used innovatively, could improve customer experience.

Ireland notes the standard has been around for a while, but a number of recent moves have accelerated its path from local systems to global cross-border adoption. For the business case to be realised, it had to be an industry-wide initiative – and that is what is now taking shape.

For example, the Bank of England is moving to the standard with the renewal of its real-time gross settlement system (RTGS). And so is the European Central Bank’s TARGET2 and the Federal Reserve’s Fedwire. With this, and the countries that already use it – such as China and India – a global standard is emerging. This will be given a further boost with SWIFT’s move to the standard for its messages by November 2025. “That then impacts everybody in the cross-border space,” explains Ireland.

This standardisation will drive efficiencies and create opportunities for corporates. And according to SWIFT, it will drive progress in new business innovation, cost optimisation through automation, enhanced customer experience, and regulatory compliance.

In the first instance, the transactions on the Bank of England’s RTGS from June 2022 will be ‘like for like’ – the transactions will be the same but in a new format. And from February 2023 the central bank will transition to the enhanced messaging, and from Spring 2024 will mandate purpose codes and Legal Entity Identifiers for certain high-value payments. Being able to identify the names and addresses of beneficiaries has an immediate processing benefit, comments Ireland, as it was not previously possible to identify all the parties in the payment chain.

For now, the impact for corporate treasurers is likely to be indirect, but they will have to respond to their banks when they ask for additional information during the transition. In the future, however, more innovation will be possible as it becomes the dominant standard worldwide. And you won’t have to look up what that payment was for ever again.