ISO 20022 will particularly benefit fintech disruptors and neobanks that are building technology from scratch. Traditional financial services grafting the new technology onto old, legacy infrastructures will struggle to capitalise on the benefits of the new messaging standard.
So argues Marcus Treacher, Executive Chair at RTGS.global, the liquidity and settlement platform in conversation with Treasury Today.
“The upgrade of messaging content will play into the hands of developers that have created interactive systems that are more malleable and flexible than what the banks have built over the last 30-40 years.” Treacher adds that the new global messaging standard goes hand-in-hand with rapid API development and will be increasingly used in API calls.
An obvious area where new neo banks – operating online without the branch network of traditional banks and “API natives” – will compete is compliance. Traditional banks are pulling back from emerging markets because they struggle to manage the risk and have seen the impact of large fines on peers. Traditional banks are debanking and transacting more slowly in these markets, offering an opportunity for new players able to integrate the broader data that ISO 20022 captures to access greater insights and monitoring ability to compete.
“New players will have a much lower number in terms of hits and missed transactions and will be able to offer a different price point and better credit risk for counterparties,” predicts Treacher, who’s multiple former roles include Global Head of Innovation Payments Cash Management and Trade at HSBC.
He says new banks like Monzo, the Bank of London and Pave Bank, the Singapore start-up, are amongst a new cohort building new technology stacks on fresh code. He lists other winners like groups able to enrich the data around money laundering and anti-fraud, applying AI to find links and connections. “This will all play out in a way we are not thinking about today,” he predicts.
New products
Treacher continues that because the data captured in ISO 20022 and underpinning transactions offers a richer underlying pay load, financial services will be able to offer a new range of products including discounting and lending. “Innovators will be able to create a whole new proposition that nobody is thinking about at the moment, unlocking real potential.”
“ISO 20022 contains many more message fields and this ability to define and expand the data fields plays into the hands of creative forward-thinking players and new entrants who will be able to build an extensive proposition.”
He argues that banks’ internal systems are not positioned to carry this kind of additional information. For example, typing payment details into a traditional bank app only allows a fixed amount of information because it runs on an old-fashioned system. “The new messaging standard makes it easier for new entrants to differentiate from banks that are managing systems that are old and ‘knotted together’ and therefore hard to upgrade.”
Regulators are leaning on bank incumbents to upgrade their systems, but Treacher says its challenging and risky building new systems on legacy infrastructure. “It’s much easier to build a new platform and system from scratch because if it goes wrong, it won’t damage anything underlying.”
He concludes: “It is getting easier for creative and hardworking treasury platforms to get an even better feed of information. Once the dust has settled and we have got over the ISO 20022 deadline and entered a new world where ISO standards are ubiquitous, innovation will start to eat away at traditional banks and benefit start-up entrepreneurs.”
