It is not just for Europe; it is used globally including countries like China, Japan and Russia that use non-roman character sets. It is not exotic; it is built on XML which is the lingua franca of corporate systems. It is not just for large companies; half of SWIFT corporate members are smaller companies. So what is holding ISO 20022 back? Largely misinformation and change aversion, says our Treasury Insider.
There has been a lot of coverage in the treasury press about new standards for immediate payments using ISO 20022. The immediate trigger was a recent announcement by Payments UK that said: “The landmark first draft announced today (10th August 2015) is the result of work by the ISO Real-Time Payments Group (RTPG), made up of over 50 global experts facilitated by Payments UK, which has been tasked with driving forward the project of developing the ISO 20022 messages required.”
This is good news for corporate treasurers indeed. Whilst we may be satisfied with same day value, immediate payments will encourage the move away from multi-day settlement that remains common in many low-value clearing systems, and will reduce costs as well as delays and float. Less positive has been the implication in much of the press that ISO 20022 is itself a new innovation.
A trusted standard
ISO 20022 XML (eXtensible Markup Language) was started in 2004, and the first messages for payments went live in 2006. So whilst this is not novel, it may be perceived as such since the standards keep advancing to handle new needs like immediate payments. Moreover, the breadth of ISO 20022 has also expanded from payments to cover areas including: securities, trade, cards and FX.
Corporates, including my old employers, have been using ISO 20022 to communicate with banks for a decade. It is famously the basis for SEPA (Single European Payment Area) the pan European payment system. People are less aware that ISO 20022 is also used for clearing in China (CNAPS2), Japan (Zengin and BoJNet) and Russia (CMPG) and too many countries to list all over the world.
XML is simply the machine-to-machine counterparty for the more familiar HTML (Hyper Text Markup Language) which we know and love on our internet browsers. You are already using XML – although possibly without knowing it – it is the glue that holds corporate systems together. For example, internal messaging within SAP – called iDOCs – is XML.
The gold standard
ISO 20022 has standards for every conceivable message a corporate treasurer would want, and in fact a lot more for other financial purposes. SWIFT’s FIN MT standards were designed only for cross border high-value flows like FX settlement. ISO 20022 on the other hand, covers cheques, bank drafts, local low-value (like payroll), bulk payments, cross border and trade.
A group of bankers, corporates, and system vendors called the CGI-MP (Common Global Implementation – Market Practices group) has standardised most payment instruments in most countries, and is working on the rest. This means there is one standard way to get each type of payment executed regardless of which bank you use.
Your systems therefore need only one standard for all kinds of flows, in all geographies, in all languages, and so on. FIN was ‘patched’ to handle some of these needs, but each bank created their own workarounds – causing nightmares for treasury interconnections – and major operational risks as market infrastructures around the world upgrade to offer new services like immediate payments.
Global adoption by market infrastructures and rapid standardisation of corporate connectivity by GCI-MP mean that ISO 20022 is effectively future-proof. Whatever new payment technologies come along, they will most likely be cleared in ISO 20022. Even if they are not cleared in ISO 20022, the global breath and coverage of CGI-MP mean that corporate connectivity standards will be developed at the same time as any new payment systems are rolled out. This means that treasurers using ISO 20022 effectively hedge themselves against the operational risk and cost of future developments in payment technologies and services.