Sibos 2020: ISO 20022 is still the one

The Sibos Insider Blog provides inspiring insights from financial industry experts and influencers. The blogs provide informed thought-leadership on a range of topics. The opinions expressed in these blogs reflect the personal views of the author and not their organisation, Sibos, or SWIFT.

While Sibos was a little different this year, what does remain the same is that the industry is still banking on ISO 20022 to become the de facto standard of payments messaging. In an interesting session interviewing Saqib Sheikh, the global head of the ISO 20022 programme for SWIFT, Saqib referred to ISO 20022 as the next generation standard for how entities speak to one another in payments. This simplistic definition makes sense, and it seems adoption would be a no-brainer. Having a common language to simplify the payments process is obviously important. However, the U.S. market continues to lag behind Europe on adoption. There are several factors that play into this dynamic in the U.S.:

Legacy infrastructure – while dated financial technology is not unique to the U.S., the U.S. has lagged behind on adoption. The last few years in particular, financial institutions around the globe have been forced to begin modernisation efforts to remain compliant. With no central governing authority mandating components that demand transformation efforts, the lag is even greater. Fragmented market landscape – no other region or country has so many different financial institutions. With over 11,000 financial institutions in the U.S., it is difficult to find ubiquity in any technology. Educational gap – ISO 20022 is viewed as a technology project, not a means to ease the burden of business problems in payments. Without fully understanding the benefits, there are competing priorities that are seen as more client-centric that take priority. However, as also mentioned during Sibos, there is a business problem to be solved through standardization of payments messaging to reduce the manual time it takes to apply payments and seek out missing or incorrect information. Bastardization of past standards – the Message Type (MT) standards have been customized relentlessly. Every financial institution seems to have modified the standards to the point where there is not really any similarities other than titling categories the same. There is fear in the U.S. market of an investment in a standard that is left open to interpretation and customized, negating the core value and premise of the standard.

For sure, there is an absolute need for better quality of data associated with payments. There is also no doubt that SWIFT has an unparalleled global network, and there is a significant number of U.S. banks that are part of this network. However, there is still fragmentation among the regional banks on what ISO 20022 really means to their clients. Roadmaps are generally driven by client demands unless there is an outside force dictating otherwise.

So why should we still keep discussing and pushing for ISO 20022 standardization? In another session overviewing the SWIFT strategy, Mark Buitenhek, Head of Transaction Services for ING, summed it up with a profound declaration of just two words. Payments matter. Payments matter so much that financial institutions are getting disintermediated at an alarming rate, particularity in the U.S., in a search to find more frictionless payment capabilities that provide plug and play integration and access to the data associated with those payments.

I hear from financial institutions and corporates in the midst of technology projects all the time that ‘this latest release is built on ISO 20022 standard messaging capabilities’. But what does that really mean if the benefits of that messaging cannot be absorbed and realized by the entities actually transacting? This is where the U.S. needs to catch up. Speaking the same language, is absolutely where the industry has to go. SWIFT is trying to play an important role in the industry of owning the ‘golden copy’ of transactions to remove the weakest link in the payment chain.

What should be, and largely is, recognized by U.S. financial institutions is the need to make all payments frictionless. No business wants to spend valuable time and resources manually reconciling payments and searching for the remittance information. But, as mentioned, payments matter. Payments are what enable a business to exist. The time for modernisation is here, and the majority of U.S. financial institutions need to be challenged to look forward or risk getting left behind as the largest global banks meet the needs of the market.