James Bushby, SVP, Real Time Payments Strategic Sales at global payments giant Mastercard, writes for Payment Expert on the value of elevated data and what it can mean for the enhancement of payments.
Speed and immediacy are often quoted as the headline drivers of payments modernization. But the value that increased data and messaging capabilities also offer cannot be overstated, with native support for ISO 20022 within a real-time payment infrastructure also acting as a catalyst for change.
A standard growing in stature
ISO 20022 isn’t a new standard, nor is it the only standard available, but there’s no questioning the fact that its use is an increasingly common feature of payments modernization. Of the 61 real-time payment systems we reviewed around the world, almost two-thirds were based on this data standard, with many others planning to upgrade to it.
With its improved data structure, extensible message sets, and the potential to enable interoperability between domestic and international payment systems, ISO 20022 message standards are key to unlocking a market’s national strategic payment vision. It simultaneously addresses several key pain points that can exist for both banks and their end users.
For example, a recent study estimated that failed payments cost the global economy $118.5 billion each year. Through ISO 20022, the transfer of rich remittance information is helping financial institutions to enhance risk monitoring, fraud prevention, and provide other valuable services and operational efficiencies, especially through higher rates of straight-through-processing (STP), speeding up financial transactions for customers.
Unlocking new services
In many cases, services like payment requests across a variety of use cases, including consumer bill payment B2B corporate payments and also specific government disbursement types, have been constrained by a lack of standardised messaging data. This is hindering the ability of banks to meet customers’ needs, drive revenues and enable all parties to realize a broad set of cost efficiencies.
However, ISO 20022 is able to support a range of non-payment messaging, such as a ‘request to pay’ message. This can be leveraged as a way to enable a merchant, corporate or government to issue a payment request to an end user with the relevant remittance information included. The receiving entity can simply and securely respond to this request to initiate the credit transfer, reducing costs and risk of error compared to manual capture and processing of invoices, as well as cutting delays and improving cash flow management.
More specifically for B2B payments, when businesses trade with each other, they need to communicate different sets of information about what they are paying for, including details on what has been bought, the supplier, costs, and credit notes. As older payment messages weren’t designed to carry much of this information, reconciliation often occurs through separate documents, which can often be a burden on business operations and potentially become a costly and time-consuming experience.
ISO 20022 can solve this, providing a common and standardized means for exchanging large amounts of data, with the payment message allowing for automated reconciliation or the presentation of value-added services such as trade or invoice financing options.
A weapon in the fight against fraud
As with any changes in technology, the shift to modern real-time payment systems provides a new possible angle of attack for criminals. However, the richer data carried by the ISO 20022 standard has the potential to be used to help combat these dynamic shifts in fraud, with specific attention on certain types where losses continue to grow.
As one illustration of the importance of this topic, the UK saw a total of £1.3 billion stolen through fraud and scams in 2021, according to UK Finance. Of this, £583.2 million was related to Authorized Push Payment (APP) fraud and was higher than all the fraud losses relating to debit, credit and other payment cards. Fraud is a global problem, with the European Payments Council (EPC) also noting an increase in APP fraud for example.
With ISO 20022, there’s the potential to carry more data as part of the payment itself, whether that’s the expanded data fields, associated risk score(s), device analytics or other verifiable metrics that have the potential to be used to increase the certainty of a genuine transaction, reducing false positives and time-handling exceptions. This is even more important now given the myriad of new players in any given payments flow – for example the influx of Third Party Providers (TPPs) within the open banking ecosystem.
While ISO 20022 is a global standard, the framework by which it’s implemented and the way the message is used may well vary across different markets. The adaptability of the message means there is plenty of scope for customization and localization. This is another potential benefit as it enables different markets to adapt the message to support the specifics of their authority, regulatory regimes, and other data requirements.
However, when we talk about harmonization and interoperability, it’s not simply a question of connecting point A to point B. This is particularly the case for cross-border services such as the P27 initiative in the Nordics, where the unification of payment systems will reduce cost and complexities.
While in practice using ISO 20022 means it will be significantly easier to translate and truncate data to enable connections compared to two proprietary messages, the degree of localization that’s desirable is nevertheless a necessary consideration when developing a payments modernization framework.
To help alleviate potential issues, ISO has created a repository of message usage definitions and guidelines. This includes a catalogue of 16 different messaging definitions supporting various payment-related use cases, including payment initiation, payment requests, payment mandates and cross-border transaction currency control reporting.
In an increasingly competitive landscape, ISO 20022 message standards can support the process of innovation, which is critical to long-term success. It can deliver operational efficiencies while also enabling and supporting the development of value-add products and services for banks, businesses and consumers alike. As the shift to ISO 20022 picks up pace, financial institutions that stay wedded to older standards ultimately risk being left behind.