What is ISO 20022? A modern, global payments messaging standard

Bank of England

ISO 20022 is becoming the global payments messaging standard. This globally agreed format standardises how businesses interact, process and settle comprehensive payments details.

In the UK, these changes, which SWIFT, the Bank of England and Pay.UK are driving, are in place for all high value and cross-border payments, with anticipated roll-out to retail payments over the next few years. In the Eurozone, SEPA is already using the standard, in the USA, CHIPS is expected to switch over later in 2024, and FedWire in 2025. SWIFT, who oversee most global payments will switch off the prior “MT” standard in November 2025, presenting a hard deadline for banks to migrate.

What’s changing and why?

Today, major payment systems are held back by the sheer variety of payments messages available – from CHAPS and Faster Payments to the well-known Bacs – all operating in their own language. This causes a fragmented, limited, and unharmonised system. ISO 20022 corrects this by providing a common language and model for payments data, and the benefits are clear:

• Global adoption: By August 2023, over 1,200 organisations were sending ISO 20022 payments, across more than 200 countries
• Central backing: This change to payments infrastructure is being supported by the Bank of England’s Real Time Gross Settlement system, which underpins CHAPS, Pay.UK’s New Payments Architecture, the European Central Bank’s SEPA and the US Federal Reserve’s FedWire and FedNow services.
• Cross-sector impact: ISO 20022 will affect all firms involved in payments factory, cash management and payments acquiring.

By creating a common language and model for payments data, ISO 20022 significantly improves the quality of data across the payments ecosystem. Richer, structured, meaningful data will enable new client experiences, while improving compliance and efficiency.

ISO 20022 will also reduce the friction in cross-border payments, cut the need for intervention and repairs, and help trace payments, all of which is great news for KYC (Know Your Customer), AML (Anti-money laundering), and sanctions screening.

The transition to this standard is not trivial, putting new demands on bank systems, data and operations. A major part of this challenge is that many banks will have legacy data and systems, which will not be compatible with the ISO 20022 standard. There are a number of possible approaches to this problem:

1. Full-scale modernisation to become ISO 20022 native. Many newer banks came into being already in this state; it is likely only feasible for other modern and smaller banks to achieve this.
2. Incremental modernisation, which requires a careful consideration of how far to do, and where to draw the boundary.
3. Using a novel approach to bridge the systems and confirm data on the fly. This is something we have explored within PA, including filing a patent on the use of an artificial intelligence (AI) tool to map and convert the data.