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Cross border payments are about to get a rev up. Matt Skinner looks at what this means

Business / news
Cross border payments are about to get a rev up. Matt Skinner looks at what this means

A new financial standard allowing for real time cross border payments 24 hours a day and seven days a week is being launched in March, letting people see where their money is going and allowing them to double check the right amount is being transferred.

The ISO 20022prepared by the International Organization for Standardization (ISO), is a financial standard, or data dictionary, launching in March 2023. There'll be a grace period of three years for banks to adjust before potentially being locked out of the SWIFT network, the global provider of secure financial messaging.

The ISO 20022 was a hot topic at Payments NZ’s The Point 2022 conference in Auckland this week.

However, Payments NZ Manager for Clearing Systems Jamie Wood says that Payments NZ will take time to adjust from regular business days and hours as well as real time payments. "Everyone has implemented it differently around the world... you're only as fast as your slowest country."

He says that parts of what the presenters pitched at the conference was a nirvana-like vision for the future that will take a longer time frame for reaching targets. At this stage kiwis will be able to receive ISO 20022 payments in March.

Susan Yang, General Manager of International Payments and Network Management at ASB's parent Commonwealth Bank of Australia, says the new financial standard will allow for real time cross border payments 24 hours a day and seven days a week. At present there are cut-off times which limit payments to 22 hours a day and from Monday to Friday.

The new systems will provide status updates to both general customers and financial service providers so they can see exactly where their money is going and will have "trust pauses" in place to double check the right amounts of money are being transferred.

The corporate world currently makes payments without ID, but under the new system there will be a "pre-validation solution" offered by SWIFT to verify names are attached to the right accounts. There will be more certainty and transparency in making online payments offering protection against cyber criminals.

At present there are a multitude of different financial transaction languages and standards creating problems in automating end-to-end chains between financial service providers. This is because of the differences in structure and meaning, these frictions take time and human maintenance to work around.

Exchanges of information between financial institutions only work if the sender and receiver both have the tools to understand syntax (structure) and semantics (meaning). 

ISO 20022 is designed to overcome these barriers, with three separate layers enabling it to act as an automated translator across the multiple standards and syntaxes in use today. They are; the top layer providing the key business processes and concepts, the middle layer providing logical data models and flows, and the bottom layer which deals with syntax.

ISO 20022 starts with the creation of a business model, then defines a logical model with a description of all the information that’s needed to perform a specific business activity. 

Lastly ISO 20022 works on the syntax, it uses XML, one of the widely used financial languages, and specifies how to convert a message model to XML. However, in a particular business domain, a message model could be expressed in a syntax different from XML, for example, the SWIFT proprietary syntax or the FIX syntax, if agreed.

ISO 20022 messages are available for the complete payments chain: customer to bank (payment), bank to bank (payment clearing and settlement) and reporting (cash management).

According to the SWIFT standards team, widespread adoption of ISO 20022 will have significant benefits for individual firms and the financial system, improving compatibility across technology platforms and creating opportunities for collaboration with minimal human maintenance. Looking toward to the future the aim is to integrate with artificial intelligence (AI) automation.

Suresh Rajalingam, Head of Oceania at SWIFT, says ISO 20022 has been ready for about 10 years.

Payments NZ wrote a discussion paper called ‘Re-mastering payments messaging’ back in 2015 which was their study of New Zealand’s strategic opportunity to adopt the ISO 20022 payments messaging standard.

"The system will be agnostic to fintechs. We're driven by community guidelines, reporting to the G-20 countries, so there is potential to facilitate for any crypto," Suresh says.

Pictured below is a simplified business model defined in the top layer.

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