Why is ISO 20022 important for Payment System Operators?

With the migration to ISO 20022 now in full swing, much has been written on the benefits for banks and their clients – but the voices of other market players have gained less attention. In this blog, we explain why the ISO 20022 migration is so important for payment system operators.

2023 was a significant year for the ISO 20022 migration – not only for the banking community, but also for payment system operators (PSO). Both banks and PSOs are having to make fundamental changes to their core payment and settlement systems – a move that logically extends to all systems that their end clients depend on.

This process is already well underway. In March 2023, as Swift migrated to cross-border payments and reporting plus (CBPR+), PSOs in Australia (RITS), Canada (LYNX), Europe (EURO 1 and T2) and New Zealand (ESAS) also moved to the new standard for high-value payments – with the United Kingdom (CHAPS) following suit in June.

Many other PSOs, including those for cross border, high value and faster payments, have plans to implement ISO 20022 in the coming months – and many systems and schemes that were early adopters of the standard have plans to update to the latest version to support additional functionality.

As a growing number of PSOs around the world choose ISO 20022 as the message standard of choice, payment services internationally are gradually being aligned to a single standard. With these significant changes underway, how will the migration impact PSOs and why is it proving to be so important?

ISO 20022: the PSO perspective

While the impact of ISO 20022 for banks and PSOs are comparable in terms of the action and effort needed, they differ considerably when it comes to the underlying benefits.

For banks, the focus is on the introduction of richer and more structured data through ISO 20022, with the new standard incorporating more granular details that the existing standards either omit or include only in an unstructured way. This is set to help banks by improving straight-through processing, enhancing the customer experience, fostering global interoperability and facilitating innovation around operations and services.

For PSOs, while incorporating richer data into the payment chain will unlock benefits, other considerations rank higher on the agenda. For instance, ISO 20022 is at heart a global open standard and thus not governed by any single entity. This independence ensures that the standard can be adopted by various payment system operators, banks, and financial institutions without being tied to specific vendors or proprietary systems. This, in turn, allows for interoperability between different systems and enables seamless communication between diverse financial entities.

In being internationally recognised, the ISO 20022 standard also makes it easier for PSOs to communicate and transact with partners, customers, and financial institutions worldwide – all while reducing complexities arising from varying national or regional standards, streamlining processes and improving efficiency.

Another key consideration for PSOs is that, as an established standard, ISO 20022 is nevertheless flexible. It incorporates well-defined procedures for maintenance, governance, and evolution, enabling it to adapt to changing business needs and technological advancements.

These three pillars – namely, the independent, international and evolutionary nature of ISO 20022 – will play an important role in helping to achieve global interoperability between PSOs and fostering further innovation in the payment space.

In reaching this destination, education will continue to play an important role – and conversations around ISO 20022 should be widened to focus on a wider spectrum of market players, including PSOs.