ISO 20022 was introduced in 2004, and since then institutions have taken varying approaches to manage this transformative change. In June 2023, CHAPS and the
Bank of England’s real time gross settlement system (RTGS) migrated to ISO 20022 in an ambitious big bang mode, mandating that payment instructions contain at least the prior minimum required with MT. The bank managed this transition over the weekend, in
contrast to the
Swift’s four phases with a coexistence period where both MT and ISO 20022 messages have been supported since November 2022.
SMEs can take inspiration from the change and migration approaches of SWIFT and others, but it would be a mistake to look at this change and journey to adoption as a matter of only being ISO 20022 compliant.
The open global standard promises consistent, rich, and structured data that can be used for every financial business transaction and it remedies current challenges with cross border payments. But further to this, as all participants across the financial
ecosystem now understand, the customer experience is what drives the evolution of new products and services, making enriched data more important than ever before. And with artificial intelligence (AI) and burgeoning versions of this technology building upon
this modernisation, there’s a lot more SMEs will be able to do. ISO 20022 is not just a technical standard. It's a catalyst for change.
The benefits of ISO 20022
Data fuels the payments industry, and data is constantly being transferred between banks, fintech firms, businesses and consumers. In a world increasingly driven by data exchange and digital transactions, efficient, flexible, and clear messaging systems
are essential. ISO 20022 will offer an array of benefits to SMEs, especially when it comes to navigating the complexities of the data-driven economy and cross-border payments.
Many small to medium sized businesses (SMEs) have historically used legacy standards to enable automated sharing of key information. However, these standards were established with dated technology in mind and were difficult and expensive to comply with,
particularly for SMEs. As well as that, the lack of interoperability required imperfect mapping solutions or manual entry, reducing the quality of the information exchange. With new and evolving standards like ISO 20022, SMEs could leverage the increased coherence
between organisations to lower costs, simplify maintenance, increase straight through processing, improve cash visibility and transparency, and move funds quicker across organisations and regions.
Speaking from a product perspective, what I love about ISO 20022 is that it is an intentional attempt to future proof financial communication on a global scale. The flexible structure of ISO20022 ensures that it remains relevant, even as financial technology
evolves. For SMEs this means not only simpler integration processes upfront, but a long-term solution that adapts to their growth and changing needs.
The benefits of ISO 20022 are clear, yet many still view it as a mere compliance checkbox, missing its transformative potential. With the convergence of all payments on a single yet rich in data standard, SMEs can also benefit from enriched data being carried
in payments messages, improve compatibility across platforms and further collaboration and innovation.
This is best explained by
Swift: “A common standard is essential, and its deepened usage with structured data from the start makes the step higher for the payment industry; the information conveyed through this standard must in fact be of high enough quality for any given stakeholder
to take full advantage of the newly offered data richness.”
What steps should SMEs take to rollout ISO 20022?
When processing payments, there is little room for phrases like fail fast, however by utilising Agile and Lean development principles, SMEs can use the opportunity afforded by this change, to not only become ISO 20022 compliant safely, but also find opportunities
to deliver value to clients, and beyond that perhaps create lasting beneficial change to their operations as a whole. As mentioned, customer experience drives new products and services, and it is those organisations that consider the impact on the consumer
that are the true winners across the market. The key to a good customer relationship is the build-measure-learn feedback loop. According to
Microsoft, “The build-measure-learn feedback loop is a description of the process for building empathy with your customers, measuring their reactions, and learning what adjustments to make that improve customer interactions.”
By itself, enriched data means nothing. However, using enriched data to learn with the customer and build products with empathy, or experience, in mind, will lead to better products and a faster foothold in the market. Leveraging this way of working can
also help a SME build resilience to market changes, but also foster a culture internally where continuous learning and improvement is favoured.
The structured data that ISO 20022 provides payments efficiency, seamless validation, lower friction, better reconciliation, and end-to-end execution, but only if you have the operational processes to support this too. SMEs would benefit from using this
change as an opportunity to assess their payments architecture and identify areas for operational uplift or automation, to immediately start seeing the benefits for this push for better interoperability.
The next phase for banks is to question what more they can provide for SMEs now that they are aware of the business’s clients, their transactions, and the payment methods they use. The insights garnered from enriched and structured data must be actionable.
Harnessing AI to optimise ISO 20022 for SMEs
Soon, technology companies will be able to take product innovation efforts to the next level by leveraging the insights gained from enriched and structured data. However, the true potential of ISO20022 can be realised when it's intertwined with AI. For SMEs,
this convergence presents a goldmine of opportunities.