ISO standards for payments: money transactions need a common language

Future security in payment transactions thanks to UNIFI ISO 20022 communication

Frankfurt am Main / Magdeburg, 27. February 2020 – Currently, banks are putting major effort into translation works regarding money transactions. National standards with different characteristics require a lot of manual work not only increasing the number of potential errors but lowering the banks’ margins due to additional costs. “The ISO 20022 standard is a modern, XML-based standard for exchanging financial transactions in different business segments. The uniform standard accelerates transaction processes and increases the institutions’ contribution margin,“ said Dirk Vesper, Vice President Product Development at valantic FSA. The software supplier is, inter alia, specialized on the demands of the financial industry and provides solutions worldwide in the sections of Electronic Trading, Payments and Transactions to leading financial institutes. The ISO standards are characterized by very granular data structures which support business information with a significantly higher level of detail than the previously used and very different methods. Consequently, automation gaps will hardly occur.

Digitalization pressure

“The pressure from regulatory requirements as well as an increasing cost pressure due to decreasing margins and the growing globalization requires more digitalization than what has been the state of the art in most banks,” continued Vesper. The current processes barely allowed a proper end-to-end processing without manual intervention in the process chains. Processes being required due to growing risks and regulations, such as fraud and embargo detection or complaints, can be integrated more easily and cost-effectively via the electronic process chain. The full advantage of ISO 20022 cannot be fully exploited until all business partners entirely use the uniform communication standard. The mainly used SWIFT MT standards date back to the 1970s and no longer meet the needs of the digital payment transactions world. Pure conversion solutions won’t help the industry as the data quality would dilute.

Artificial intelligence and banking of the future

“At the same time, the new regulations offer the opportunity to safely set up for the next decades and digitalize the entire banking business as far as possible. In perspective, topics like artificial intelligence and added value from transaction data will move into the foreground – the more is digitalized, the better conclusions can be drawn from the data,” continued the software expert from valantic FSA. Services in the finance industry already consider customers as active members of the process chain – in B2B and in B2C segments. Integrating portals and customer banking systems in the settlement of transactions is one part of it. In 2021, the large-value payment system Target2 of the European Central Bank as well as SWIFT for payments (message categories 1, 2 and 9) will be converted to ISO 20022 instruments. valantic FSA’s applications already support the new requirements: In addition to a central data storage for all payments of the bank, the formats, and rulebooks of different payment instruments – i.e., SEPA, SWIFT, Target2 and instant payments – will be supported. The complete software can be decidedly adjusted to the bank’s particularities and demands in order to take into account the desire for prospective individualizations.

Find out how the ISO standard can become a common language for payment transactions and which additional challenges have to be mastered in the article valantic and the ISO 20022 Migration.