ISO 20022 is widely touted as the global standard for new payments systems. Many of the major real-time payments – deployments in recent years – from the RTP system in the US to the various systems processing SCT Inst payments in Europe to Australia’s New Payments Platform – all use ISO 20022 for payments messaging. Beyond payment systems, ISO 20022 is also gaining adoption in related services such as securities settlement, foreign exchange (FX), and corporate-to-bank messaging. With ISO 20022 now firmly established in dozens of payment systems globally, attention is now shifting to how the standard can unlock further value throughout the value chain. A key group here is corporates, who have yet to see the full benefits that ISO 20022 is expected to bring.
Rich and structured data for VAS
Perhaps the biggest benefit that ISO 20022 holds for corporates is the rich and structured data that it can bring to payments messaging. Legacy data standards often offer only limited data with payment messages, requiring corporates and their banks to manually reconcile payments with transactional data pulled from other sources. The inclusion of crucial transactional information such as invoice details, FX rates, or shipping and customs documentation with payment messages can help corporates and their banks avoid the manual reconciliation processes typically associated with B2B payments today. The standardized format of ISO 20022 messages allows this information to be automatically reconciled and gives all parties full and granular transparency of transactions. This information can also be used to develop value-added services that provide additional benefit to corporate customers. This rich and automated data could also provide banks more security in financing for corporate customers, helping spur more financial activity while controlling for credit risk.
More efficient cross-border payments
ISO 20022 is widely touted as a foundational piece for global interoperability in payments. ISO 20022 has become the de facto global standard for real-time payment systems. As adoption of real-time payments progresses, the common language that these systems speak will enable new links between domestic and regional payment infrastructures. This would represent a paradigm shift in cross-border payments. Today, banks and their corporate customers rely on inefficient and costly correspondent banking arrangements that rely on the bilateral exchange of funds between multiple banks – with each institution charging a fee along the way. Recent initiatives such as SWIFT’s gpi instant have brought major improvements to cross-border payments. But true global interoperability of real-time systems would represent a further shift toward efficient, low-cost, and transparent cross-border payments for corporates. With national boundaries increasingly blurred by the expansion of global trade and more companies than ever doing business across borders, it is inevitable that cross-border payments become as efficient as domestic payments. B2B and B2C cross-border payments already represent 97% of the value of all cross-border transactions today, as well as 65% of the cross-border revenue for banks. As ISO 20022 enables the linking of real-time payment systems across borders, corporates will stand to benefit from cheaper, faster, and more transparent international transactions. This will not only increase the velocity of international transactions; it could also unlock working capital for corporates that is today tied up in inefficient cross-border payment processes and the need to manage liquidity in multiple markets.
Realizing the full value of ISO 20022
The foundation for improved corporate payments is being provided today with the adoption and implementation of ISO 20022. But for the full value of the standard to reach corporates, much work remains. While many banks now use the standard for payments messaging and other areas of financial services, there is still a need to modernize core systems and business processes to take full advantage of instant, extensive payments data. These internal changes will enable banks to not only exchange ISO 20022 messages, but to actually gain value from the insights this richer data can bring to their business. Some banks have not yet made significant changes to their corporate payment products, focusing instead on implementing ISO 20022 and real-time payments on the retail side of the bank. As real-time use cases expand further beyond P2P and C2B payments, banks will need to re-assess and modernize core systems used for corporate payments.
Corporate uptake of real-time and other ISO 20022-enabled payments is expected to rise as these payments are integrated into enterprise resource planning (ERP) systems used by corporates to manage payments and supply chains. Integration with core banking systems and ERP systems will enable higher rates of straight through processing (STP), which will further reduce and perhaps even eliminate the need for manual processing and reconciliation processes that are still common today. In some markets, Real-time payment systems have yet to gain ubiquity to reach all bank accounts. As these networks reach full ubiquity, value-added services (VAS) aimed at corporates and consumers will bring further value to all stakeholders in the payments value chain. Corporates stand to gain from enhanced competition among VAS providers who can leverage immediate, data-rich infrastructures in one or more markets.
Ultimately, ISO 20022 and real-time payments will enable new business models that leverage transactional data to give banks and their customers up-to-the-second insights that can be used to offer more customized financial services, automated processing, and improved functionality at lower cost than before. With complex payment needs and transactional relationships in multiple markets, corporates stand to be the big winners from the maturation of ISO 20022-based payments and financial messaging.
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