Payment Perceptions

AWARENESS | PERSPECTIVE | IMPACT

ISO 20022:
Exploring the impact of a new data structure
on the payments ecosystem

The path to seamless exchange

of financial transaction data

ISO 20022 enables the seamless exchange of financial

Why is seamless exchange of
transaction data through a standardized messaging
data so important?
schema that introduces a more robust data structure.
Now more than ever, businesses
The payments industry increasingly recognizes the
rely on the seamless processing and
long-term benefits and growing urgency of adopting transfer of financial data. Whether it’s
the new standard – and many corporations and to complete a purchase transaction
financial institutions are planning for the transition. This or to transfer money internationally,
whitepaper explores the impact of using a new message data transfer is a bedrock of the
type, illustrates the XML schema, reviews the current payments ecosystem. As a result, the
outlook for adoption, details potential pain points, and launch of ISO 20022 is a significant
provides perspectives on moving forward. Wherever a development for the industry.
company is in their adoption journey, it is important to Financial institutions and businesses
design an implementation strategy that aligns to their are gearing up to accommodate the
unique business goals and objectives. new data standard.
The evolution to a new standard

ISO 20022 is a strategic industry initiative to

replace proprietary messaging formats with a
standard format and well-defined data elements.
This open standard will help improve payment
processing efficiency and promote interoperability
among payment systems around the world.
Moving from MT to MX message types will help
eliminate many pain points and facilitate more
positive outcomes.

Limitations

FIN Message Types (MT)

MT messages have a limited set of • Processing delays/errors
fields and number of characters. • Lack of transparency
Over time, MT messages have been • Inability to reconcile payment
customized to accommodate local information
practices, leading to variability.

Benefits
FIN+ Message Types (MX) • Faster straight-through payment
processing
MX messages have a broader payments
message data structure, allowing for the • Greater predictability & automation
remittance of additional data points. • Fewer false positives during sanctions
screening
A common business and data dictionary
unifies fragmented standards. • More efficient reconciliation

Legacy SWIFT FIN message types (MT) were as data light as possible to
accommodate for human consumption when sophisticated data capabilities
were not yet available. This resulted in high cost transactions that were
error prone. FIN+ message types (MX) offer a much broader structure that
maximizes advanced technology processing capabilities, enabling greater
data harmonization and granularity.

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Current: Short-term data fixes create long-term
reconciliation issues
MT message types have been ubiquitous and served many functions well. But
over time, organizations began customizing MT messages on a case-by-case
basis to accommodate local practices and their variants.* Outside of industry-
wide governance, these modifications led to significant variability in message
and data usage. As a downstream effect, there has been a negative long-term
impact on the seamless exchange of data among institutions. Further, data
that is exchanged using MT message types often results in processing delays
and errors, lack of transparency, increased investigations, and difficult payment
reconciliation due to the MT messages limited structure and data content.

Post conversion: A common data dictionary helps ensure

ongoing interoperability
Post ISO 20022 implementation, MX message types will provide a new
data structure along with a centralized data dictionary developed and vetted
by experts across a wide range of financial business domains. ISO 20022
has a defined and governed process for the submission of new message
definitions. This due diligence ensures a sustainable approach to data
harmonization as financial transactions evolve over time. The MX data type,
coupled with a more unified approach to managing financial data, results in
several benefits. These include faster, straight-through processing, added
predictability and automation, a likely reduction of false positives during
sanctions screening, and more efficient reconciliation.

The ISO 20022 framework

eliminates fragmented
standards by accommodating
local variants through a
governed submission process.

*A variant is a simplified or enhanced version of a message.

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Seamless transactions with the
ISO 20022 framework 01001010001
010100110010
101001010011
101111001001
100100100010
001000100001
The Value of Structured FIN+ Message Types (MX) 010101011101
001000101001
101001010011
101001010011
MT messages combine data as a continuous line of text, potentially
truncating important information. In comparison, MX messages
have their own unique fields. These fields create the opportunity to
increase the number of data points that can be sent and received, in a
standardized and structured way, allowing remittance information to
travel in the payments message itself.

Party Information Remittance

Name (1/) 1/JOHN SMITH Reference

structured SWIFT FIN

Document
Information

Address 2/HOOGSTRAAT,6, PREMIUM TOWER,14 Reference

(2/…) 2/17822 Document
Amount –

Creditor
Reference
Country / Information –

Town 3/BE/BRUSSELS,1000
(3/…)

Invoicer
–
STRUCTURED/
MX/ISO 20022
Name <Nm> JOHN SMITH
structured MX/ISO200221

Department <Dept> Invoice

–
Sub Department <SubDept>
Street Name <StrtNm> HOOGSTRAAT
Building Number <BldgNb> 6
Building Name <BldgNm> PREMIUM TOWER Tax
Floor <Flr> 14 Remittance –

Post Box <PstBx> 17822

Room <Room>
Post Code <PstCd> 1000
Garnished
Town Name <TwnNm> BRUSSELS Remittance –
Town Location Name <TwnLctnNm>
District Name <DstrctNm>
Country Sub Division <CtrySubDvsn> Additional
Country <Ctry> BE Remittance
Information –

Tracking MX payment data end-to-end

ISO 20022 allows field data (e.g., Identification, Unique End-to-end Transaction
Reference (UETR), and Remittance) to seamlessly travel across the whole
payment, from payment initiation to statement and advising messages.
Transaction
Pain.001
Pacs.008
Pain.002 Pacs.008
Pacs.002 Pacs.008
Pacs.002
Pacs.002
camt.053

Debtor Debtor Agent Intermediary 1 Intermediary 2 Creditor Agent Creditor

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Industry participants on the path
to adoption by 2025
As a forerunner of wider adoption, interbank payments and messaging
platforms like TARGET2, SWIFT, CHIPS, and The U.S. Federal Reserve
are adopting the standard along a timeline that gives companies ample
time for planning a smooth transition to ISO 20022.
Some larger financial institutions and corporations are planning
targeted adoption in close alignment with industry guidelines. Other
businesses are taking a conservative approach dependent on their
resources, ability to navigate new technology requirements, and the
likelihood of a potential business disruption.

Each organization has unique requirements for transitioning, depending on their industry and
size. Therefore, a period of interoperability will take place, resulting in compatibility between
the old and new payment message structure.

2022 2023 2024 2025

MT remains standard CHIPS 2023

In scope MT
Industry messages will
Implementation Implementation for FED 2025 be retired
TARGET2, SWIFT

ILLUSTRATIVE 100%
80%
Large FI's
Adoption estimate by 60%
corporation type Large Corporates
40% Medium/Small FI's
20% SMBs

Some larger FIs and corporations are planning targeted adoption in close alignment with
industry guidelines. Smaller FIs and medium/small businesses may be slower to adopt, and
many may not achieve adoption within four years.

Regardless of the approach or timeline each organization follows, there

are tools, third party solutions, and FI support to ease the challenge of
transitioning to ISO 20022. Some organizations are well down the road
of conversion, but others have yet to explore the new data structure and
put plans in place for adoption. Ultimately, wherever a company is in their
adoption journey, a strategy should be created to implement the new data
structure in alignment with their business goals and objectives.

5
Challenges and considerations when
converting to ISO 20022

Identify and prepare Budget for an increase Invest in the technology

resources in cost Legacy systems may be unable to
Shifting to the ISO 20022 message Substantial upfront investment may meet the demands of ISO 20022.
format will have unique challenges be required to modernize legacy However, scaling technology to
for banks, their clients, suppliers, platforms and update systems prepare for adoption is complex and,
and partners. Some companies will enterprise wide. Other costs may in some cases, controversial. Not all
not be ready to transition by the include investments in ISO 20022 parties may agree on the benefit or
recommended industry deadline. education and enablement. timing of right-sizing technology to
Others will forgo ISO 20022 accommodate the migration.
Additionally, during a time of
migration altogether because of interoperability between legacy MT Technology issues may result in
costliness or lack of resources and will messages and MX messages, there delays and complications during the
require ongoing help of third parties. may be expenses associated with adoption journey, causing a negative
For both banks and businesses, the translation of both MT and MX ripple effect across all segments
upskilling may be a concern, as there message types. Translation and and lines of business. In cases where
may not be enough ISO 20022 gateway options may incur upfront organizations choose to mitigate
expertise to satisfy the demands costs, whether using custom in-house risk by planning a bare minimum
of broad adoption. These factors solutions or third-party vendors. implementation, some ISO 20022
could lead to a disconnect with benefits, such as comprehensive data
corporate customers who are each at insights, may not be fully realized.
various stages of understanding and
motivation to adopt.

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Enabling the transition – strategies for moving forward
with the new ISO 20022 data standard
While there are challenges in adopting ISO 20022, there are ISO 20022
strategies companies can implement to ease the transition
and mitigate the risks.

Education and engagement will be crucial, as

banks and their customers move toward adoption
To ensure a successful transition, many institutions and businesses
will require committed employees who have a comprehensive
understanding of ISO 20022. Given the level of uncertainty some customers may feel
moving forward, banks may want to take a proactive step to engage their customers in
educational campaigns. Equally, employees must also be educated and informed.

Maximize the benefits of richer data to help offset the upfront

costs of adoption and ease potential customer pain points
There are clear upfront costs that may discourage prompt adoption.
However, because of the compliance-driven nature of ISO 20022,
organizations can make a strong business case for the new standard as part
of the larger data strategy and product roadmap.
ISO 20022 renders data more usable – fit for enabling automation and
mining insights that may have otherwise gotten lost in translation. In turn,
richer data can remediate transaction pain points like slow reconciliation or
false positives during sanctions screening. Identifying and addressing these
pain points can improve reliability and consistency for customers.

Question: Will allow us to create new corporate banking services 46%

Faster time to market with new services 44%

“What benefits do Enable or enhance our data strategy 40%
you expect to realise Increased security 40%

from your ISO 20022 Better data integrity 40%

upgrade?” Will allow us to create new value-adding payment services 33%

Improved reconciliation of payment remittances 33%

Improved straight-through processing rates 33%

Improved cross-border interoperability 29%

Regulatory or payment scheme compliance 25%

Rationalization of multiple formats 19%

No benefits at all 0%

Figure 4- Celent Payments Data Monetization Survey, 2021²

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Position ISO 20022 as part of a broader payments
modernization strategy
One of the most daunting aspects of ISO 20022 can be the technology
conversion. Taking a long-term perspective can ease the hesitance some
organizations may feel at the brink of a potentially disruptive infrastructure
transformation. Carefully forming a recommendation for modernization and
phased sun-setting of certain technology is a way to mitigate risk and instill
confidence in the path forward. Strategically, ISO 20022 migration can serve
as the impetus for improving corporate banking services that also require
upgraded infrastructure to meet expanding industry demands.
For example, many banks are focused on building a robust library of internal
and external APIs to satisfy the demand for open banking products and
services. This may allow for the development and management of ISO
20022 related APIs to be considered at the front end of migration in parallel
with the broader API strategy.

Benefits of converting to the new data structure

Although employees and customers may not initially understand the urgency of adoption —
banks can expect clear benefits, including:
■ an improved client experience and value-added solutions that
drive improvements in end-to-end processing
■ lowered costs by reducing exceptions
■ improved risk management and sanctions processes

This is not only a movement from one messaging standard to the next,
but a shift in data models and a new payments language for machines and
humans. Financial institutions can lead the way in reminding customers
about the importance of ISO 20022 adoption.

Conclusion
The seamless transfer of data is essential to both domestic and international commerce and
financial markets. Not surprisingly, many banks are now starting to recognize that adopting ISO
20022 could help drive their wider payments transformation and modernization journeys. Good
planning along with modernization and collaboration will ensure a smooth transition and pave
the way for an even more frictionless payment experience in the years to come.

8
Payments – the pulse of global
economic growth

Payments innovation has gone into hyperdrive. The past five years have seen more innovation in payments
than the previous 50 years combined. The pace of innovation is accelerating, and it is sweeping along
government entities, businesses, and consumers. As a result, payers have more options than ever before.

The ascent of payments has included the main drivers of the global economy. No segment of the
population has been left behind. Retailers offer their own payment tools, cross-border payments reach
beneficiaries in almost any country, local businesses have contactless digital checkouts, government
entities are launching digital cash, and everyday consumers regularly use buy now, pay later products. Even
unbanked and underbanked consumers are being empowered with new options to send and receive money.
These innovations did not exist – at least not at scale – as recently as five years ago.

Even as the payments ecosystem is driven by technology advancements and machine-driven insights, our
main focus remains the very real impact these innovations have on the customer. The end customer is, and
must always be, at the center of payments innovation. Solutions that are straightforward and seamless are
the ones that will win in the coming years.

Joanne Strobel-Cort Michael Lentz Ulrike Guigui

Head of CIB Segment ISO 20022 Lead Head of Enterprise
Solutions & Advisory Product Manager Payments Strategy

Sources:

1. Payments Market Practice Group (PMPG). Structured ordering and beneficiary customer data in payments.
2. Celent. The Payments Data Monetization Opportunity in North America (2021).

Wells Fargo Perceptions paper has been developed in partnership with the U.S. Faster
Payments Council (FPC). The FPC is an industry-led membership organization whose
vision is a world-class payment system where Americans can safely and securely pay
anyone, anywhere, at any time and with near-immediate funds availability. The FPC uses
collaborative, problem-solving approaches to resolve the issues that are inhibiting broad
faster payments adoption in this country.
For more information, please visit FasterPaymentsCouncil.org.

Payment Perceptions
AWARENESS | PERSPECTIVE | IMPACT

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