ISO 20022 Is Coming

If you want to understand ISO 20022, let’s look to Mars: Do you remember back in 1999 when NASA’s $125 million Mars Climate Orbiter exploded just as it reached the red planet?

After a 10 month journey, the Orbiter — whose mission cost a total of $327.6 million — arrived at Mars on a different orbital trajectory than they had planned, and most likely broke up in the atmosphere, or bounced violently off the upper atmosphere and was hurled back into space.

Understanding what happened with the Mars Climate Orbiter crash can help you understand ISO 20022. The error boiled down to this: Engineers at the Jet Propulsion Lab used metric measurements while the engineers at Lockheed Martin Astronautics, which designed Orbiter, used the English system (inches and feet) for their acceleration data. No one at NASA thought to double- and triple- and quadruple check the figures to make sure that both groups were using the same system and speaking the same language.

If you can understand why this is a problem, you understand what kind of problem ISO 20022 is trying to solve, but on a more terrestrial plane.

ISO 20022 (pronounced “20 oh 22”) is a standard messaging protocol for the electronic data interchange (EDI) between financial institutions. In essence, how the information about individual transactions is shared between banks.

Once ISO 20022 (ISO) is fully adopted, all financial institutions around the world will use the same standard in communicating information between banks, credit unions, credit card networks, and anyone else in the financial technology “supply chain.”

According to the October issue of Digital Transactions journal:

These [current messaging] services are no longer able to adequately support today’s granular business models and payment needs, including the speed and transparency that end customers expect from their service providers. ISO 20022 is a messaging ecosystem with enriched, structured data at its core. The degree and depth of information that ISO 20022 will facilitate, as well as the increased automation that will come from working with a central standard, will enable banks to optimize payments. That will make for a seamless service, with a better, faster, cheaper, and more efficient experience for clients.

Think of it this way: When you make a purchase, let’s say a medium latte at your favorite local coffee shop, that transaction information gets processed from your credit card to the credit card processor to the coffee shop’s bank to your bank to your budgeting software to your mobile budgeting app, plus your credit card statement.

The original transaction may have been sent as “Medium latte, $4.25, October 18, 2020, Stardust Coffee, Orlando, Florida.” But what shows up on your mobile app is “***ORDRSTRDS101820MCO***.”

That’s the problem ISO tries to solve, but on a much larger scale. Not only are banks adopting enhanced transactional data, but the format they follow is becoming standardized. ISO is set to become the standard format for high-value transactions involving trade, securities, payments, foreign exchange, and credit/debit cards, but it will also apply to low value payments as well.

As Payments Journal said this past August, ISO applies to “a $10 billion corporate payment or a €1 transaction for a newspaper made with a credit card.”

We’ve written in the past about how it’s important that banks and financial institutions use enhanced transaction data. It looks like ISO could solve this problem because it would standardize all the EDI between financial institutions, not only in the United States but all over the world.

To date, more than 70 countries have switched all their high-value payment systems, including Switzerland, India, China, and Japan to the ISO standard; the United States will be on board by 2024. It’s expected that by 2023, ISO will account for 80% of all high-volume transactions (HVTs) and will cover 87% of the total value of HVTs.

In the end, the financial transaction landscape will become nearly seamless. It will automate many processes that are still manual, and it can save a lot of time and resources for financial institutions that need to focus more on innovations and finding new ways to win and keep their current customers.

If you would like to learn more about how ISO 20022 can help you, or learn how to use enhanced transaction data to your benefit, we can help. To learn more, please visit the Corepay website or call us at (866) 987-1969.

Photo credit: Anyur_zakirov (Pixabay, Creative Commons 0)