Creating Value

From ISO 20022

Migration

July 2023
Background and Introduction
ISO 20022 has been a hot topic in the banking and payments industry for
years now, but the mandatory migration for SWIFT payments has confronted
many banks with the reality that they do not know how to best utilize ISO
20022’s capabilities. Banks around the world stand to benefit from ISO
20022’s potential for new products and services in the cross-border and high-
value payments space.

This report highlights the new capabilities enabled by ISO 20022 and the
benefits that banks see from migration. The report also outlines several
strategies utilizing ISO 20022’s capabilities to help banks create value for
themselves and their customers. Lipis Advisors spoke with various banks to
understand how they are utilizing ISO 20022, including banks with high cross-
border payments activity, banks providing correspondent banking services,
banks involved in payment system interlinkages and other innovative banks
leveraging ISO 20022’s capabilities.

Each identified capability and benefit is accompanied by a description of the

use case or service, how these fit into wider bank strategies and the benefits
that bank customers could see if or when the service becomes available.

Executive Summary
Lipis Advisors interviewed various banks in different markets to understand
how they are leveraging the benefits of ISO 20022 to provide value to their
clients and to develop new products and services. One of the key mindsets
that these banks have in common is that they view ISO 20022 as an
opportunity rather than a pure regulatory and compliance issue. These benefits
can be categorized into six groups:

1. Cost savings and processing efficiency

2. Data-related benefits
3. Fraud, anti-money laundering (AML) and compliance
4. Interoperability across geographies
5. User experience
6. Innovation benefits

When it comes to cost savings and processing efficiency, many banks

highlighted improvements in STP rates; others highlighted that automation and
efficiencies are not only gained in bank processes but also by banks’ corporate
clients. Some banks are working together with their clients to identify further
potential points of automation within the payments value chain. While ISO
20022 migration comes with many challenges and benefits, banks around
the world view ISO 20022 as enabling a fully digitalized end-to-end payments
process and therefore as a net positive.

2
Some banks are helping their clients improve cash management and liquidity
by providing the necessary information to make more sophisticated liquidity
management decisions. Other banks expect that the automation enabled by ISO
20022 can help corporate customers unlock liquidity when reconciliation is done
instantly.

Data-related benefits include cases in which banks leverage insights brought about
by ISO 20022-based messages to offer new or enhanced services to their clients,
such as short-term credit. ISO 20022 has thus helped banks strengthen their existing
relationships with services outside the payments space.

One of the key benefits that banks have pointed to is improvements in compliance
processes. The use of structured addresses, purpose codes and legal entity
identifiers (LEIs) helps banks implement more secure and reliable compliance
processes, especially where correspondent banking relationships are concerned.

There is no doubt that ISO 20022 is a key component for international

interoperability. Both international corporate clients and banks are benefitting from
the usage of the same international payments “alphabet.” Banks can provide their
clients with simplified initiation methods for multiple systems and locations, and many
are implementing smart routing. ISO 20022 is also seen as enabling cross-border
payments, regardless of the underlying payments infrastructure.

Another aspect that banks have highlighted is the fact that as adoption increases,
the possibilities for developing new and innovative products on top of existing
infrastructures also increase. The more ISO 20022-based messages are utilized, the
more benefits banks and corporates will perceive. Nonetheless, many interviewees
highlighted the relevance of standardizing market practices and the need to further
support them and noted that the speed of adoption across geographies plays a
crucial role.

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Identifying ISO 20022’s Benefits
ISO 20022 is quickly becoming the de facto payments industry standard and
an enabler of global interoperability — big benefits of migration. For banks,
this means cost savings from utilizing the same standard in multiple markets,
modernizing and upgrading their systems, improving speed and transparency
for their clients, and keeping up with client expectations in a changing payments
ecosystem. There are several other potential benefits that ISO 20022 can
bring: based on the insights gathered from industry interviews, Lipis Advisors
has identified several benefits mentioned by banks beyond the widely touted
benefits of extended remittance information for invoicing and reconciliation.

This report categorizes benefits into the following categories:

• Cost savings and processing efficiency
• Data-related benefits
• Fraud, AML and compliance
• Interoperability across geographies
• User experience
• Innovation benefits

Figure 1: Categorizing the benefits of migrating to ISO 20022

Cost savings and processing efficiency

Automation and efficiencies
Some of the benefits of migrating to ISO 20022

Centralized processes
Greater transaction details and traceability
Improved cash management and liquidity
Data-related benefits
Business intelligence, insights and analytics
Data-sharing through ISO 20022-based payment messages
Fraud, AML and compliance
Improved compliance and risk management
Secure and compliant correspondent banking relationships
Fraud prevention
Interoperability across geographies
Ease of transacting domestically and globally
Interlinkage of payment systems
User experience
Speed and transparency
Innovation benefits
New and innovative products

The various categories contain multiple specific benefits, which are expanded
upon in the following section. These examples demonstrate how banks are
leveraging the benefits of ISO 20022 and providing value to their clients.

4
 1 Cost savings and processing efficiency
Automation and efficiencies
Managing exceptions and investigations remains a challenge for achieving
automation for many banks. Manual intervention is required in many cases
and handling exceptions worsens the client’s payments experience.1 Banks
are streamlining their efforts and achieving a more consistent resolution of
exceptions and investigations through automation utilizing consistent standards
and structured message types.2

Investing less time in error processing allows banks to increase the number
of transactions they process overall, thus reducing transaction costs.3 Greater
automation (i.e., STP) translates into improved service-level agreements. Marijke
Guest, group technology divisional executive, enterprise payments at Nedbank,
commented “With ISO 20022 we have increased our STP to levels well above
the benchmark, our process is now much more automated; ISO 20022 helps
us eliminate documentation… Our operation(s) cost is most certainly reduced
because of how our staff can remediate failed transactions, reduce manual
processes and paper.”

Not only do bank processes benefit from increased automation and efficiencies,
but corporate clients also gain from these new capabilities. “Increased
information is a benefit for banks as well as for corporate clients and enables
[more automation] and more processes in each step of the value chain,” said
Andrea Meier, head of solution management at DZ Bank. She added, “We will
work together with our clients to understand where they have challenges in
their current process or value chain so that we can use the ISO 20022 format
to deliver information that can enable more process efficiency.”

Many in the industry believe that ISO 20022 can make payments fully digitalized
from end to end. Ingrid Weißkopf, head cash advisory institutional clients at
Commerzbank, comments that “End to end digitalized payments means that
all the data, in terms of meaningfulness, completeness and structure, will
be available. This quality of information will not only reduce the number of
payments being unnecessarily upheld for compliance reasons, but it will also
lead to corporates reconciling automatically.”

1
J.P. Morgan, 2020
2
J.P. Morgan, 2020
3
KPMG, 2020

5
Centralized processes
Banks and their corporate customers can leverage the common standard to
centralize processes across multiple countries, e.g., having one centralized
payment processing team instead of having hubs around the world. “Our
application costs have been reduced because of the standardization of
flows and the high reuse of our applications. We are using our ISO 20022
applications for both high-value payments and real-time payments,” Marijke
Guest stated. “Operational and technical processes are very similar across
different payment rails.”

Greater transaction details and traceability

Besides helping to automate payment exceptions and investigations processes,
the consistent use of structured, standardized data reduces the number of
payment inquiries from bank staff4, while providing greater capacity to carry
information enhances banks’ systems’ ability to interact more broadly with
overlay services.5 There are initiatives to help banks track payments across the
cross-border value chain such as SWIFT gpi, resulting in enhanced transaction
traceability. The benefits that these tools bring about can be fully leveraged by
those using ISO 20022.

Improved cash management and liquidity

Many banks, high-value payment systems and instant payment systems
worldwide have already adopted ISO 20022, making it easier for banks to offer
multiple processing methods to their corporate clients in which they can choose
between time-sensitive and liquidity-efficient processes. Marijke Guest said,
“Using ISO 20022 also means that our clients’ liquidity management
decisions are more nuanced and sophisticated.” When it comes to liquidity
efficiency, Dougal Middleton, vice president, enterprise payments at Scotiabank,
noted that the automation enabled by ISO 20022 unlocks liquidity because funds
can be utilized as soon as they are matched and reconciled. “With ISO and real-
time payments, businesses have the possibility to reconcile instantly and truly
reap the rewards of real-time liquidity,” he continued.

2 Data-related benefits
Business intelligence, insights and analytics
ISO 20022 means richer data that helps banks extract insights and analytics
to understand clients’ behavior and counterparty interactions, leading to
customized services. Dougal Middleton, vice president, enterprise payments
at Scotiabank commented, “When we know more about our clients’ payment
relationships, we can provide better advice and financial services that meet
their wider needs. Richer data can help us support our clients with short-term
credit in cases of cash flow shortfalls.”

4
J.P. Morgan, 2020
5
Bank of England, 2018

6
He added, “We can build on the relationship that we have with that client and
use the data available through ISO 20022 to help with the credit risk, and
there’s also potential to understand the network of buyers and suppliers in the
corporate commercial space.”

Improved information on payment types and payment purpose as well as more

information on senders and receivers enable banks to understand not just the
customer’s payments behavior, but also trends across different sectors and
geographies.6

Data-sharing through ISO 20022-based payment messages

The increased amount of data that can be transmitted through payment
messages is being leveraged to increase the speed and transparency of cross-
border payments. Examples include indicating that a payment is cross-border,
including a unique end-to-end reference, any type of flagging notifier, company
identifiers7, and URLs or other types of reference to externally held documents
and/or information.8

3 Fraud, AML and compliance

Improved compliance and risk management
Banks can comply with governing regulatory and sanctions screening
obligations by converting to ISO 20022. The absence of organized information
in older payment message structures makes it challenging to conduct efficient
compliance screening, and reviewing an extended sequence of disorganized text
may lead to misinterpreting information and false positives, resulting in payment
delays.9

Figure 2: MT format vs. ISO 20022

MT format​
:59:/1234567890​
ABC Company, Breite Strasse 56,​
40131, Berlin, DE
vs
ISO 20022​
<Cdtr>​
<Nm>ABC Company</Nm>​
<PstlAdr>​
<StrtNm>Breite Strasse</StrtNm>​
<BldgNb>56</BldgNb>​
<PstCd>40131</PstCd>​
<TwnNm>Berlin</TwnNm>​
<Ctry>DE</Ctry>​
</PstlAdr>​
</Cdtr>​

Source: Adapted from Mitsubishi UFJ Financial Group (MUFG Bank), 2023

6
The Payments Association, 2023
7
Such as legal entity identifiers
8
Bank for International Settlements, 2023
9
J.P. Morgan, 2020

7
ISO 20022 introduces structure to the name and address, ensuring consistency
and machine readability.10 ISO 20022 messages contain XML tags for each
message element, which simplify the compliance process by making it easier to
identify elements and accurately screen data.11 This saves time and resources
for banks by reducing the need to investigate incorrectly flagged payments and
improving the automation of scanning and compliance processes.12

In addition, richer and more structured data facilitates extracting and sharing
information with regulatory and compliance authorities.13 Banks therefore benefit
from a more automated and reliable compliance process.

Dr. Roland Nehl, programme manager at Commerzbank, commented that “ISO

20022 supports the evolution of compliance-related processes which is vital
for Commerzbank.” He highlighted that “purpose codes, structured addresses
and the use of legal entity identifiers are definitely improving identification
of parties in the payments chain and the underlying business” and that ISO
20022 promises to make “compliance checks more precise and faster, which
we see as a real benefit. However, ISO 20022 must really be interoperable for
these benefits to materialize further.”

Secure and compliant correspondent banking relationships

Correspondent banks depend on AML checks conducted by the customer’s
bank, and the information included in the payment message because the
correspondent does not have a direct relationship with the sending party.14
The adoption of ISO 20022 has the potential to lower risks by providing more
extensive information, including details about the previous parties involved in the
transactions. This enables correspondent banks to conduct due diligence more
effectively. Dougal Middleton, vice president, enterprise payments at Scotiabank
noted that “ISO 20022 has provided better information about who’s really
behind the transaction, especially when it’s a user of a correspondent banking
flow.” He continued, “In addition, the ISO format allows us to be much more
precise when it comes to sanctions screening and improve straight-through
processing.”

Fraud prevention
Due to the greater amount of information and detail that can be included in
payment messages, ISO 20022 supports banks in their efforts to detect and
prevent fraud.15 At the same time, the reduction of unstructured transaction data
improves technological efficacy because data is more easily extracted for fraud
prevention analysis, enabling banks to determine behavioral patterns and detect
and stop fraudulent payments.16 ISO 20022 is helping banks reduce fraud rates
and provide their customers a more secure and efficient payments experience.
Marijke Guest stated that “…we can collect extra data elements that have
helped us with [creating a] more optimal decision-making [process] on fraud;
we have started adding this in our transaction flow.”

14
Bank of England, 2018
15
Such as purpose codes and more specific information about the account and account holder
16
Payments Journal, 2023

8
 4 Interoperability across geographies
Ease of transacting domestically and cross-border
ISO 20022 is a key facilitator of interoperability for cross-border payments. ISO
20022 simplifies the process of communicating with other regions and payment
methods because it is becoming the de facto global standard. “With ISO 20022,
we have the base to develop our payment systems and value-added services,”
Andrea Meier, head of solution management at DZ Bank, said. “We provide our
customers with interoperability between the international payment systems.
Not only internationally based corporate clients [benefit] from ISO 20022, but
also the banks are benefitting from the usage of the same language all over
the world.”

By utilizing a common language17, the likelihood of misunderstandings decreases,

which ultimately reduces the obstacles and expenses associated with cross-
border payments.18 Moreover, the migration to a global standard reduces
translation and other processing costs related to information that gets truncated
during conversion.19 ISO 20022 provides a seamless experience for bank
customers because it is channel agnostic, making payments integration and
initiation more efficient, reducing the risks of handling multiple bank interfaces
and proprietary standards.20

“A primary benefit we’ve leveraged [with] ISO 20022 is as a way to simplify

a single format and single connectivity point, through one API or one file
integration and using ISO 20022 to converge those,” said Carl Slabicki,
co-head of global payments, treasury services at BNY Mellon. “We’re doing
much more smart routing for our clients based off the payment day, the value
of a payment, where the receiver’s account is and so on…,” adding “we’ve seen
ISO as a singular bridge to help the market, whether it’s our corporate or bank
clients, get access to a wider array of payment types and ISO is that bridge to
connect with.”

For banks this also means that the costs of joining multiple payment
infrastructures are lower because the barriers of using many different standards
are removed.21 It also makes the bank’s upgraded systems compatible with newer
systems and technologies.

17
Though it is known that separate guidelines exist for ISO 20022 usage for cross-border correspondent
banking (CBPR+), for high-value payment systems (HVPS+), for instant payments (IP+) and for customer-to-
bank payments initiation (CGI-MP). It is also relevant to note that different markets may use different versions
of the ISO 20022 messages or have local country or bank proprietary requirements. Nonetheless, there
are ongoing global efforts for standardizing market practices. Bank for International Settlements, 2023
18
Quibria, 2015
19
Quibria, 2015
20
Quibria, 2015
21
Bank of England, 2018

9
Figure 3: Global interoperability
v

Country A
“

Infrastructure​
In supporting cross-

Payments
Bank
border clients and
transactions, ISO
20022 is a true
Country B
enabler for linking

Infrastructure​
Payments
the globe, in terms
Bank

of a domestic
platform connecting
Country C to another domestic

Infrastructure​
Company X​ platform. Regardless

Payments
Bank

of the payments
network, ISO 20022
provides a strong
Country D
standard for data
Infrastructure​
Payments and a framework to
Bank

establish and define

better market usage
ISO 20022-based messages​
Source: Adapted from Quibria, N. (2015). Introduction to ISO 20022 for U.S. practices.”
Financial Institutions. Nacha.​

Interlinkage of payment systems

ISO 20022 means that payment systems across countries “speak the same
Dougal Middleton
language.” This brings about opportunities for payment system operators to link
Vice President
payment systems across the globe,22 which in turn means that banks can lower Enterprise Payments
their own costs for cross-border transactions while increasing speed. Scotiabank

Interlinking payment systems makes it easier for banks to offer cross-border

payments to countries where they have no presence or partnerships, reducing
reliance on correspondent banking relationships.23 This enables the creation of
new products and services and limits costs by eliminating translation services.
Looking at the bigger picture, domestic instant payment experiences have raised
customers’ expectations for cross-border payments, too; this has prompted
banks to explore innovative products; bank customers can seamlessly transact
domestically and cross-border.

22
Examples include the Immediate Cross-Border Payments (IXB) project, project Nexus or the linkage
between PayNow and PromptPay, to name a few.
23
Bank for International Settlements, 2023

10
 5 User experience
Speed and transparency
Thanks to increased automation enabled by ISO 20022, payments are processed
and settled more quickly with higher levels of STP rates. This means there are
“
The cost of
reduced errors and failures, resulting in lower processing costs because manual
innovation and
intervention adds time and money to the process. The improvement in the quality compliance
of the messaging data negates the need to confirm information and limits the room
have reduced
for mistakes, improving the overall customer experience.
dramatically.”
6 Innovation benefits
Marijke Guest
Nedbank
New and innovative products
The uniformity of the messaging format across systems and regions brings about
other benefits to banks, such as increased opportunities for product and service
innovation. “The more the ISO 20022 standard is used, the more value-added
services will be implemented based on that standard,” said Andrea Meier of DZ
Bank. ISO 20022’s adaptability to emerging technologies provides banks with the
chance to implement top tech solutions and capitalize on operating efficiencies.24

Nonetheless, one key factor is the consistency in market practices while utilizing
the ISO 20022 standard. Dougal Middleton, vice president, enterprise payments
at Scotiabank, highlighted that the industry needs to leverage market practice
groups to make sure that financial institutions understand prominent use cases
and how they are consistently articulated in the dataset so that they can innovate
on top of it. He added, “Consistency of data enables us to build on our
platforms and deliver innovative experiences and stronger solutions for our
clients.”

23
Bank for International Settlements, 2023
24
Lucas, Gancz, & Forman, 2022

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Conclusions
The global move to ISO 20022 has the potential to provide numerous benefits
for both banks and their customers, and banks are already viewing ISO
20022 as a chance to strategically transform their business and leverage the
benefits and value-added opportunities offered by the new standard. At a
high level, ISO 20022 is improving bank customers’ experience with faster
and more transparent transactions, improving fraud prevention efforts with
enhanced and more accurate data, easing AML and compliance, bringing more
efficiency and cost reduction to payment processing, standardizing the end-
to-end payments value chain globally, facilitating the interlinkage of domestic
infrastructures, encouraging the creation of new services and helping banks
better understand their customers’ payment behaviors to offer new products.
Above all, ISO 20022 is key for global interoperability, regardless of the
underlying payments infrastructure.

Bibliography
Bank for International Settlements. (2023). Enabling instant cross-border payments.
Conclusions from a technical proof of concept between the Eurosystem, Malaysia and
Singapore.
The Federal Reserve. (2013). Research Results Summary ISO 20022 Business Case
Assessment.
BNY Mellon. (2022). ISO 20022 Shaping the future of payments. Join the transformation
journey in cross-border payments.
KPMG. (2020). Payment Modernization. ISO 20022 - Transformation to prepate for the
future of payments.
J.P. Morgan. (2020). ISO 20022 – Payments Language of the Future.
The Payments Standards Evaluation Group. (2020). ISO 20022 Exceptions and
Investigations - Maintenance 2020-2021. Message Definition Report - Part 1.
Quibria, N. (2015). Introduction to ISO 20022 for U.S. Financial Institutions. Nacha.
Payments Journal. (2023). How Banks Can Realize Business Benefits and Reduce
Payments Fraud With ISO 20022. Retrieved from Payments Journal: https://www.
paymentsjournal.com/how-banks-can-realize-business-benefits-and-reduce-payments-
fraud-with-iso-20022/#:~:text=The%20group%20further%20noted%20that,need%20
for%20any%20human%20intervention.
Mahapatra, T. (2022). ISO 20022: Beyond compliance. Retrieved from The Payments
Association: https://thepaymentsassociation.org/article/iso-20022-beyond-compliance/.
Bank for International Settlements. (2023). Consultative report: ISO 20022 harmonisation
requirements for enhancing cross-border payments.
The Payments Association. (2023). ISO 20022: What are the real benefits of its adoption?
Retrieved from The Payments Association: https://thepaymentsassociation.org/article/iso-
20022-what-are-the-real-benefits-of-its-adoption/.
Mitsubishi UFJ Financial Group (MUFG Bank). (2023). Mitsubishi UFJ Financial Group.
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www.bk.mufg.jp/global/productsandservices/transaction/iso20022_migration/index.html.
Bank of England. (2018). A Global Standard to Modernise UK Payments.
Lucas, J., Gancz, A. and Forman, J. (2022). EY. Retrieved from Understand key challenges
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