With ISO 20022, You’re Either In, Or You’re Out

The world is inching towards faster payments and fewer hurdles in the form of national borders. Some industry analysts agree that key to this progress is the widespread adoption by banks, institutions and corporates of a new payments messaging standard — ISO 20022.

Doing so, experts say, will mean more efficient movement of money, especially for entities that need to make payments beyond their own nation’s borders.

But, according to Richard P. Dzina, an executive vice president and head of the wholesale product office of the Federal Reserve Bank of New York, if the U.S. is to get on board with widespread adoption of this new messaging standard, it has to start from the ground up.

For the Fed, that means working with all stakeholders in this process and collaborating with The Clearing House Payments Company, NACHA, the Accredited Standards Committee X9 and others to aid the adoption of this standard.

In a recent interview with PYMNTS, Dzina explained that one of the biggest hurdles in this process is education.

“It is quite clear from the initial engagements that we have had that we need to do a much better job of marketing and getting the narrative out,” he said.

The Fed has launched an initiative to make public several case studies and other information online that explains how ISO 20022 could benefit end users.

“The Federal Reserve and The Clearing House have had robust engagement with our respective advisory bodies of depository institutions,” Dzina explained. “We’ve had a lot of robust engagement with the corporate community. We have engaged with vendors that support depository institutions.”

This initiative also includes the creation of use cases that identify how various stakeholders can benefit from ISO 20022 adoption.

For the last two or three years, these players have been working to get the message out: Adoption of this messaging standard will mean eased cross-border payments friction and compliance. Dzina described this effort as “exhaustive.”

The Case For Corporates

At present, the latest use case in progress from the Fed is one for corporates. ISO 20022 adoption could have a particularly poignant impact on the corporate community, Dzina explained.

“We actually have received a very strong expression of interest in moving in this direction, especially from the multinational corporate community with global operations and global payment and extended remittance needs,” Dzina said.

He added that adoption can help corporations streamline and consolidate much of their back office systems and harmonize their processes into a global payments messaging standard. This, Dzina added, “is a very compelling proposition in support of efficiency and in support of reducing costs for these critical end users.”

A Possible Timeline

The widespread adoption of a new messaging standard, naturally, will be gradual. Dzina offered a tentative, conceptual timeline for how this might happen.

If all goes as planned, next year will see the publication of format specification “that would essentially map our legacy format up to the new ISO format,” Dzina said. Moving forward, 2018 could see internal testing and application development; 2019 will see wire and chip customer testing; and 2020 could see the start of a full rollout.

“I want to underscore that the timeline is very conceptual and subject to validation in the work that we will be conducting over the next year,” he added.

There will be some snags along the way, of course; for instance, not everyone is ready to embrace a new payments messaging standard.

“Of course, we have encountered some skeptics out there,” Dzina said. “Nothing big or consequential moves forward without encountering some resistance.”

[bctt tweet=”‘Nothing big or consequential moves forward without encountering some resistance.'”]

With so many depository institutions, he acknowledged that not everyone may see the immediate benefit to adopting this messaging standard, especially in the short term.

“For others that are not necessarily internationally engaged, the status quo is probably pretty good — at least over the near horizon,” he said. “But I think what we have to contemplate over a longer horizon are some of these strategic considerations to include the negative business case: the cost of inaction and the risk of our market becoming less competitive.”

Are You In, Or Are You Out?

This long-term view is essential to encouraging the adoption of ISO 20022, Dzina explained. According to the Fed and other players in the payments field, if the U.S. is to remain a competitive entity in the global market, this adoption must occur.

“I will suggest to the world that the competitiveness of our financial institutions, the competitiveness of our corporates, the cost to end users all have some bearing on whether or not we move in this direction,” Dzina said.

So, as the Fed, The Clearing House Payments Company, NACHA and X9 continue to promote the adoption and clarity surrounding ISO 20022, they will continue to engage with corporates and FIs to spread the word, increase transparency and promote the long-term benefits of this process, especially when it comes to cross-border payments for corporates.

The bottom line, according to Dzina, is that those that embrace ISO 20022 adoption will be ready for the future.

“I think a key element of the narrative here is that the adoption of ISO globally is no longer a matter of ‘if’ but a matter of ‘when,’” he stated. “As a consequence, we in the United States have to contemplate whether we are going to ultimately conform with that global standard or risk our payment systems becoming idiosyncratic in a global world.”