It might not get the amount of play that real-time payments, open banking and artificial intelligence get, but the global payments industry reached a milestone recently when the U.S. CHIPS network, one of the world’s largest dollar clearing systems, completed its migration to the ISO 20022 messaging standard.
This move brings the industry one step closer to realizing the benefits of a standardized, data-rich payment messaging format, according to Jenny Lee, head of U.S. Wire Product at Bank of America.
The ISO 20022 standard, which has been adopted by a number of payment market infrastructures worldwide since 2020, aims to streamline and modernize payment messaging by providing a structured, granular data format. The CHIPS network, which handles roughly half of the world’s dollar clearing volume, is a critical component in the global adoption of this standard.
“Now with the CHIPS ISO migration completed, the entire industry is clearly one step closer to realizing the benefits together,” Lee told PYMNTS recently. She emphasized that the potential of the ISO 20022 format cannot be fully realized without the participation of all market players, including banks, corporates and financial institutions.
The adoption of ISO 20022 is expected to bring significant improvements in operational efficiencies for both banks and enterprises. Lee highlighted one key area where the standard can make a difference, payment reconciliation, a common pain point for many organizations.
“Improvement in payment reconciliation can be achieved from being able to maintain and provision end-to-end transaction IDs, counterparty identifiers such as IBAN, and remittance information in distinct fields,” Lee said. This structured data can benefit corporate customer service functions, she said, as well as internal accounts payable and receivable departments.
The ISO 20022 format also has the potential to enhance straight-through processing (STP) for banks. By structuring address fields and using standardized country codes, banks can streamline their payment processing and sanctions screening, reducing the risk of confusion and false positives.
As Lee pointed out, to fully leverage the benefits of ISO 20022, corporates and financial institutions must update their systems and operational models to align with the new standard. This involves ensuring that payment instructions sent to banks are formatted in a way that can be seamlessly converted into ISO 20022 messages.
Corporates should focus on providing structured data elements, she said, such as invoice numbers and counterparty identifiers, when initiating payment instructions. This will enable banks to carry this information throughout the end-to-end lifecycle of a payment, facilitating automated reconciliation and enhancing reporting capabilities.
Bank of America has been participating in industry efforts to drive the adoption of ISO 20022. The bank has engaged in bilateral testing with peer banks to ensure readiness and build confidence in the new messaging format.
“One of the challenges in participating in this industry adoption is the fact that there were not a lot of production data to use in our testing phase,” Lee noted. To mitigate this, Bank of America has collaborated with partner banks and market infrastructures to generate testing data and validate their systems.
Lee said Bank of America envisions leveraging the rich data provided by ISO 20022 to offer value-added services, such as enhanced reporting for clients and intelligent data analytics. By maximizing the return on investment in the global ISO program, the bank aims to drive innovation and improve the overall payment experience for its customers.
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