ISO 20022 – Expanding like no tomorrow

The migration mandate for cross-border payments (Swift) and domestic RTGS/Wire spaces is just the first step, just as it was with global instant payment schemes, which began with ISO 20022, and the business rules they initially used when they started. 

The ISO 20022 messaging standard is not just exponentially larger than almost every legacy format. It is an XML machine-friendly format for easier consumption by systems, helping to improve efficiency, reduce cost when natively used within the ecosystem, and reduce a tremendous amount of friction to get one payment across payment networks (Swift and CHAPS).

The financial industry is moving to the next level of ISO 20022 and beginning to use enhanced data, as many RTGS/Wire schemes and Swift have already migrated to ISO 20022, with fast followers just around the corner. We expect the industry will enforce this use of enhanced data more and more in 2025 and beyond.

Some examples of enhanced data are:

Structured remittance

Purchases, bills, and contracts are examples of structured remittance information. Think of someone sending a payment to a shipping dock to release goods within a container. The sender can send the embedded itemization of all the contents and amounts per type of goods within the payment. Further, instead of a person receiving the payment and manually reconciling the sub-amounts, the payment can go directly into the reconciliation system, allowing the money to be instantly verified and contents within the container released. 

Category purpose code

A Category Purpose Code explains the reason for a payment so banks can understand the intent (business or personal) of the payment.

Legal identity identifier (LEI)

As defined by the Global Legal Entity Identifier Foundation, an LEI provides legal entity information:

• Official name 
• Registered address
• Country of formation
• Codes for the representation of names of countries and their subdivisions
• Date of the first LEI assignment
• First establishment date 
• Date of the last update of the LEI information
• Date of expiry, if applicable

The LEI allows a new level of identification per party within the payment — more relevant to corporate entities that don’t have bank clearing codes — as well as complimentary data about the financial institutions that have and use bank clearing codes to identify themselves.

Moving to using robust address information

Per the Payments Market Practice Group, the industry is moving away from the existing default/current practice of three lines of 35 characters to: 

1. A fully structured postal address is a preferred option.
2. Semi-structured/hybrid postal address/hybrid format has the country and town provided in dedicated ISO 20022 data elements.
3. Fully unstructured postal address (only to be available until November 2026) facilitates the transition and allows sufficient lead time for the corporate industry to structure the party address data.

Make use of the ultimate debtor and ultimate creditor within the payments

Using these two parties, for which other parties perform actions, is a value-add in ISO. The industry is moving to populate these parties with distinct party identifiers and robust addresses.

There is much more to ISO 20022, and although we are only in the infancy of making use of the data within the payments, we’re already beginning to realize the ease of getting a payment across rails. There’s more to follow – including getting payments to cross different types of rails.