ISO 20022: Transforming the Future of Financial Payments

Every day, financial institutions around the world send millions of messages back-and-forth. With so many messages flying around, it is important for financial institutions to understand each other clearly to avoid errors and delays.

As digital transactions first began to arise, banks and financial systems often created their own language to communicate important information with others. Fast forward a few decades, and we now have a multitude of transaction formats and communication styles. On top of that, trying to communicate in real time adds an additional layer of complexity that has left the payments industry with quite a translation problem.

Enter: ISO 20022. A transformative tool for the future of financial communication. In this article, we’re going to talk about an emerging universal language for financial transactions, and what it means for banking clients all around the world to move to a 24/7/365 transaction model.

What is ISO 20022?
ISO 20022 is a global messaging standard positioned to revolutionize the payments industry by enhancing transparency and security for financial transactions. This new standard offers richer and more structured data, which addresses the limitations of outdated messaging formats and enables transactions to occur in real-time.

Major global payment networks, banks, and organizations like SWIFT, The Clearing House and the Federal Reserve are aligning to adopt ISO 20022, aiming to unify messaging across the industry. This XML-based format will eventually dominate the payments ecosystem, becoming the primary method for communication. In fact, real-time payment networks in over 70 countries are already using this format.

At Comerica, our role is to support this industry-wide shift by implementing ISO 20022, ensuring our customers benefit from a seamless and efficient payment experience.

The Benefits of ISO 20022
ISO 20022 brings a range of advantages to the financial industry and businesses, making transactions more efficient and data more valuable.

Here are key benefits of ISO 20022:

• Enhanced Data Insights: ISO 20022 enables more detailed and structured data, which can be used for deeper analysis and insights, easier reconciliation and better cash flow management.
• Unified Payment Systems: By adopting a universal messaging standard, ISO 20022 ensures different payment systems and platforms can communicate effectively in real time. This common framework simplifies integration across financial networks and institutions, making it easier for you to work with multiple banks and switch banks easily.
• Cost Efficiency: Standardizing messaging formats across borders and institutions reduces the need for manual intervention and eliminates incompatibilities. This efficiency lowers operational costs and simplifies the processing of international transactions.
• Streamlined Transactions: With clearer and more detailed information available, ISO 20022 paves the way for instant payments while reducing delays and errors in payment processing. This results in quicker transaction times and fewer bottlenecks, especially for cross-border payments.

Timeline of Adoption
The transition to ISO 20022 is already underway, with SWIFT starting its migration in March 2023. During this period, both the new format (MX) and the older format (MT) are accepted, with full adoption expected by November 2025. Meanwhile, Fedwire is set to implement ISO 20022 in 2025, aligning its systems with the global standard for more efficient and transparent financial messaging.

Please note that these timelines are subject to change as the industry continues to adjust and refine its adoption plans.

Comerica's ISO 20022 Adoption Plan
At Comerica, we are dedicated to making the transition to ISO 20022 as seamless as possible for our customers. Throughout this transition period, we will keep you updated on our adoption progress and any developments that may impact your organization. To reduce any potential disruptions, we will continue to support both MX and MT formats, providing you with the flexibility to transition at your own pace.

We are actively involved in industry discussions and initiatives to align our adoption strategy with the latest best practices and standards. This involvement helps us anticipate changes and adapt quickly, ensuring our customers benefit from the most effective solutions.

Every organization will have unique needs through this transition. That’s why we offer support to help you make any necessary system adjustments. Work closely with your Comerica Treasury Management Representative to explore the full range of ISO 20022 benefits and develop a customized plan that fits your specific requirements.

Preparing for ISO 20022: Steps to Consider
As a customer, you may not need to take immediate action for the ISO 20022 implementation, as many of the changes will happen in the back-end systems of your financial institutions. However, embracing ISO 20022 early will bring your business many benefits. These are proactive steps you can take to provide for a smooth transition:

• Stay Informed: Keep an eye out for communications from Comerica regarding any updates that could impact your business. We will send information via email about relevant changes, so it’s important to review these communications to stay up-to-date.
• Assess Your Systems: Examine your current payment processing systems to understand their compatibility with ISO 20022 XML formats. This includes checking whether systems managed by third-party providers are prepared for the transition.
• Prepare for New Data Requirements: Anticipate that your banking and payment systems will need to handle more detailed and structured data. Verify that all components in your payment process, from initial input to final settlement, are ready to accommodate these new data formats.
• Examine Supplier Relationships: Check if suppliers or business partners will be changing the data included in their payment instructions or invoices. Be ready to handle these changes to maintain seamless payment operations.

As you prepare for the transition to ISO 20022, it can also be helpful to familiarize yourself with key terms related to payment systems. Below is a list of important terms that will likely be relevant as you implement this new messaging standard in your payment processes.

• ISO 20022 XML Format: This is a standardized messaging format used in financial transactions. It allows for richer, more detailed data to be communicated, improving accuracy and efficiency in payment processing.
• Structured Remittance Data: This refers to information that is associated with a payment, such as purchase orders, contracts, invoices or bills of lading. By adopting a structured approach, companies can achieve more efficient payment processing and better data accuracy.
• Unique End-to-End Transaction Reference (UETR): A UETR is a unique identifier assigned by the Debtor Agent (Comerica) and used to track each transaction from start to finish. Introduced by SWIFT, this 36-character string allows for precise tracking and monitoring of payments throughout the entire payment process.
• Legal Entity Identifier (LEI): An LEI is a unique code assigned to legally distinct entities involved in financial transactions. It helps improve transparency and traceability in the financial system by uniquely identifying parties in transactions.
• Cross-Border Payments: Refers to transactions that occur between entities in different countries. ISO 20022 aims to streamline these payments, making international transactions faster and more efficient.
• Purpose of Payment (PoP) Codes: These are specific codes included in payment instructions to clarify the reason behind a transaction. Using PoP codes helps streamline the payment process and provides clear information to both the sender and receiver.
• Structured Address: A standardized format for recording addresses, including street name, building number, state and country in separate fields. This helps reduce errors in transaction processing.
• End to End ID: Unique identification assigned by the initiating party to unambiguously identify the transaction. This identification is passed on, unchanged, throughout the entire end-to-end chain. It can be used for reconciliation or to link tasks relating to the transaction. Also known as EndToEndID.
• Payment Initiation Service (PIS): A service that facilitates the initiation of payment orders by connecting payers and payees, often through a third-party provider. ISO 20022 enables more secure and streamlined PIS processes by standardizing data formats.

Take proactive steps now to achieve a smooth ISO 20022 transition for your business

Want to learn more about ISO 20022?
At Comerica, we are dedicated to delivering the future of banking to our customers. To stay informed, you can also visit these resources: SWIFT, ISO 20022, and The Federal Reserve FRBServices.org  If you’d like to learn more about ISO 20022 and the future of financial transactions, contact your Comerica Treasury Management Representative.

This article is provided for informational purposes only. While the information contained within has been compiled from source[s] which are believed to be reliable and accurate, Comerica Bank does not guarantee its accuracy. Consequently, it should not be considered a comprehensive statement on any matter nor be relied upon as such.

¹ISO 20022 is not available for every product and it’s availability may vary.

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