How will ISO 20022 change e-commerce payments?

In general, people are not easily enthusiastic about a new ISO standard. There are currently twenty-two thousand ISO standards. Three of these are best known:

  • ISO 9001 (quality control)
  • ISO 27001 (Information Security Management Systems)
  • ISO 14001 (environmental management systems)

Each standard aims to bring order to the chaos of best practices developed in geographic silos.

The banking and payments sector is still lagging behind in several areas. Think of a forest of laws and regulations, outdated processes and some delay in adopting innovative concepts. But now that is about to change. Globalization is irreversible and thanks to ISO 200222, cross-border payments are finally entering the 21st century.

“It’s pretty exciting,” said Isabel Schmidt, Global Head of Direct Clearing and Asset Account Services at BNY Mellon Treasury Services. “ISO 20022 leads to automatic reconciliation, faster payments and lower costs. It takes away the repetitive work. This allows players in the payment chain to put energy into new business. And in anything that adds value to our customers and businesses.”

Wat is ISO 20022?

ISO 20022 deals with messages that banks send each other when someone makes a cross-border transfer. One of the most used networks is SWIFT, qui over 46 million posts per day processed. Schmidt explains what the problem is: “SWIFT is not the only network. Payments are a patchwork. ACH, CHAPS, CHIPS – they’re all trying to do the same thing, but they’re not the same. Networks do not integrate well with each other or with the business processes they support.”

According to SWIFT, ISO 20022 creates a dictionary of messages. Every financial institution in the world will use that dictionary, as is also the case in the aviation sector, for example. The idea is to create a central repository of terms, processes and best practices. The result: fewer misunderstandings, fewer failed transactions and less fraud.

Why is ISO 20022 so important?

Standardized data. The current message format is unstructured, as there are no data points. There are also no rules about what should be in the messages or in what order the data should appear. That makes it very difficult to apply AI or other automations to the money transfer process. Unstructured data at record level is well organized enough. But anyone who’s ever worked with data analytics knows it’s a complete nightmare at scale.

Standardizing the message has a number of advantages:

  • It takes away the geographic variables for programming
  • It makes data analysis much easier
  • It makes any business process in general related to payments much easier

Is ISO 20022 mandatory?

The ISO has no regulatory or legal authority. So any standards they issue are technically optional. But once a standard is widely adopted, those who don’t adhere to it usually lose their competitive advantage.

Andrew Foulds, Director of Global Clearing Solutions and Product Management at Fiserv, explains: “Financial institutions avoiding ISO 20022 could be making a costly mistake as they come under increasing competitive pressure fintechs and bigtech, which are evolving at a very fast pace and eager to take their place, these tech-forward organizations have clearly demonstrated that they have the bandwidth and ability to understand the value of data They can also use it to offer customized services.”

When will ISO 20022 come into effect?

One hundred and fifty countries adopted the ISO 20022 standard when it was first proposed. Still, the transition process is expected to last until 2025. During this transition, institutions will use both SWIFT (MT) and ISO 20022 (MX) messages.

More than 70 countries, including Switzerland, China, Japan and India, have already switched. Several small-scale payment systems in Europe are already working with the new standard. If your European bank now offers instant wire transfer, it is very likely that they have already implemented ISO 20022.

2022 – SWIFT and the European Central Bank go live in November with ISO 20022 for high-value payments in November.

TARGET2, also in Europe, will introduce ISO 20022 in one go in November rather than a gradual approach.

2023 – The CHAPS network in the United States will begin the transition to ISO 20022 in the spring of 2022. They aim to complete the process by early 2023.

2024 – MT and MX messages will co-exist in Australia until 2024.

2025 – ISO 20022 is the global standard for high quality payment systems of all reserve currencies. The will provide 80% of the transaction volume and 87% of the transaction value worldwide support.

What is the difference between high-value and low-value payments?

In banking, a distinction is made between different transactions. This concerns transactions that banks carry out for themselves or for their business customers. This also includes overseas banks.

Low-value payments are transactions initiated by everyone else. This includes everything from the $5 you send for your nephew’s birthday, to the large bills that companies pay their suppliers.

In Australia For example, a total of USD 122 billion per day in high-value payments value done. The average payment is 3.2 million euros. So it concerns only 38,000 transactions.

On the other hand, there are payments with a low value. The transaction volume is significantly higher, but the transaction amount is much lower. In 2020 European retail payments averaged 294 million transactions per day, with an average card transaction value of EUR 41.

What is the difference between SWIFT and ISO 20022 messages?

MX messages from ISO 20022 look very different from MT messages from SWIFT. An old MT message consists of a text box with some data, in some format. MX messages contain 940 individual fields. You don’t have to fill them all in, but an MX message still takes several pages when printed.

The designers of MX messages have ensured that the format is future-proof. If a different standard markup language is introduced in the future, the current XML can be easily translated.

Why is ISO 20022 an improvement over SWIFT?

MX messages are better than MT messages because of the data they can transfer. But actually, this new standard will affect almost every aspect of banking.


The more data you collect, the more information you have about customer behavior and needs. The increase in data will lead to more competition between financial institutions, fintechs and payment processors. Because these players will have to develop products that customers at all levels of the banking industry want to use.


Business is a lot smoother when the tech stack just works. This also applies to the banking sector. In the past, financial institutions developed and implemented standards in a silo. This led to inconsistency and a lack of customization. IT departments became overloaded as they were constantly trying to fix the bad infrastructure. So they couldn’t innovate. With this new global standard, sending money from Germany to Argentina is now as easy as it is from Germany to France.


If companies can reconcile payments in near real-time, they can also manage their cash flow with the same transparency. This improves forecasting and leads to better business decisions.

Fraud and Compliance

The XML format can be easily integrated into virtually any market infrastructure and payment system in the world. This allows better analyzes to be made and fewer errors due to human actions. Regulations are also more accurately complied with, security is better and fraud is more easily prevented.

Standardization of non-Latin alphabets

The character set for MX messages is ten times longer than for MT messages. This leaves much more room for messages in non-Latin alphabets. Think Chinese, Russian or Greek. Asia is the world’s most innovative banking and payments market. So it’s no surprise that the People’s Bank of China started implementing ISO 20022 more than a decade ago.

How does ISO 20022 affect the e-commerce business?

Two important changes in ISO 20022 directly affect ecommerce business. Those are:

  • faster transaction processing
  • a more efficient settlement

To what extent these things will affect your business depends on a number of factors:

  • the size of your company
  • the international reach
  • the way you currently do the accounting

The larger your company, the more likely you are to make larger payments to international suppliers. If all parties use payment processors and banks that have fully implemented ISO 20022, transfers are likely to be processed faster. Especially when it comes to two different countries.

If your company has a broad international customer base, it is also likely that you transfer a lot of money between currencies and tax jurisdictions. This is arranged easier and faster. There are also advantages if you offer bill payments, bank transfers or direct debits. The time between the moment the customer pays and the moment it is credited to your account is significantly shorter. This new real-time cashflow visibility will greatly improve forecasting and inventory management. make it easier.

The biggest change is probably noticed by the accounting department. Especially if your company is large enough to use commercial accounting software, such as SAP. Due to the standardized fields and extra information in MX messages, the straight through processing rate will skyrocket. That’s the number of transactions that don’t involve people. With more information to compare, the AI reconciliation component of your accounting software will be able to match payments to invoices much more accurately.

In theorie zou deze toename in straight-through processing de kosten per transactie moeten verlagen. Dit gaat om de kosten die banken, creditcards en digital wallets in rekening brengen om hun producten te gebruiken.

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