An enhanced messaging standard for banks
The local market particularly banks, have taken a lead in embracing ICT as a solution and response to the ever-increasing customer needs and demands, mainly in the payments space. This needs to be augured by swift adoption and implementation of new and better standards, underpinned by innovation.
To achieve this, players across the spectrum in every industry need to stay very awoke and ahead of the curve in this disruptive age. One of the key latest developments on the digital horizon affecting fintech is ISO 20022.
ISO 20022 is a messaging standard for financial transactions globally and in the next five years, banks and other financial institutions are expected to migrate to the latest specification of this standard, a move which will ensure more secure and efficient processing of transactions.
Swift, the registration authority for the new standard expects the latest installment of ISO 20022 to be up and running by November 2021. In the meantime, FI’s are supposed to map out an implementation plan as well as assess the possible impacts of adopting the new standards.
The main areas that are more likely to be impacted by the changes in the messaging standard include core banking systems, payments middleware, reconciliation, and interbank channel infrastructure.
In light of the recent upgrades to the core banking systems of several banks in Zimbabwe, it is imperative that banks become more committed to maintaining ICT infrastructure up to date so that they can exploit cutting edge technological developments in the financial services sector. In the new age of open banking, ISO 20022 will facilitate migration towards this open paradigm since ISO 20022 is itself an open standard.
The benefits of adopting ISO 20022 early
Current standards for international payments are limited in structure and space due to legacy issues and the computing challenges of yesteryears. An example is the MT 103 standard which limits a senders’ reference to only 16 characters when transmitting transaction data. The new ISO 20022 standard will allow up to 35 characters for the very same purpose and this is a massive improvement over the current standard.
Adoption of ISO 20022 will enable banks to create a whole new category of applications that will enable them to compete with their newfound rivals, Fintech start-ups that enjoy the benefit of being nimble and can thus innovate quickly.
The Full implementation of ISO 20022 is expected to begin in November 2021, which is only two years from now. Once implementation has started, the standard will be able to coexist with the current standards for a period of four years until November 2025. Any FI that is serious about adopting this new standard early on should already be making plans and assessing the requirements so that they move with global trends in the banking sector.
The banking sector is replete with regulation and sometimes changing ICT infrastructure can be a rough ride but it is a necessary evil that should be embraced as it usually results in better service in the long run. ISO 20022 is a step in the right direction as it promises better performance and provides scope for banks to innovate and help push for financial inclusion which is a key enabler of other developmental goals in the 2030 Sustainable Development Goals (SDG’s)