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ISO 20022: The new language of payments
22 Plays4 years ago
ISO 20022 is the new standard for exchanging electronic data between financial institutions. It will enable richer and more detailed data to be included in payment messages, along with a host of other benefits, resulting in a better customer experience.
In this episode, Mark Avery, Senior Product Manager, HSBC, and Umut Uysal, Senior Global Product Manager, HSBC, discuss what you need to know about this exciting innovation in banking.
For more information on ISO 20022 visit here.
Hosted on Acast. See acast.com/privacy for more information.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
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This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
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A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
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Thank you for listening.
ISO 20022 Overview and HSBC's Role
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Welcome to this podcast on ISO 20022.
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My name is Umut Ousal and I'm a senior global product manager in our currency clearing product team within the global liquidity and cash management department of HSBC.
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Collectively, we manage our commercial and treasury payments for HSBC.
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And today we're talking about ISO 20022 for which I'm leading our commercialization efforts.
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I'm joined today by my colleague, Mark Avery from our European product team.
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Mark, thank you very much for joining today.
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Would you like to tell us a little bit about yourself and your background?
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Thanks for that.
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I've been with HSBC now for nearly 23 years, starting out in operations and payments audit before moving into the product area within our digital channel space, managing our HSBC Connect and HSBC Net channels that customers will be familiar with.
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and moved into the payments product area in 2012 managing our European branches.
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And I'm now the lead for products for our European implementation of ISO 20022, which includes CHAPS and Target 2 for the region.
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Fantastic and very well experienced indeed.
Understanding ISO 20022: Current Use and Future Plans
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So Mark, can you tell us what is ISO 20022?
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Okay, so ISO 20022 is a standard supporting financial messaging and it uses extensible markup language or XML syntax.
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So XML people are familiar with.
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It's been implemented by banks, corporations, payment systems and financial application providers to conduct payment operations.
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And it's currently used by a number of real time payment schemes and in some domestic RTGS and ACH markets around the globe.
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Many schemes not already using ISO have announced plans to migrate over the next few years and SWIFT themselves will migrate for cross-border traffic beginning in November 22, replacing the current MT series of SWIFT messages by the end of 2025.
Importance of ISO 20022 for Cross-border Payments
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So what is triggering this change for the current MT payment format to the new ISO 20022 formats?
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And why is it important for us to align with these standards?
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With payment market infrastructures of all major currencies either live today or in the process of adopting the ISO standards, the SWIFT community decided it's now time to adopt this financial standard to further enable the modernization of cross-border payments.
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ISO will enable richer, better structured and more granular transaction data to be included in payment messages and more remittance information for payment services providers and their customers, which will enable a better customer experience.
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There are other benefits which include less manual intervention, more accurate compliance processes, higher resilience and improved fraud prevention measures.
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So the industry is changing rapidly and it's really important to our business and certainly our customers
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given that millions of customers make payments through us.
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So for example, last year, HSBC processed nearly four and a half billion payments.
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So that's equivalent to 139 payments every second.
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So it's very
HSBC's Payment Processing Volume
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important.
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Couple this with the fact that these are made in over a hundred different currencies and you can see how important this is to us and indeed to our customers.
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So banks are expected to do payments well.
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And those expectations are rising in an increasingly digital world with regards to speed and service.
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And from an HSBC perspective, we're good at this.
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We're the world's leading transactional bank.
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So our reliability and network offer a competitive edge.
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All banks, including our own FI customers, have to make changes to adopt ISO standards so we can continue to send payments globally.
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via the SWIFT network and continue participating in the domestic schemes, which are also adopting these standards.
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Fantastic.
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So it's clearly clear that this is really important to the industry and all financial institutions.
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But what's actually changing?
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Can you give us a little bit more detail on the actual changes?
SWIFT's Migration to ISO 20022
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So the ISO standards is being adopted by SWIFT, as I mentioned, for cross-order traffic, and it's replacing the current SWIFT message types or MT series
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And it's the one, two and nine series that are being replaced with the ISO equivalent message type, which is known as MX.
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Swift themselves were set up by banks, four banks, sometime in the 80s.
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And they are the honest brokers between banks to help drive common standards, for example, messaging templates, so the MT messaging.
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The migration to ISO from Swift is starting in November of
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2022 and it will cover a three year migration period that requires all banks to start receiving key ICA messages in November of 2022.
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Along with SWIFT, major market infrastructures such as Chaps in the UK, Euro 1 and Target 2 in Europe, Fed and Chips in the US and Chaps in Hong Kong are adopting ISO standards.
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So essentially all payments are shifting to this new standard and you certainly can't afford to stay behind.
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There are three specific message categories to support message flows from end to end.
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So we have messages initiated by corporates to banks, also known as payment initiation or pain in the MX world that will replace the MT-101 or 103 that are used by our corporate customers today.
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There's messages that are used for commercial and settlement purposes between banks, also known as payments clearing and settlement.
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And then tax messages in the MX world
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So an MT-103 used for settlement will now be a PAX-8 or an MT-202 will now be a PAX-9 message.
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And then customer statements and reporting, which is key for our customers.
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So the cash management area, there'll be CAMPED, CA-MT, CAMPED messages.
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So an MT-940, as an example, will now be a CAMPED-53 in the MX world.
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Okay, that's great.
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So there's clearly plenty of change happening and there's new terminology as well that
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I suppose everybody can familiarize themselves in this space.
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But you mentioned CHAPS being a market infrastructure that is migrating as well.
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Are they implementing to the same timelines as SWIFT?
CHAPS and Bank of England Requirements
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So CHAPS are migrating on a two-tiered approach beginning in June of next year with what is called initially the like-for-like phase.
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So during this phase, all banks directly connected to CHAPS are required to move from the SWIFT MT messaging to ISO
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messaging, but the data itself will be the same as that that is possible in the old MT standards.
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So it will therefore only affect financial institutions in the first instance.
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The second enhanced phase will be in February 23 when enhanced data will become available.
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And that provides options for end users to address some of the challenges experienced over the years with the limited MT standards.
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The Bank of England has also set out a roadmap for how it intends this enhanced data to evolve in the years following the implementation of ISO within the chance payment messaging landscape.
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So from February 23, the Bank of England will encourage the use of purpose codes and legal entity identifiers, or LEIs as people may know them.
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The Bank of England also requires the implementation of structures, addresses and remittance data for domestic payments once the CHAPS direct participants, such as HSBC, are capable of sending such enhanced data.
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From spring of 24, the Bank of England requires the use of payment codes in early eyes for payments between financial institutions, so it's a must have from spring of 24.
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And purpose codes will also be a requirement from spring of 24 for property transactions specifically.
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And then from November of 2025, when SWIFT retires the MT messaging standard completely, the Bank of England will say that we must use structured addresses and remittance data for all payments.
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So that's quite key.
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It's worth noting that while SWIFT are going live for enhanced cross-border messages in November of 22, domestic CHAPS payments will not accept enhanced data until February 23.
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So any domestic CHAPS payments received through SWIFT
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during that period, we'll see truncated data to empty like data for processing.
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So between November 22 and February 23, there can be some truncation.
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Okay, great.
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So there's clearly, there are a few sort of nuances and dates to call out specifically to CHAPS that are outside of the SWIFT timelines.
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Thank you for covering that in detail.
Limitations of MT Standards and ISO Solutions
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So tell us, what are the challenges that our customers are facing to date?
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Okay, yeah, so I mentioned there were some challenges there that this will address.
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So first is limited space.
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So the current MT standards were created in an era where it was not possible to carry extensive amounts of data, essentially due to the costs involved.
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Data was expensive at the time.
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So there's more space available now within the new standards.
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Secondly, there's a greater demand for more information to understand where someone is getting paid, which simply isn't possible today with the limited space that we have in an empty message.
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Payment delays.
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So unstructured information can lead to misinterpretation of data, which causes delays involved in screening payments, et cetera.
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And then reconciliation.
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So references that keep on changing as they move through the different banks associated with the payment process can cause reconciliation issues for our customers.
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I'm sure our listeners will be really interested to hear this.
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So with ISO, what will the benefits actually be then?
Benefits of ISO 20022
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So some of the benefits and addressing the challenges that I mentioned just now, automation of reconciliation.
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So structured remittance information can be included, and that can include rich invoice information to support reconciliation.
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So not only is the integrity of the data higher, but there can be more of it.
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So for example, multiple invoice numbers can be provided on the instruction and reconciled with ease rather than manually.
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Reduce payment delays.
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So ISO provides structured and granular address formats where the dedicated fields that represent the address that remain unchanged throughout the payment journey.
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This ability to provide a more complete and granular detail will drive efficiencies and compliance and sanctions monitoring and reduce the number of requests for information that customers receive from banks in the processing chain, which caused delays in payment execution.
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So a good example
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where previously everything was in a single string of text, now each address detail will have its own field.
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So sending money to a business that happens to be on Cuba Street in London will not be incorrectly identified as being paid to Cuba the country, is an example.
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We've got payment tracking abilities as well.
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So with dedicated payment reference fields that are less likely to be changed throughout the chain,
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There's an improved payment tracking available to be able to look at that payment based on that reference from an end to end perspective.
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So we get a uniform customer experience.
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So global adoption of the standards helps provide a consistent experience to our customers globally through standardized and enriched statements and advising.
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There's enhanced data insights, so the standardized message data elements will facilitate a more robust business experience for our customers due to the enhanced data analytics that banks can potentially provide.
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So in summary, the entire end-to-end payment processing, right from initiation to returns, it's going to be a better customer experience and a smoother payment journey, which benefits both us and our customers.
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That's great.
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I'm sure everybody across the industry is looking forward to this being implemented.
HSBC's Compliance Measures
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So, Mark, can you let us know what changes are we at HSBC particularly making to prepare for the CHAPS changes?
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Yeah, of course.
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So we're one of the largest processes of CHAPS payments in the market.
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So it's important we're fully compliant with the Bank of England changes, not just from a rule book perspective, but also in ensuring our customers can benefit from the changes to CHAPS.
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and the wider industry migrations to ISO as a whole.
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In addition to major infrastructure changes that we're making to ensure we can process enhanced information through the payment chain, we are updating our customer channels to allow additional information to be provided with a payment once supported in any given market, and our reconciliation information as well, such as statements and advices to ensure we can send on any enhanced information received when predicting our customers.
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And to assist in this process, our digital colleagues are already working with our HSBC Net and Connect customers globally to migrate away from empty messages to a more appropriate format for the future, which includes XML standards.
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OK, that's good to know.
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So what changes are we asking our customers to make?
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What do our customers need to prepare for, for the upcoming CHAPS changes?
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OK, so as I mentioned just now, our digital colleagues
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engaging in some change program and they'll be in touch with any customers still using legacy file formats such as MT, but there are others, to assist them in migrating to a future-proof format.
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So customers making online payments using our HSBC net channel, they can continue to process as they do today once CHAPS goes live with ISO standards in June of 22.
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We recommend that all customers are prepared to receive additional information after February 23 when incoming credits that we receive can begin to be provided with enhanced information and that will no longer fit into legacy statement formats such as the MT940.
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We also recommend customers begin thinking about managing structured address and remittance information.
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to ensure that their payments retain continuity of information as CHAPS begin processing in a structured form for domestic payments.
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So that's quite important.
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And finally, we'd recommend being ready to send LEIs and purpose codes where required in 2023 as they'll become mandatory for CHAPS payments in spring of 2024.
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Okay.
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That's some really, I suppose, clear messages for our corporates to consider.
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So thank you for that.
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I know you mentioned that our digital colleagues will be in touch with customers, but how will we at HSBC also be supporting our customers during this period of change?
HSBC's History with ISO Formats and Customer Support
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So I think it's worth mentioning that HSBC have been processing ISO formats from our customers since 2003.
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and have been a strong advocate for XML and a key driver in the evolution of the XML standards.
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So customers will be able to leverage our experience gained during this period of investment in this area and from our more recent implementation of various domestic and real-time payment schemes.
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As I say, our digital colleagues will be reaching out proactively to our customers on legacy formats to discuss their migration options.
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And our client service and sales colleagues are always on hand
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any questions customers may have as we move through this period of change.
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And in addition, we also have an external website where we are publishing all things ISO, so customers can review the content at any time as they determine how to benefit from this exciting change in the paint industry.
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Fantastic.
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Thanks for that.
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Final question for me in that case.
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What do you want our audience to take away from this?
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Two key points, really, I think.
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We want people to be aware of ISO, but not to be scared of it.
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It's not new.
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It's already used by various schemes like SEPA.
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It's an incredibly exciting development in an ever-growing industry, which is used day in, day out by so many customers already.
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So it's nothing to be scared of.
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And customers need to make themselves aware of the benefits that they can realize and recognize that this is a really good opportunity for them to review their payment templates and join the financial industry in improving the movement of money and end-to-end through the payment chain.
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Thanks, Mark.
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That's two great takeaways indeed.
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And yes, it's very important, I suppose, for our customers to be aware of the benefits as there's plenty of benefits to be realized through this.
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Thank you very much indeed for those insights.
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It was incredibly useful hearing about the ISO benefits and in particular, the focus on the implications for CHAPS.
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We hope you, our listeners, have enjoyed this podcast and are now a lot more familiar with ISO 20022.
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And as Mark just said as well, don't be scared of it.
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There's lots of benefits there.
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So please welcome it with open arms.
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All it leaves me to say is thank you for listening and take care.
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Thank you for listening today.
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This has been HSBC Global Viewpoint Banking and Markets.
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For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.