- Article
- Payments
- Make & Receive Payments
Unveiling ISO20022 use cases
Explore use cases unveiling the potential features and benefits of the new ISO20022 standards for corporate clients and financial institutions.
Use case 1: Improved reconciliation and liquidity management
The problem
Today’s payment messaging standards are constrained by space, lack of structure, and have limited ability to represent different parties involved in the payment lifecycle. This can result in settlement delays during processing and impacts the ability of corporate customers to efficiently manage their cash flows when received payments cannot be reconciled against outstanding invoices or applied to the correct entity within their organisation. Legacy field lengths are limited to 140 characters, which often is taken up with mandatory clearing information at the expense information to assist reconciliation.
Features of ISO20022
ISO 20022 has a dedicated structured data element allowing nine thousand characters for remittance information. Having detailed remittance information may support corporate clients to automate the matching of transactions and automate reconciliation. Party information in ISO20022 allows for identification of the ultimate debtor and creditor of a payment, providing greater detail and transparency for corporate customers to apply funds to the correct entity within their organisation.
Benefits to corporate clients from ISO20022
Structured remittance and ultimate party fields supported by ISO 20022 messaging standards will set the foundation for corporates to move away from manual processing and gain greater efficiency through automation. This could help to provide a more accurate position of outstanding receivables and promoting more efficient use of working capital. Automation capabilities enabled by structured data could support clients in gaining greater insights into payments that are past due, reduce errors, and potential risk of fraud. It does this by removing manual processes, better manages and forecasts liquidity, and optimises working capital. This enables greater automation of treasury workflows, enhances payment tracking, and more quickly accounts for funds by reducing the burden and delays associated with manual reconciliation.
Use case 2: Enhanced compliance processes
The problem
Legacy payment messaging standards lack detailed structures and context for party information contained in the payment. This creates challenges and complications in compliance screening processes as information about parties is contained in a single data field in largely free format text. This drives high costs for financial institutions and impacts the straight through processing (STP) of payments due to manual dispositioning of “false positive” compliance hits. This acts as an impediment to meet customer expectations for faster and cost-effective payments.
Features of ISO20022
The ISO 20022 standard uses dedicated elements for each party in a transaction, containing more structured and contextual attributes. The support of dedicated elements to give context to information like party names, town names, and countries removes ambiguity that exists in current legacy standards. For example, the mention of a sanctioned country in an unassociated street or town name in unstructured party details in legacy standards could create a false compliance hit. ISO 20022 messaging standards use specific, detailed data elements to distinguish and provide context to different parts of the party information, such as street name, town name, and country. Dedicated fields for ultimate parties provide enhanced payment transparency and help strengthen payments processing by reducing the likelihood of data omission.
Benefits to Financial Institutions and their customers
Structured and contextual party information in ISO20022 payment messages should increase efficient transaction sanction screening, likely reducing payment delays and manual dispositioning of false positives. For financial Institutions, this provides the opportunity to streamline operational processes by increasing straight through processing, reduce operational and compliance costs, and enable banks to comply with regulatory requirements in a more efficient manner. The widespread adoption of these standards across market infrastructures and adoption of new data formats should see banks gradually experience fewer payment delays and allow their clients faster access to liquidity and capital.
HSBC's ISO 20022 journey
Discover the timeline and benefits. Download your Readiness Handbook.
