Progress in Cross-Border Payments Harmonization With ISO 20022

Required knowledge

• Familiarity with ISO 20022 international standardization
• In-depth knowledge of ISO 20022 message elements

The big day came on 20 March 2023, when banks exchanged ISO 20022 payment messages over the standard Swift network for the first time. After a delay of about half a year, the migration from MT to MX messages has started and is scheduled to be completed in November 2025. In keeping with the parallel phase, there are still some trade-offs in the underlying CBPR+ market practices. For example, conversion can often only be performed using truncation and mapping.

However, in order to truly benefit from the ever-increasing use of ISO 20022 as a messaging standard once the migration is complete, the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) and the Payment Market Practice Group (PMPG), representing the banks, have compiled a list of requirements for cross-border payments. The BIS published the draft on its website for comment on 1 March 2023. As far as the Swiss financial center is concerned, the Payments Committee Switzerland issued corresponding feedback at the beginning of May.

Guiding Principles

The key points of the report “ISO 20022 Harmonization requirements for enhancing cross-border payments” are the end-to-end process of a customer payment order through different banks, if necessary, via a central infrastructure such as the SIC system, the crediting of the beneficiary party, and the messages used for this purpose (pain.001, acs.008 or camt.053).

In developing these requirements, the PMPG has been guided by the following principles:

Focus on G20 goals

The harmonization requirements focus on achieving the four goals set by the G20 countries for improving cross-border payments. These goals include reasonable cost, high speed, ease of access, and full transparency. Therefore, the CPMI has only proposed requirements that address at least one of these objectives.

Platform and network neutrality

The CPMI has been careful to remain neutral with respect to the solutions used by financial institutions to process cross-border payments. No preference is given to specific cross-border payment platforms, messaging networks or specific service providers.

Alignment with potential future developments

The harmonization requirements will apply from the completion of the Swift network migration in November 2025. In the meantime, many payment system operators and financial institutions will have to make compromises.

Ambitious but realistic

The PMPG is making proposals that take into account both the G20 goals and the effort and timeframe needed for CPMI harmonization requirements. The PMPG considers some ambitious goals to be too costly or not mature enough and therefore does not pursue them.

General and Specific Proposals

The requirements that have now been formulated include a defined catalog of 17 ISO 20022 messages and specifications for the use of the respective components and data sets. For example, using the message that corresponds to the use case, using official code lists, or using a restricted character set are suggestions of a more general nature. In addition, there are some very specific proposals. Thus, to improve transparency, a Unique End-to-End Transaction Reference (UETR) should always be included and the date and time of the effective debit on the paying party’s account should be passed on to the beneficiary party. Other requirements concern the indication of fees and conversion rates.

An important part of this harmonization is the use of structured components and standardized identifiers. This includes specifying the account number as an IBAN whenever possible, consistently using the BIC for the financial institutions involved, or the Legal Entity Identifier (LEI) for other parties to the payment. Of course, the specification of the address using individual, clearly defined elements – the “structured address” – is also mentioned.

Finally, the PMPG deals with remittance information, such as payment details and other business case information. Again, the use of structured elements is recommended. Although it is obvious that this information is passed on unchanged along the entire processing chain to the beneficiary party, the PMPG again explicitly states this.

All these proposals are explained in the PMPG report with justifications, implementation notes and detailed tables for the respective components and for the elements of the corresponding ISO 20022 messages.

Which suggestions will be included in the first version of the CPMI requirements and how they will be implemented in the markets will become clear after the feedback has been evaluated. Central banks, regulators, financial institutions, and market infrastructure operators can be expected to support this endeavor if it brings benefits to all market participants and, in particular, to banking customers worldwide. Such harmonization is the ideal complement to the global use of ISO 20022 messages or APIs based on ISO 20022 resources.