How, and why, ISO 20022 is changing payments

The way payments are made in the UK is set to fundamentally change from November May 20254.

This radical overhaul of the current system is thanks to the introduction of the ISO 20022 message format, and the changes are set to affect all organisations that make payments, including corporates, banks and other financial institutions.

The shift to ISO 20022 is a very technical undertaking, but organisations should be wary of dismissing it as just a technical upgrade.

In fact, ISO 20022 is the biggest change in the plumbing of the banking system in the last three decades, and its magnitude cannot be understated.

Changing data requirements

One of ISO 20022’s biggest impacts is that it introduces significant changes to the data requirements for payments and statements. Firstly, extra data must be added to payment and statement messages.

Some of this data already exists in accounting and banking systems, but a lot of it doesn’t. Consequently, organisations will need to source that additional information and consider how it’s inputted and stored going forward.

Secondly, ISO 20022 also introduces changes for existing data points. Addresses are a prime example. They must now be structured in a set format rather than unstructured or freeform. Again, this has implications for how the data is collected and stored.

The drive for additional data requirements is largely due to regulation and compliance reasons. The more insight you have on payments, particularly over time, the greater the ability to detect financial crime and remain compliant with sanctions and screening requirements.

Understanding the scale of change

To get an idea of the enormity of the changes, consider a bank statement. Today, a statement typically has a 16-character reference. Now imagine a statement with an unlimited amount of reference data, which could run to hundreds of lines of data explaining what a payment was for.

This is the degree of change organisations need to prepare for when we talk about the increased volume of data introduced by ISO 20022.

Given ISO 20022’s far-reaching implications, there’s a surprising lack of noise about its introduction. Banks have, of course, been emailing their customers to inform them of the changes.

But ISO 20022 is often discussed in very technical terms that don’t encourage engagement with the subject. We need to change how we talk about it and encourage a dialogue that demystifies the subject.

In the next article, I’ll be writing about getting your organisation ready for ISO 20022.