What is ISO 20022?

ISO 20022 is a global financial messaging standard that simplifies the way financial information is communicated across the world. It’s designed to eliminate confusion and misunderstandings by creating a shared dictionary of common language that bridges gaps in financial communication.

With ISO 20022, people and systems across the world can process and exchange financial information clearly and consistently. The internationally recognized standard helps streamline communications for payments, securities, funds, foreign exchange trading, and commodities.

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Understanding ISO 20022 in the financial services industry

ISO 20022 is a global standard for payment messages that acts as a universal language for transmitting financial data between banks, Payment Market Infrastructures (PMIs), and customers. It aims to reshape how financial institutions communicate by introducing a rich and structured data format that improves the interoperability, efficiency, transparency, and security of the payments ecosystem.

At its core, ISO 20022 enables interoperability between different financial systems. This means that banks and payment infrastructures can seamlessly exchange information to reduce errors, delays, and the need for manual intervention. The new standard supports the inclusion of richer transaction details, like structured party data and standardized return codes, helping streamline compliance processes, minimize fraud risks, and simplify reconciliation processes for customers.

Key benefits of ISO 20022 include:

• Improved data quality: ISO 20022’s rich and structured data format supports larger field sizes and improves efficiency by reducing delays caused by incomplete or inconsistent information.
• Enhanced transparency: By allowing greater levels of detail in payment messages, ISO 20022 provides greater levels of transparency for banks and their customers.
• Streamlined processes: With dedicated return codes and investigation messages, ISO 20022 reduces the time it takes to return funds to customers or respond to inquiries from other banks.
• Universal messaging: ISO 20022 creates a harmonized standard across the whole payments industry, simplifying integration across multiple systems and schemes.

ISO 20022 has been in development for two decades, but the urgency to adopt it has intensified as financial institutions approach the November 2025 migration deadline. The transition to this new standard is facilitated by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is phasing out older message types in favor of ISO 20022. Many PMIs for major currencies have already adopted or are in the process of implementing ISO 20022 for cross-border transactions.

Ultimately, ISO 20022 aims to create a more resilient and efficient financial industry that delivers better experiences for both customers and corporate clients.

How financial institutions use ISO 20022 for payments

For financial institutions, ISO 20022 helps make payments faster, more transparent, and more efficient. Below are some ways that financial institutions use ISO 20022:

Standardizing payment messaging

ISO 20022 creates a universal language for payment messages to help eliminate inconsistencies when transferring payments between systems.

Previously, a payment from one country to another often required passing through several institutions – each of which used different formats. This led to delays, errors, and data truncation (where data is stored in locations too short to hold its entire length). ISO 20022 standardizes these financial messages so that data is sent and received in a consistent format across borders.

Adopting this standard allows for smoother data flow between banks and financial institutions, supporting real-time payments and reducing the friction often associated with cross-border transactions.

Incorporating rich and structured data

One of the key features of ISO 20022 is that it enables richer, better-structured data in payment messages. In other words, data can be more detailed and organized in a way that improves automation, processing, and analysis. For financial institutions, this means:

• Simplified compliance: Structured data improves the accuracy of regulatory checks and compliance with local laws, as field tags and codes provide machine-readable information that accommodates diverse regional requirements.
• Easier automation: With more structured data, tasks like fraud detection, error resolution, and receivables matching can be automated. This helps reduce manual workloads and operational costs.
• Enhanced transparency:

Enabling interoperability across systems

ISO 20022 facilitates interoperability between payment systems around the world, helping eliminate barriers caused by legacy infrastructure. For example, banks that adopt ISO 20022 can ensure that payment messages remain consistent from the sender to the final recipient regardless of the systems involved.

This interoperability speeds up cross-border payments and supports global trade by removing delays caused by mismatched systems.

Improving payment speed & accuracy

ISO 20022 supports real-time payments by reducing delays caused by incomplete or inconsistent data. Financial institutions can process payments faster, minimize errors, and handle returns and investigations more efficiently. For example, using ISO 20022’s dedicated return codes and reference fields means payments are traceable, allowing issues to be resolved quickly and without disrupting operations.

Enhancing fraud prevention measures & risk management

The structured data fields of ISO 20022 can help financial institutions identify potential fraud and mitigate risks. By providing clear and complete information, institutions can spot anomalies more effectively and conduct more thorough checks during transactions. Richer data also supports compliance with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations.

ISO 20022 vs. legacy messaging standards: Key differences

ISO 20022 introduces a richer, more structured way of handling financial data compared to legacy standards, like SWIFT’s MT messaging format. Here are some key differences between ISO 20022 and older messaging standards:

Format and structure

Legacy messaging standards, like MT formats, use text-based fields with strict character limits, often resulting in incomplete data or truncated information – where data gets cut off because the field is too short. For example, if a payment message contains too many characters in a field describing the transaction’s purpose, the system may cut off the rest and leave the recipient with vague details to interpret.

ISO 20022 uses a hierarchical data structure, which organizes information logically and makes it easier to interpret. This includes:

• Nested data elements: In legacy MT messages, information is packed into fixed fields. With ISO 20022, related elements are grouped together logically.
• Structured postal addresses: ISO 20022 breaks addresses down into clear components like street name, postal code, and country, improving searchability and minimizing errors.
• Relationship mapping: ISO 20022 can define relationships between data elements, such as linking an invoice to a payment or mapping the roles of agents involved in the transaction.

More detailed data

Legacy systems limit how much information can be included in a payment message, often leaving out important details about the sender, receiver, or the transaction itself. For example, if someone was transferring money internationally, the legacy format might only capture basic identifiers like the account number and a brief note.

ISO 20022 allows for richer and more detailed data to be included. For example, a payment from a business to a supplier can now include detailed remittance information, such as invoice numbers, due dates, and payment terms. This added context speeds up reconciliation on the recipient’s end while also reducing errors and misunderstandings about the payment’s purpose.

Another addition in ISO 20022 is extended character sets that include non-Latin alphabets. For example, a sender in Japan can make a payment to a recipient in Russia using their native scripts, helping improve global communication. It also increases character limits from 10,000 characters to up to 100,000 characters.

Interoperability between systems

One of the biggest challenges with legacy standards is the lack of consistency across different countries and financial systems. For example, when a payment is sent from the United States to Australia, the message format might change multiple times as it passes through intermediary banks, often leading to errors and delays.

ISO 20022 directly addresses this issue by providing a universal standard that works across all systems. This means the message format remains the same whether the payment moves between banks in Europe, Asia, or the Americas. This consistently eliminates the need to translate or reformat data, speeding up the process and increasing accuracy.

Improved automation

Legacy systems often require manual intervention to handle errors or match payments with invoices. For example, if a company receives payment with incomplete or unstructured data, their finance team might need to dedicate time to figuring out which invoice it matches. This slows down operations and increases the risk of human error.

With ISO 20022, payment messages include structured data fields that are easier for software to process automatically. For example, a payment message can include a specific field for an invoice number, allowing a system to instantly match it without human input. This automation can reduce operational costs and speed up the payment cycle.

Better compliance & risk management

Financial institutions are subject to strict regulatory compliance that requires them to provide detailed information about transactions to prevent money laundering and fraud. Because legacy systems have limited data fields, they can sometimes struggle to meet these requirements.

ISO 20022’s richer and more structured data fields allows banks to capture all the details needed for more accurate compliance processes.

Example of ISO 20022 vs. a legacy payment message

To better understand the difference between ISO 20022 and legacy messaging standards, consider the following example.

Typically, a legacy payment message might include:

• Sender’s account number: 123456789
• Recipient’s account number: 987654321
• Payment purpose: Invoice 1234

In this case, the recipient has minimal context about the payment and may need further communication to verify details.

With ISO 20022, a payment message could include:

• Sender’s details: Name, address, and account number
• Recipient’s details: Name, address, and account number
• Payment purpose: Invoice 1234, due on 07/12/2025, payment terms: 2% discount if paid early. 

This material is for informational purposes only and should not be considered as an investment recommendation or a personal recommendation.