There have been LOTS of misinformed threads, videos and tweets about ISO 20022. So I thought it would be best to unpack what exactly ISO 20022 is and what it means for web3 payment rails.
ISO 20022 is an open standard that anyone can use, anyone can contribute to and is free for anyone to implement on any network. ISO 20022 is a methodology for defining financial data content — it’s a standard for messaging standards as well as for APIs.
It’s not just about messages or APIs — ISO 20022 also provides a common language for machines and people to exchange information about financial business, set out in a formal dictionary. Its principal focus is on the content of the dictionary, rather than the technicalities of how data is exchanged. You can use the dictionary to help translate between messages that use different syntaxes as well as APIs, and to solve other kinds of problems where a shared understanding of the business is important, such as internal system integration. Although ISO 20022 messages are mostly exchanged in XML, ISO 20022 doesn’t depend on a specific message syntax.
If a different syntax is required to satisfy a business or technical requirement, or if a new syntax emerges, ISO 20022 can accommodate it. The current migration to ISO 20022 by financial institutions that is occurring now, is for all institutions who send or receive payments related MTmessages over SWIFT. ISO 20022 schemas also reduce the risk of sending or receiving incorrect data. An ISO is an internationally recognized way of doing something.
So the whole ISO 20022 thing is about faster messaging.. ok, what about payments? What is the point in having super fast messages if payments still take 3 or 4 days? Payments have to be sped up too, in theory.
Faster, safer, modern and in a language/method that all understand? Yes, precisely.
The better and faster the SWIFT payments work, the more need there is for instant settlement.
Enter web3 rails.
ISO 20022 has no “native cryptos” however, there are firms that have facilitated ISO 20022 compliant infrastructures that have chosen to use crypto for optional payment/settlement on top of that compliant infrastructure. Some great examples of this are XinFin using $ XDC, Ripple using $ XRP, and Hedera using $HBAR.
I’d bet dimes to donuts the idea of tokenized value transfer came before rich text data messaging..
To me, it has always seemed that a way of organizing and storing data regarding messaging services for business/financial/retail sectors can encompass all forms of interchange.
So, what about the relation of ISO 20022 and settlement? To recap, ISO 20022 is a message format and business language created in 2004. It’s important to understand that ISO 20022 messages are vital to instant payments and in the overall modernization of payment processes.
Specifically, they provide a structured and data-rich common language that is readily exchanged among corporates and banking systems. This means much more detailed information with fewer errors, less manual intervention and fewer delays for the end customer.
What does it look like? In an ISO 20022 message, payment beneficiary information is entered in the creditor field, which includes the name and address as well as additional structured elements including street name, building name, post code, and town name.
Is ISO 20022 related to clearing & settlement and what procedure is followed (prefunding, correspondent banking, via crypto, etc.)?
Not exactly, it only enables better communication between the systems responsible for settlement/clearing and specifies how settlement will be done.
The question I always get is: will ISO 20022 adoption benefit $ XRP, among others? Yes, but also including SWIFT and the whole financial industry. SWIFT payments with prefunding will become faster and cheaper.
The better and faster the SWIFT payments work, the more need there is for instant settlement.
Do your own research and connect the dots. The fourth industrial revolution starts with a revolution in payments and digital assets.
Let that sink in.
References below and huge shoutout to Panos for some incredible research details which I leveraged in crafting this.
