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Going ‘off the rails’: why ISO20022 integration needn’t be testing for banks

In an age of hot topics, there’s one that’s inching its way slowly but surely towards boiling point. We’re talking about ISO20022, the game changing messaging standard that places the management of financial services firmly in the digital era.

At Iliad Solutions, it’s been a big part of our work for more years than we care to remember – and we’re proud to be supporting many major global institutions as they embed modern systems.

But we’re now at a critical juncture where all financial institutions need to make meaningful progress with ISO20022 adoption, if they haven’t already done so.

Talking ISO20022 and instant payments with the FPC

It was with all that in mind that Iliad Solutions’ CEO Anthony Walton sat down with Reed Luhtanen, Executive Director with the U.S. Faster Payments Council (FPC), and recorded a new edition of his excellent Off The Rails podcast.

The interview provided a great opportunity to break through some of the mystique that seems to surround ISO20022, in terms of what it enables, how easy it is to implement, what problems it solves and why it’s important to adopt the standard sooner rather than later.

You can listen to the podcast here and in this accompanying blog we expand on the challenges banks face, and Iliad Solutions’ approach to helping institutions overcome ISO20022 integration problems.

Why banks need to speed up ISO20022 adoption

Firstly and make no mistake, the standard is consuming the whole market, internationally (this and open APIs and the adoption of open banking). Built on extended message language format, or XML, it allows institutions to exchange much more data in comparison to proprietary systems.

For the end user, this often manifests in the form of richer information about spending on bank statements. For example, a consumer would see not just the merchant but also details about the types of items purchased with that merchant.

Additionally, those who implement ISO20022 effectively become ‘killer app-enabled’. By that, they’re able to offer a highly appealing digital experience that offers irresistible convenience to consumers, such as split second payments or point-of-transaction offers and rewards. Transport for London’s contactless card is a great example of a killer app; it cut queuing times in the Underground, sparking a contactless payments revolution.

Thanks to the innovation potential offered by ISO20022, more than 80% of real-time payment schemes are now using the standard, including the soon-to-be-launched FedNow(SM) Service and those operated by the Single Euro Payments Area (SEPA).

That said, it isn’t easy to deploy, particularly if you’re a large multinational financial institution with series upon series of verticals. This is largely because information for transactions needs to be extracted from a range of backend sources and repackaged – and that takes a huge amount of time to set up.

It can also be difficult to know where to begin and, if started in isolation within different verticals, it can lead to a system-wide headache.

Developing a sound strategy for implementing the global standard in payments

The best way to define the right starting point, Anthony recommends, is to create an ISO20022 team that has sight of all the verticals within a bank, thus removing the need to reinvent the wheel with each part of implementation.

He also warns against having lots of different simulators and different test accounts as, more often than not, someone else will use the account and they will exceed its limits, which typically results in bad test outcomes.

Instead, a centralised self-service testing and certification platform is the way forward. It speeds up the process, as it enables a 360 visibility of messages moving from endpoint to endpoint (using multiple message formats) and highlights where things are working and where they’re going wrong.

At each stage of testing, engineers can generate reports showing their success rate and progress toward going live in the ISO20022 framework.

Anthony also believes it’s more effective to use synthetic data and run continual tests that explore thousands of different outlier faults. It’s not enough to show that a process works; it’s got to be able to work under pressure, for example with an account that is permanently over its limit or when anti-money laundering suspicions are raised.

Schemes like FedNow are very much focused on ensuring everybody is following the rules. In turn, Iliad Solutions is all about assisting banks to do that by getting information in a timely manner and safely testing their backend systems.

Ultimately, financial institutions don’t really have a choice over whether they adopt ISO20022 – it’s more a matter of when. Those who do will have the advantage of being able to deliver killer apps that offer secure faster payments in myriad ways.

To learn more, listen to Anthony’s full interview with Reed here.

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