What is ISO 20022?
ISO 20022 is an international standard designed to simplify global business communication.
The standard enables efficient payments clearing and settlement among financial institutions globally through the use of a common set of messages and language that the institutions agree to use in a consistent way. It allows participants and systems across different financial markets (e.g. payments, securities, foreign exchange, cards) to communicate using consistent terminology or syntax, which supports interoperability and more remittance information within the payment message. It is an open standard that anyone can use, and to which anyone can contribute.
The ISO 20022 standard was developed by ISO (International Organization for Standardization), which is the world’s largest developer of voluntary International Standards.
The ISO 20022 standard is managed on behalf of ISO by SWIFT (the Society for Worldwide Interbank Financial Telecommunication) as the Registration Authority for ISO 20022.
Why is Payments Canada implementing ISO 20022 in Canada?
Canada’s core payments infrastructure has supported our industry for decades with good performance and clearing and settlement cycles, but Canada’s economy is being reshaped by digital technology, changing user demands, new entrants and changing regulatory oversight. To address these shifting needs, Payments Canada – with the help of the industry – has launched a multi-year initiative to modernize the Canadian payment systems, with ISO 20022 at its foundation for payment messaging.
By adopting ISO 20022, Canadian payment systems users will benefit from:
- Enhanced Remittance data: ISO 20022 addresses the current need in Canada for more remittance information to support automated reconciliation and straight-through processing. That means more information – such as information from multiple invoices – can be sent with a single electronic payment, reducing the need for manual intervention and re-keying of data, making business processes more efficient.
- Support for global interoperability: Canada is joining numerous countries around the world in adopting ISO 20022 to facilitate cross-border payments, which will also support global competitiveness for Canadian businesses.
- Efficiencies in managing/supporting multiple payments standards: ISO 20022 allows the financial services industry in Canada to consolidate the current Lynx, Automated Funds Transfer (AFT) and EDI payment standards into a single, global standard. This will reduce the cost and effort associated with supporting multiple standards, support innovation, and enable third-party service providers and payment system users to receive and generate both payment and remittance data in a single message.
- Reduction in the use of paper-based payment options: ISO 20022 will provide Canadians with attractive electronic payment options that reduce costs (think fewer and fewer cheques or drafts) and reduce inefficiencies over paper-based alternatives.
- These improvements will support domestic commerce and strengthen Canada’s competitiveness as a trading nation. It will also create new opportunities for every financial institution, payment service provider and business in Canada.
What is enhanced remittance information?
Remittance information is supplied to enable the matching/reconciliation of a payments entry with the items that the payment is intended to settle, such as commercial invoices in an accounts' receivable system.
Why is enhanced remittance data so important?
Today’s digital economy and the rise of electronic payments has created a need for more information to travel along with the payment message. And while our legacy systems serve us well, they lack the ability to provide the information users need, resulting in barriers to end-to-end straight through processing - key to allowing Canadian businesses, governments and financial institutions to initiate, receive and reconcile electronic payments efficiently.
The exchange of more remittance information with payments offers the potential for:
- Straight-through Processing
- Automated reconciliation of incoming payments with outstanding invoices
- Easier payment tracking, issue resolution and system reconciliation for both customers and financial institutions
- Consistency in providing remittance information, resulting in efficiency and cost benefit
Why is Canada concerned with domestic and cross-border interoperability?
Standards play an important role in the development and facilitation of business through the promotion of safety, quality and technical compatibility. The standards currently relied upon for domestic payment traffic in Canada are not consistently applied by all financial institutions and businesses. The application of different standards results in inefficiencies in the marketplace and an inconsistent user experience. There are also some domestic standards that are not interoperable for cross-border transactions, requiring financial institutions and their customers to develop workaround solutions (such as message conversion or translation) to overcome these limitations.
The move to the ISO 20022 standard not only aligns domestic payment systems and addresses the needs of Canadian financial institutions and businesses, it also broadens interoperability of the Canadian payments marketplace with the rest of the world where ISO 20022 is increasingly being adopted.
Canadian financial institutions will be able to leverage the initial investments in ISO 20022 as it is rolled out across global services and systems, enhancing or easing access to international markets and customers. At the same time, the use of a future oriented standard based on widely accepted and accessible technology can remove barriers to entry and create a healthy competitive environment.
How will ISO 20022 promote efficiencies in payments?
In today’s environment, financial institutions and their customers are required to manage payments standards for each of the existing payment systems, including AFT (also known as Electronic Funds Transfer), EDI and Lynx. Implementing and supporting these standards is costly. While all of the current standards carry the requisite information to ensure that the funds can move from one account to another, they use different formatting, terminology and technologies to describe specific data fields and to create the different messages.
Using a single standard decreases the complexity and cost associated with supporting multiple standards over time. It also provides more flexibility for customers when dealing with multiple financial institutions and lessens the need for customization and manual intervention.
Payments Canada & ISO 20022
What is Payments Canada’s role in ISO 20022 in Canada?
Payments Canada is leading the effort to introduce ISO 20022 for payments in Canada. It has defined new ISO 20022 payment messages and rules to be used between its member financial institutions, and acts as the knowledge leader for ISO 20022 in Canada by providing resources and support with its participant financial institutions and stakeholders through education, training and operational support.
Payments Canada acts as the ongoing manager of the Canadian ISO 20022 usage guidelines and message specifications, while managing changes based on the needs of participant financial institutions and stakeholders. It will also actively support the adoption of ISO 20022 and communicate results to participant financial institutions and stakeholders on a regular basis.
How is Payments Canada leading the industry effort to implement ISO 20022?
In February, 2016, Payments Canada completed the multi-year development of new ISO 20022 payments messages for AFT, related rules and standards, and an adoption strategy for its participant financial institutions. This work involved extensive industry consultation and the publication of ISO 20022 messages for use in AFT as well as other corporate-to-bank and bank-to-corporate messages. Draft LVTS messages were also published at that time.
The next phase of Payments Canada’s ISO 20022 initiative will focus on the multi-year task of implementing and supporting the new standard in Canada.
I'm a Canadian business: What does ISO 20022 mean for me?
ISO 20022 will support efficiencies in business processes for business clients. Enhanced remittance data will support automated reconciliation and straight-through processing. That means more information – such as information from multiple invoices – can be sent with a single electronic payment, reducing the need for manual intervention and re-keying of data, making business processes more efficient.
ISO 20022 also allows the financial services industry in Canada to consolidate the current Lynx, AFT and EDI payment standards into a single, global standard. This will reduce the cost and effort associated with managing multiple payments standards, support innovation across the payments landscape, and enable third-party service providers and payment system users to receive and generate both payment and remittance data in a single message.
Multinational corporations will also benefit from global interoperability as more and more jurisdictions are moving to the ISO 20022 standard.
Business clients are encouraged to work with their financial institution and their business partners to determine how best to implement and take advantage of the benefits of ISO 20022 payments messages.
For more on how payments modernization and ISO 20022 in particular, could benefit Canadian businesses, governments and other organizations, see our case studies, which are intended to raise awareness for the possible future state of payments. They are also intended to provide organizations with some foundational and technical resources to formulate their own unique business case for the modernization of their internal processes.
Payments Canada’s Strategy for ISO 20022 Adoption
What is Payments Canada’s Strategy for adoption of ISO 20022?
Payments Canada has published ISO 20022 messages and rules for the exchange of AFT payments between its participant financial institutions, based on a market driven approach. Payments Canada will monitor implementation rates to determine if a mandated end-date for ISO AFT adoption is required to ensure the industry transition to the new payments standard is completed in a timely manner.
Payments Canada has also published ISO 20022 message specifications for Lynx, Canada’s new high-value payments system, to support financial institution participants in developing their own ISO 20022 enabled internal systems, so they can eventually generate and process customer and financial institution wire payments in Lynx when the system goes live.
What other factors are influencing adoption of ISO 20022?
Adoption of ISO 20022 is tightly integrated with the work of Payments Canada’s Modernization initiative, because the scope, timing and impact of this work may also impact strategic investment decisions, related to ISO 20022, by our participant financial institutions.
What do you mean by coexistence?
As participant financial institutions migrate to the new ISO 20022 messages, on a voluntary basis, they will be required to support and maintain the existing standard as well, during what is known as a coexistence period. Ideally, this period of time will be as short as possible to help participant financial institutions avoid unnecessary duplication of costs and effort required to support multiple standards.
ISO 20022 Messages and Message Specifications
Where can I find the Payments Canada’s ISO 20022 messages?
Payments Canada messages for ISO 20022 enabled AFT messages can be found in the ISO 20022 Resource Centre. ISO 20022 messages for corporate-to-bank and bank-to-corporate flows are also available for information.
ISO 20022 message specifications for Lynx can be found in the technical documentation section of the ISO 20022 Resource Centre. The ISO 20022 message specifications for Lynx are also published on SWIFT’s MyStandards web platform.
Which ISO 20022 messages have been defined within Payments Canada’s portfolio?
In building the portfolio of Payments Canada ISO 20022 messages for AFT payments, Payments Canada began by mapping the current AFT standard to the relevant ISO 20022 formats as close to “like-for-like” or “equivalent” as possible, while also providing for the inclusion of optional structured and unstructured remittance information.
The breakdown of the Standard 005 Logical Records and the ISO 20022 messages formats that were mapped against them is available in the ISO 20022 Resource Centre.
The Lynx ISO 20022 portfolio currently contains the Business Application Header (head.001) as well as the FI to FI Customer Credit Transfer (pacs.008) and the Financial Institution Credit Transfer (pacs.009). These are the messages that are currently scheduled for implementation in Lynx Phase 2 (exact timing still to be agreed).
How does Payments Canada manage the ISO 20022 payments messages?
Payments Canada has developed a comprehensive Standards Management Framework to support the maintenance and management of ISO 20022 messages. It includes processes to manage change and evolution within the messages, as well as incorporating new messages as required by Members and Stakeholders.
How will the new ISO 20022 payment messaging standards accommodate enhanced remittance data?
Through a mix of mandatory and optional data elements to be included in the payment messages. More information is available in the ISO 20022 Resource Centre.
What type of information is included in the remittance data?
You can find all of the information is included in Payments Canada’s remittance data on the ISO 20022 Resource Centre.