The language barrier: Payments babel fish - ISO 20022

Breaking down the language barriers between payment messages to develop fully interoperable payments systems is no small undertaking and requires ISO20022, says Mike Banyard, Head of Development. 

The famous Babel fish found in Douglas Adams’ comic book masterpiece ‘The Hitchhiker’s Guide to the Galaxy’ provided the ability to translate universally between every known spoken language. It was hailed as so mind-bogglingly useful a creature that it could not possibly have evolved purely by chance. Similarly, breaking down the language barriers between payment messages to develop fully interoperable payments systems is not a simple matter that can be left to chance either.

There are currently three different formats for sending credit payment information within the UK, but each is subject to imminent change:

  • CHAPS (which uses SWIFT MT messaging); 
  • Bacs (Standard-18);
  • & the Faster Payments Service (FPS), which uses a subset of the old ISO 8583 card and ATM standard that the service was launched with a decade ago.

These messaging standards are in the DNA of the UK’s three crucial retail payment systems that process over £6.4 trillion worth of payments every year. However, with the renewal of the critical infrastructure that underpins the FPS, and other UK systems, now underway it is an opportune time to consolidate on the ISO20022 messaging standard that is proliferating globally.

The co-ordinating work of the Bank of England-led Interoperability Working Group is another driver, as is the unifying role of the UK’s New Payment System Operator (NPSO), which is tasked with delivering a refreshed, consolidated UK New Payments Architecture (NPA).

UK New Payments Architecture

The shared goal is to create a single core-standard for all UK credit payment messages aligned to ISO 20022, as mandated by the UK Payment Systems Regulator (PSR). This will build on the UK’s industry experience in chairing the international group responsible for the development of the ISO 20022 standard, and its existing deployment through the Current Account Switch Service for retail banks in the UK.

This new common ISO20022 standard will allow for:

  • Greatly enriched payment messaging, via extra character space;
  • Underpin the design of the UK NPA;
  • Simplify access;
  • & Align with standards for the UK Open Banking drive, which is intended to support open application programming interfaces (APIs) to encourage new, data-driven overlay services. Open banking is also a key trend seen in the second EU Payment Services Directive (PSD2) and similar other initiatives around the world.

Future-proofing infrastructure renewal

Developing and future-proofing the UK’s new financial messaging structure is a key issue for the Faster Payments Scheme Limited, and the NSPO, as we collectively work with participants to develop the requirements for a scalable successor to existing decade-old, once pioneering UK Faster Payments’ infrastructure. The new service envisaged will, in time, become the real-time clearing and settlement component of the NPA.

In building the clearing and settlement layer for real-time payments, we aim to deliver a central infrastructure with ISO20022-carrying capabilities that are cross-compatible with other domestic and international schemes.

Our FPS service users have told us that they want the ability to exchange a greater amount of structured information along with their payment instructions. This is in order to aid reconciliation processes and provide value-added services. ISO 20022 offers the ability to meet these demands, while continuing to ensure high rates of straight-through processing (STP) for the ever-growing number of firms that participate directly