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 with Faster Payments in the UK.

ISO 20022 is also being adopted in other jurisdictions, meaning that the move towards adoption in the UK remains consistent with the rest of the world, resulting in greater simplicity, reduced costs, and more flexibility. Cross-border interoperability is another guiding light of ours during this technology refresh phase.

Importance of collaboration

A key factor in the development of standards will be on-going collaboration. Despite being a significant project in its own right, the Faster Payments infrastructure renewal in the UK is merely one moving part of the entire programme required to deliver the NPA.  You can read more about the UK renewal project here.

Faster Payments is working closely with Bacs in preparation for its coming infrastructure review; while the Bank of England is also set to embark on the renewal of its Real-Time Gross Settlement (RTGS), with the indicative timeline suggesting the potential for new functionality to be delivered from 2020 onwards is accurate.

A catalyst for change

So why go to all this trouble renewing the UK payments scene and why use ISO20022? Well, what might seem like dry technical industry reform to some actually has the potential to have far-reaching, real-world benefits. It could improve resiliency, promote competition and unlock new services.

Interoperable messaging standards is also the focus of the Bank of England RTGS renewal programme, which is designed to enhance overall system resilience by removing barriers to the redirection of payment traffic between payment systems. This will create potential efficiency gains and contribute to financial stability by mitigating the impact of operational incidents on participants and end-users.

The changes can also help promote competition within the UK market and improve cross-border payment services.

The data-carrying capabilities of ISO20022 shouldn’t be forgotten either. It enables information to be recorded at every leg of a payment’s journey, regardless of where it is initiated. This is useful domestically where payment providers may be connected to infrastructure indirectly, while internationally it allows the full details of a payment’s journey to be recorded in-line with the mandatory requirements of regulatory bodies.

Ultimately, as adoption of ISO20022 messaging becomes more ubiquitous throughout the world, it will become possible for international payments to pass easily and without data loss through domestic payment systems as part of their end-to-end journey.

ISO20022 also allows for structured remittance data to be embedded or attached to the payment message. This could, for example, allow business documents relating to a payment transaction to travel with or be referred to and from the payment. The implantation of this is a critical component of the NPA design work, so that payment data can be fully linked with important additional information in the future.

Looking forward

The creation of the NPSO heralds a new era of unified governance for UK payments standards. Faster Payments’ work is now fully aligned to the NPA delivery programme in 2018 and through this we are committed to engaging with stakeholders to develop, maintain and modify standards in a consistent way in the interest of all users.

Combined with the mandated introduction of ISO 20022, there has never been a better opportunity to develop truly interoperable standards for all UK credit payments, APIs and other services.

Our current focus is on driving the transition towards ISO 20022 through the infrastructure renewal tender – the vehicle to deliver clearing and settlement services for instant payments in the UK. At the time of writing, more than 40 companies have registered their interest in the real-time element of the renewal. All are bidding to be our strategic partner in delivering a UK infrastructure fit for the future, capable of driving innovation and harnessing new technologies.

To deliver on these goals, we must work alongside our participants, the NPSO, and with our partners across the retail payments industry to set a new standard in interoperability for real-time payments.

It is no small undertaking but deploying the ‘babel fish’ of a unified, common messaging standard has mind-boggling potential. 

This article was written by Faster Payments for the Instapay website.