Understanding ISO 20022 in Crypto

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Financial data management and effective financial communication has become more necessary worldwide. In this fastest growing economy is ISO 20022 even needed in the crypto world? Let’s see what ISO 20022 is and is there any need for it in the crypto industry.

So, ISO 20022 standard has come out as an important element in decentralised finance as it provides a consolidated structure for the financial institutions to interchange data digitally. Although this standard was developed for the traditional finance system it is now being applied within the crypto industry as well.

ISO 20022 basically is a comprehensive standard used by the financial institutions in the form of financial messages, that refers as a usual language for communication. ISO 20022 is not a crypto currency yet a messaging standard that helps the crypto projects to enhance their communication with all the financial institutions by  providing a systematic layout for transaction details, boosting compatibility and promoting cross-border liquidation towards the cryptocurrency for efficient engagement.

With the help of ISO 20022 financial communication has been standardized across various networks and platforms through financial messages. Let us dive deeper into knowing how ISO 20022 actually works.

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What is ISO 20022?

ISO 20022 is a standard for financial messaging that was established in the initial 2000s which serves as a civilised language for electronic financial communication. The transition into ISO 20022 is still under process and is set to wrap up by 2025. 

All financial institutions require a common language to maintain transparent communication, hence ISO 20022 is soon going to be that worldwide language. ISO 20022 determines how financial messages should be constructed and passed on among the various financial institutions with the supervision of professional consultants by the Technical Committee (TC68) of Financial services. 

ISO 20022 helps the financial institutions by making the entire process of transferring and receiving easy by structuring the messages with the help of XML format, that is a system independent format used for enhanced compatibility among the extensive range of systems. 

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What is the Need of ISO 20022 in Crypto?

ISO 20022 is much needed in crypto as it helps in reducing costs and makes the process much easier, it also makes the data more accurate for the financial institutions as well as improves the overall transaction speed. ISO 200222 also supersedes complex classic protocols regularly used by the banks and institutions with a sole compatible language. 

Currently over 70 countries have accepted ISO 20022 standard for their financial messaging, including New Zealand, Australia, European Union, Japan and India. Furthermore, ISO 20022 is under a process of being taken over by other financial institutions in all prime currencies which is set to be completed by the early November 2025.

ISO 20022 provides enhanced interoperability within the system, and the coins cannot automatically become ISO 20022 certified; the parent network needs to merge the required vital terms along with the standard messaging format into their frameworks for adapting the ISO 20022 messaging standard.

Advantages That Come Along With ISO 20022 in Crypto?

Earlier the financial institutions and banks were using distinct payment messaging methods and formats that were incompatible and raised primary concerns, in order to make the entire payment messaging process efficient and smoother ISO 20022 was developed that had a particular standard of messaging the associated financial institutions and banks will follow. Let’s discuss the major advantages that comes along:

Faster Speed

The emergence of ISO 20022 has made the payment messaging format more structured and efficient; this results in extensive verification and makes the messages get quickly verified throughout the payment process.

Reduced Cost

In comparison with the other messaging formats ISO 20022 offers a reduced cost with higher efficiency, as it provides a comprehensive data structure that minimizes operational costs.

Standard

ISO 20022 follows a meticulous payment messaging standard that is well structured and simplified and also reduces the chances of errors by making the entire message well understood.

Enhanced Security

The chances of any errors are very low with ISO 20022 as it meets all the necessary requirements required for the regulatory compliance along with premium customer support. 

Translucency

ISO 20022 provides transparency in their messaging format; they display a tiny image showcasing the payment details in the message itself, this enables advanced surety. 

Enhanced Payment System

ISO 20022 has enhanced the entire payment messaging format and built a good standard in the crypto world, by providing enhanced features in consideration with the limitations withheld by the other messaging standards like MT and SWIFT.

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Challenges Financial Institutions and Banks Face While Transitioning Into ISO 20022?

As ISO 20022 has recently launched and the existing financial institutions and banks are using classic payment messaging standards like MT and SWIFT, so in order to transition into ISO 20022 they need to face few challenges let’s see what will those be:

  • Incorporating with new compliance standards: The financial institutions and banks that wish to incorporate ISO 20022 as their payment messaging standard will have to adapt to the compliance process of ISO 20022 to tone with the premium standards of ISO 20022.
  • Time consuming process: The entire process to adapt all the protocols of ISO 20022 is time consuming as the Financial institutions and banks need to complete the KYC(Know your customer) process and change their existing configuration.
  • Costly process: Adapting to ISO 20022 comes along with a cost, the financial institutions and banks need to have adequate funds to invest, as every single step needs a cost so the institutions need to be prepared well in advance with the cost incurred.

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Conclusion: ISO 20022 in Crypto

To conclude, ISO 20022 is a payment messaging standard developed with enhanced features to make the financial payment messaging among the banks and financial institutions more  simplified and accurate. Basically, ISO 20022 is trying to replace MT from the market, by providing faster services with lower cost and robust security. All the financial institutions are actively looking forward to transition into ISO 20022 standard, very few have actually transitioned yet though. ISO 20022 has created a hype in the market with its interoperability feature, whereas doing your own research before making any decision is always suggested.