First AHA: It’s About EDI – The Document Is a Cheque
At its core, ISO 20022 builds on the fundamentals of Electronic Data Interchange (EDI), a concept that enables the seamless exchange of structured data across systems. In the financial world, this idea is akin to how a cheque encapsulates all the necessary details for a transaction—payer, payee, amount, date — presented in a standardized format. ISO 20022 extends this concept to electronic messaging, transforming financial transactions into structured documents that can be processed automatically and consistently.
When we think about a cheque, its role is clear: it’s a self-contained document that provides all the information required to complete a payment. It is the business data for the business transaction of a payment. Similarly, ISO 20022 ensures that every message it defines includes all the required business data, structured in a way that all systems can interpret and act upon without ambiguity. The technical data is the data required for transmission of the system across a network. This data is contained in the headers and trailers. The structure and format depends on the network that is being used. Thus it differs from network to network.
Internal EDI: Gathering Business Data Across Systems
Internally, EDI acts as the central architecture that collects, organizes, and formats data from various systems into a coherent, structured document. Within a bank, this involves consolidating inputs from core banking systems, payment processing platforms, compliance systems, and customer records into a single, standardized message.
ISO 20022 plays a critical role in this internal EDI process by defining how business transactions are encapsulated, ensuring that all systems within the organization speak the same language. For example, when a payment is initiated, internal EDI gathers account details, payment amounts, remittance information, and regulatory checks into a unified structure ready for further processing.
External EDI: Delivered by Networks Like SWIFT™
Once the structured document is ready, it needs to be transported to external parties. This is where external networks, such as SWIFT™, come into play. Acting as a secure messaging layer, SWIFT™ ensures that ISO 20022 messages are transmitted reliably and consistently between banks, clearinghouses, and market infrastructures worldwide.
ISO 20022 ensures that the same structured message created internally can seamlessly integrate with external networks like SWIFT™ and ACH™.
Why This Matters
- Efficiency: ISO 20022 standardizes the internal preparation and external transport of transaction data, ensuring operational efficiency across the organization.
- Accuracy: By gathering and structuring data internally before transmission, ISO 20022 minimizes errors and ensures that external systems receive complete and accurate information.
- Seamless Integration: The alignment of internal EDI with external networks allows for effortless communication across institutions and geographies.
The biggest mistake we see in software development and integration is the perception that internal messages must comply to the technical structure of ISO 20022 SWIFT™/ACH™. Here be bugs, as it introduces a layer of complexity in internal messages.
ISO 20022 is not just about transforming how financial messages are exchanged externally; it also revolutionizes how data is managed internally. By providing a unified framework for internal EDI and enabling smooth transport via external networks like SWIFT™, ISO 20022 bridges the gap between systems, ensuring that financial transactions are processed accurately and efficiently from start to finish. In essence, it’s about turning complex, fragmented data into a single, coherent document that flows seamlessly across the financial ecosystem.
Second AHA: Encapsulation and the Data Dictionary
At the heart of ISO 20022 lies its methodology for encapsulating business transactions and the data dictionary that supports them. Think of it as creating a universal “language” for financial transactions.
The encapsulation methodology organizes complex business processes into components—like “Debtor,” “Creditor,” and “Payment Information.” These components are further defined in the ISO 20022 data dictionary, ensuring they are standardized, reusable, and unambiguous.
Why It Matters:
- Scalability: By reusing components, banks can expand their services efficiently, integrating new use cases without reinventing the wheel.
- Interoperability: As outlined in the AHA on EDI it is about interoperability internally and externally. In banking there are many pieces of code working on the same data definition.
- Compliance: Quite simply, not having a universal definition of an amount field that everyone complies with increases the probability of bugs in production and failure of transactions.
Third AHA: The Canonical Data Model
A canonical data model is like a master template for how data should be structured and exchanged. ISO 20022 provides this model for financial transactions, acting as the single source of truth across different systems, technologies, and geographies.
For example, when a payment message originates in a bank’s legacy system, the canonical model ensures it can be translated into ISO 20022 format while preserving its business meaning. It’s a bridge that connects old and new technologies, enabling seamless data exchange.
Why It Matters:
- Future-Proofing: With a canonical model, banks can integrate the future technologies of APIs, PaaS, microservices and block chain.
- Consistency Across Channels: Whether a transaction happens via a mobile app, an ATM, or a corporate system, the data remains consistent and aligned.
- Cost Efficiency: Instead of maintaining multiple integrations for different systems, a single canonical model reduces complexity and streamlines operations.
Fourth AHA: Opportunity for API Standardization
The API economy is reshaping banking, and ISO 20022 provides a huge opportunity to define a consistent approach to delivering APIs. Its business model can serve as the foundation for API design, ensuring that APIs are interoperable, scalable, and aligned with global standards.
APIs based on ISO 20022 enable real-time interactions between systems, offering unparalleled flexibility for banks to innovate. Whether it’s open banking, customer data sharing, or instant payments, the ISO 20022 model ensures that APIs are robust and future-ready.
Why It Matters:
- Open Banking Enablement: Banks can offer secure, standardized APIs that integrate with third-party providers while maintaining data integrity.
- Real-Time Capabilities: ISO 20022-powered APIs support instant payments and notifications, enhancing customer experience.
- Innovation Platform: By using a standard model, banks can quickly develop and deploy new products and services, staying competitive in a rapidly evolving market.
Conclusion: A Transformative Opportunity
ISO 20022 is far more than a messaging standard—it’s a transformative technology that aligns business processes, modernizes infrastructure, and positions banks for the future. By understanding the 4 AHA’s—from electronic document interchange and encapsulation to canonical models and API opportunities—you can unlock its full potential.
As you drive digital transformation in your bank, consider how ISO 20022 can streamline operations, enhance interoperability, and accelerate innovation. The time to act is now—because transformation isn’t just about technology, it is about understanding how to use that technology in your context.
The 5th AHA – ISO 20022, AI, and the Future of Software Delivery
ISO 20022 is not just a messaging standard—it is a methodology that redefines how financial transactions are structured, processed, and delivered. Recognizing this, we aligned our software delivery methodology with the principles of ISO 20022, ensuring that digital transformation in banking is not just about compliance but about building resilient, scalable, and efficient systems.
By leveraging the 4 AHA’s of ISO 20022, we transformed the way software is delivered, focusing on structured data, interoperability, and automation. However, true transformation goes beyond methodology—it requires intelligent execution. This is where AI, our fourth Amigo, plays a pivotal role. Being able to collaborate with an ‘intelligent being’ in your daily work, evolves IT delivery to be faster, smarter, and more adaptive to change. The focus is not just on the technical aspects of Gen AI, but also on how it can enhance the human experience in software engineering.
The future of banking is not just about adopting ISO 20022; it’s about how you use it to drive digital transformation. By integrating AI into IT delivery, we empower organizations to automate workflows, improve decision-making, and accelerate innovation—turning ISO 20022 from a regulatory requirement into a strategic advantage.