Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- Most banks are adopting the ISO 20022 messaging standard for cross-border payments as the coexistence period for MT and ISO 20022 messages will end soon.
- Applying GenAI techniques to ‘ISO-rich’ data can fuel innovation across the payments landscape, ushering in disruptive transformation.
- Banks must take advantage of the opportunity offered by the combination of GenAI and ISO 20022 by identifying areas for GenAI interventions in payment workflows.
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Introduction
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has announced that the coexistence period for MT and ISO 20022 standards for cross-border payments will end in November 2025.1
Using the MT message standard beyond Nov 2025 will come at a cost. Immediate migration to the ISO 20022 standard has thus emerged as an urgent imperative for banks, and most financial institutions are well on the road to adoption.
At the same time, generative artificial intelligence (GenAI), has arrived as the hottest technology kid on the block with tremendous transformative potential for the payments industry, capturing mindshare of banks, financial institutions, payment networks and service providers, and fintechs. ISO 20022 and GenAI were separate threads at their origin, but are now converging with the potential to create some interesting use cases in the payments industry.
While ISO 20022 is widely used for automated digital payments, its application in manual payment processes is equally important, especially in scenarios involving exceptions, corrections, or non-standard transactions. ISO 20022 can bring significant improvements to both automated and manual payment processing through standardized messaging, enhanced data accuracy, and improved tracking.
In addition, complete migration to the ISO 20022 messaging standard will enable banks and payment service providers to access a large repository of ‘ISO-rich’ transaction data. By applying GenAI tools to this data, they can create innovative use cases for different stakeholders, unlocking new business value and disrupting the payments ecosystem.
The ISO 20022 journey
Banks and financial institutions must traverse a three-stage journey—compliance, internalization and value realization—for complete adoption.
Figure 1: Three-stage ISO 20022 adoption journey
Compliance: Achieve compliance mandated by SWIFT and other payment schemes and central banks.
Internalization: Establish ISO 20022 as the native message format with internal canonical message and data model based on ISO 20022.
Value realization: Leverage the rich data collected during the transaction process for monetization.
The opportunity
Many global payment infrastructures have moved to the ISO 20022 standard.
The ISO 20022 standard is now in widespread use for cross-border payments through the SWIFT Cross-Border Payments and Reporting Plus (SWIFT CBPR+) specification. In these markets, banks have substantially increased the degree of straight-through processing (STP) but other significant use cases are yet to emerge.
We believe that the payments landscape will further evolve with the increased adoption of enhanced datasets like legal entity identifiers (LEI), purpose code, and so on. Additionally, GenAI is poised to expand at an exponential rate in the financial services industry with spends from the banking industry expected to touch $85 billion in 2030 from $6 billion in 2024.2 So, how can banks and payment service providers unlock the potential of the powerful combination represented by ISO 20022 and GenAI, convert opportunities into revenue, and accelerate value realization?
The clue lies in rich data, a key attribute of ISO 20022. ISO 20022 can carry significant structured data about a payment transaction spanning commercial information and invoice details of a particular payment transaction, thus binding payments and commerce together. So far, this aspect was missing from message protocols resulting in payments and commerce remaining in silos necessitating huge effort spends on reconciliation. The data-rich aspect of the ISO 20022 standard has paved the way for the application of GenAI techniques, ushering in innovative use cases.
Evaluating the payment workflows of banks across different stages reveals multiple areas where GenAI interventions can enhance efficiency and create innovative use cases (see Figure 2).
Figure 2
Opportunities for GenAI interventions in payment workflows
Figure 2
Let us examine how the application of GenAI to ISO 20022 data can supercharge various areas of the payments domain.
Payment initiation: GenAI tools can be employed at the backend to leverage transaction history and ISO 20022 data (pain.001 messages) as well as other ecosystem data to offer payment assistance to customers and enhance experience. For instance, GenAI backed chatbots can be deployed to prompt customers to pay a particular bill through a real-time payment option as the deadline is close or use a specific credit card that might give loyalty points or special discounts from the service provider. When payments are initiated from super apps or ecommerce apps, timely prompts can enhance customer experience.
Payment routing and orchestration: The payments industry is now moving toward outcome based payments and multi-rail processing, which demand smart routing, orchestration, and workflow management. GenAI can play a significant role in this space and enable payment engines to move away from predefined rule-based routing thus improving payment outcomes for customers.
Customer experience: ISO 20022 provides information about the payer, payee, and the transaction (commercial information about the product or service purchased). GenAI tools can be deployed to profile customers based on this data and the insights generated can be used for targeted marketing through personalized offers, cross-sell, and upsell, among others. It can also be used to extend differentiated loyalty and reward programs to customers.
Fraud management: The additional data provided by ISO 20022 can be used to design GenAI backed smarter predictive models to enable real time detection and prevention of fraud. Real-time monitoring and detection of fraud and initiating action to prevent it is set to assume critical importance given the increasing pace at which nations are moving toward instant payments.
Compliance: GenAI can help generate data for regulatory reporting based on the detailed payment data obtained through ISO 20022. This will greatly ease the regulatory burden for banks by enhancing the efficiency of compliance processes and reducing costs.
Personal financial management: GenAI tools can be deployed to build dashboards that deliver insights on spend patterns to customers. Based on this, banks can offer advice on budgetary controls and achieving financial objectives. Once again, rich data carried by ISO 20022 will be the key enabler for such value-added services.
Payment operations: GenAI can help monitor payment engines and proactively predict glitches in automated and manual payment processes, allowing banks to initiate preventive action, greatly enhancing efficiency and customer experience. Moreover, GenAI can help enable smart and intelligent routing from the payment orchestration layer to payment engines by leveraging historical transaction data supplied by ISO 20022. Other service areas that can benefit from GenAI include customer onboarding, know your customer (KYC) processing, dispute management and so on.
Business-to-business (B2B) payments: Business and corporate customers can benefit by using GenAI to initiate payments, enhancing efficiency in the B2B payments space through higher accuracy and automation. With GenAI, banks and payment service providers can scan and pull out data from invoices, match them with corresponding purchase orders and contracts, and automatically route invoices for approval basis predefined rules, thus achieving higher accuracy in straight-through processing (STP).
Customer support services: GenAI enabled chatbots and ‘ISO-rich’ information form a powerful combination, greatly enhancing the quality of customer service and support. Based on past data, GenAI can anticipate issues and proactively address them through personalized solutions.
Payment systems: GenAI can also boost productivity and lower the cost of developing and testing payment systems. Additionally, it can help in generation of payment test cases from ISO 20022 data, ensuring coverage of a larger number of scenarios. PA-DSS compliant code generation for payment system development is also possible using GenAI.
In our view, GenAI use cases in the payments domain (see Figure 3) will further evolve over a period of time and usher in disruptive transformation in the future. The development of dedicated payment specific large language models (LLMs) to further enhance prospects cannot be ruled out.
Figure 3: Evolving GenAI use cases in payments
However, banks must tread cautiously and establish adequate guardrails to address the ethical concerns around GenAI applications. Furthermore, considering the critical importance of payment systems in business-as-usual operations, banks must pay special attention to risk management, operational resilience, and payment-specific compliance obligations.
Putting it together
ISO 20022 implementation comes with its own pitfalls.
Inconsistent data formats, need for significant reconciliation effort—especially in manual payments—system incompatibilities, and challenges in achieving regulatory compliance can hinder seamless transition. Successful adoption will necessitate:
- Top level sponsorship and a mindset shift from compliance to value realization.
- Engagement with stakeholders across operations, IT, compliance, and customer service to achieve consensus on goals and benefits of ISO 20022.
- Resources with the right technology skills and contextual knowledge of the payments domain.
- Training programs to skill resources in processing ISO 20022 payments, both manual and automated.
- A strategic roadmap defining the key infrastructure changes needed with defined timelines and milestones, with specific focus on:
- Streamlining and simplifying payment architecture.
- Integrating ISO 20022 messaging formats into existing payment architecture.
- Ensuring compatibility with manual payment systems such as core banking and reconciliation platforms.
- Testing to confirm that ISO 20022 messages are correctly processed in both manual and automated payment workflows.
- Scalable, secure, and connected payment data platform, which may mandate infrastructure modernization and cloud migration.
- Monitoring tools to evaluate the performance of payment processes.
- Comprehensive governance mechanism with emphasis on regulatory compliance, data privacy and ownership, and intellectual property aspects.
Case-in-point
A Europe based mid-sized financial institution faced challenges in manual payment processing, including frequent errors, slow reconciliation, and regulatory compliance issues. The institution implemented ISO 20022, focusing on standardizing data formats, enhancing data accuracy, and improving reconciliation. With this implementation, the bank realized some key benefits:
- 30% reduction in processing errors
- 40% improvement in reconciliation time
- Better compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations
Looking ahead
‘ISO-rich’ data has the potential to fuel GenAI innovation and dramatically transform payments.
The right monetization strategy, however, will be crucial to capitalize on the opportunities offered by the dynamic combination of GenAI and ISO 20022. To ensure hassle-free migration and integration, banks and payment service providers may need to partner with appropriate service providers with the requisite technology and domain expertise as well as implementation experience after a well-rounded market analysis. Quick action is key—banks that act fast will benefit from the first-mover advantage and gain a lead over their peers.
References
1Integrated Research, A Guide to ISO 20022 Migration and Adoption, April 2024, February 2025, https://www.ir.com/guides/iso-20022-migration#
2Juniper Research, Generative AI Spending from Banking Industry to Grow by over 1400% by 2030, as Banks Seek to Scale AI to Revolutionise Business Models, January 2024, February 2025, https://www.juniperresearch.com/press/generative-ai-spending-from-banking-industry-to-grow-by-over-1-400-by-2030-as-banks-seek-to-scale-ai-to-revolutionise-business-models/
