I keep reading more and more about ISO 20022 and blockchain or DLT as being either breakthroughs or foundational for more efficient cross-border payments. There’s far more nuance to consider as folk finally break from familiarity bias before chasing shiny objects or popular tech jargon like ISO 20022 or blockchain. (I’ll address stablecoins in another piece).

In terms of ISO 20022 and distributed ledgers, consider the following:

ISO 20022 isn’t a new game-changer, nor in and of itself a breakthrough in cross-border.

First, ISO 20022 has been around for 20 years. 20 years! Moreover, it’s simply a data transmission spec. When did a message spec ever change anything? Depends on “if” and “how” one actually uses it, and this means software.

For the potential of 20022 to be realized in accelerating and improving the safety and transparency of cross-border payments, new software for financial institutions is required:

  • Software that digitizes rules for institutions along the payment journey that determines what data, documents and other artifacts are required to substantiate the payment, execute counter-party risk, transaction risk, compliance (multi-jurisdictional compliance) and more.

  • Software that digitally collects these data elements from participating financial institutions, senders, recipients, and/or others.

  • Software that ensures the authenticity and economic legitimacy of each payment by sophisticated 3rd party orchestration, as well as AI, to identify and extract non-structured data that’s compared against sanctions lists with further interrogation of each data item, document and artifact.

  • Software that populates the ISO 20022 spec with this data and/or can pass it otherwise.

  • Software that parses the spec when received, extracts the data, and does something with it – like executes counter-party risk, transaction risk, compliance and ultimately decisions the payment as defined by the institution.

Note: This software has NEVER existed in any core bank system, digital banking platform or other regtech system. I could go on, but I’ll stop. It’s not a 20-year ISO spec that’s the key, it’s new software that’s necessary to ensure authenticated “data-in”, “data-out”, and “decisioning” is absolutely golden.

Distributed Ledger Technology or Blockchain

Let me get straight to the point: DLT and blockchain are far slower and consume more energy than a global single shared platform with advanced ledgering.

Sure, when compared to disconnected, disparate, or fractured core systems at originating institutions, correspondent banks, and intermediate banks, distributed ledgers are compelling. Still, bank/FI integration and user adoption have friction.

However, when a distributed ledger is compared to a global single shared ledger with real-time specialty software that safely and properly handles debits and credits between core systems, nothing is faster or consumes less energy.

This is prima facie or obvious based on how these technologies work.

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