What is ISO?
ISO stands for International Organization for Standardization.
ISO is a global organization that creates standards—basically, agreed-upon rules—so that things work the same way everywhere in the world. It is an independent, non-governmental global standards body headquartered in Geneva, Switzerland, with 170+ member countries.
What does ISO actually do?
ISO creates standards that bring:
- Consistency → everyone does it the same way
- Safety → things are tested and reliable
- Quality → products and processes meet a certain level
- Interoperability → things from different countries work together
Examples:
- ISO 9001 → makes sure companies follow quality processes
- ISO 27001 → rules for keeping data secure
- ISO 9660 → CD/DVD file structure
- ISO 4217 → 3-letter currency codes (USD, INR)
ISO covers almost every industry: technology, energy, manufacturing, food safety, and banking.
ISO Standards in Banking/Payments
Banks also use many ISO standards.
Here are two examples:
1. ISO 9362 — BIC Codes
This is the standard that defines:
- What a BIC/SWIFT code looks like
- How long it is
- What each character means
Example: HDFCINBB
This follows the ISO 9362 rules so banks can identify each other globally.
2. ISO 8583 — Card Transaction Messaging
This defines how data flows when you:
- Tap your card
- Swipe your card
- Use an ATM
When you pay at a shop, the whole process runs on ISO 8583 messages currently.
Think of ISO like: “The world’s rulebook makers.”
They do not make products or run companies. They simply create common guidelines so everyone follows the same method.
ISO does NOT enforce standards — it publishes them. Governments, companies, and financial infrastructures decide whether to adopt them.
What is ISO 20022?
ISO 20022 is a global messaging standard used mainly in payments, securities, FX, and trade finance.
ISO 20022 is another standard published by ISO— but its purpose is very specific. It defines what data to send and how to send it between financial institutions.
Think of it as: “The global financial industry’s common language for data exchange.”
Why ISO 20022 Was Created (The Problem It Solves)
The Problem in Financial World
- There are too many standards covering different geographies and business areas.
- MT – SWIFT Proprietary Cross Border Standard
- ISO 15022 – Securities Standard
- ISO 8583 – Cards Standard
- Many others like FIX, FpML, XBRL and many proprietary domestic standards.
Semantic Barrier
- Specialists in different domains or countries have developed their own jargon or vocabularies. Different words might refer to the same concept, or worse, the same word could have different meanings.
- Example : What some players in the payments industry call an Ordering Customer, others refer to as Payer or Payor, while still others talk about a Payment Originator or Initiator. The context also plays a role here: the Payment Originator/Initiator is a Debtor/Payor in a credit transfer, while that Payment Originator/Initiator is a Creditor/Payee in a direct debit.
Syntax Barrier
- The syntax is the format, or the ‘language’ used to express that information in a message.
- It’s difficult for two people to have a conversation unless they both use and understand the same language. The same is true for syntax.
- Example : Both represent same information but in different format.
- SWIFT MT Format
:32A:06042022USD12500,
:50F:/8754219990
1/ACME NV.
2/AMSTEL 344
3/NL/AMSTERDAM
:52A: EXABNL2U- Fedwire Proprietary Format
{1520}20220406xxxxxxxxyyyyyy{2000}000001250000{5000}D8754219990ACMENV.*AMSTEL 344*AMSTERDAM*NETHERLANDS* {5100}BEXABNL2U*Other Issues
- Limited character space (MT103 → only 140 chars for purpose/remittance)
- Unstructured free-text fields
- Inconsistent data across countries
- Harder compliance screening (AML, sanctions)
- Difficult automation and STP (Straight-Through Processing)
ISO tries to fix the above issues using ISO 20022 standard.
Fundamental Concepts of ISO 20022
ISO 20022 is built on five foundational pillars:
- Business Model
- Data Dictionary
- Message Model
- Syntax (XML/JSON)
- Governance & Rules
Together, these form a global common language for financial communication.
Let’s break each one down in simple but precise terms.
1) Business Model (Business Processes & Actors)
ISO 20022 starts by describing real-life financial processes, not messages.
Example processes:
- Customer Credit Transfer
- FI-to-FI Transfer
- Direct Debit
- Bank-to-Customer Reporting
- Securities settlement
For each process, ISO 20022 identifies:
- Actors (Debtor, Creditor, Agents, Intermediaries…)
- Business events (Initiate payment, confirm, reject, return…)
- Flows between these actors
This ensures messages are grounded in real business operations, not just XML tags.
Think of it like:
First understand what the business is doing,
then design the messages that support it.
2) Data Dictionary (Shared Data Definitions)
This is one of the core pillars.
ISO 20022 has a huge library of standardized definitions for every business object, such as:
- Party
- Account
- Agent (bank)
- Amount
- Currency
- Remittance information
- Identification
Each component in the dictionary has:
- A name
- A definition
- A data type
- Rules (optional, mandatory, repeatable)
This is the single source of truth.
Why does this matter?
Because when DebtorAgent means the bank of the payer, it means exactly the same thing:
- in pacs.008
- in pacs.009
- in camt.053
- in pain.001
- in any ISO message worldwide
This guarantees global consistency.
3) Message Model (Assembling Messages from Dictionary Parts)
After the dictionary is defined, messages are created using its components.
Examples:
- pacs.008 → FI-to-FI Customer Credit Transfer
- pacs.009 → FI-to-FI Financial Institution Transfer
- camt.053 → Account Statement
- pain.001 → Customer payment initiation
Each message has:
- Business Application Header (BAH)
- Group Header
- Transaction-level blocks
- Structured components (Debtor, Creditor, Amount, Purpose, etc.)
Important:
ISO 20022 does not “invent” new fields for each message.
It assembles existing dictionary components.
That’s why the messages are consistent across the entire standard.
4) Syntax Layer (How Messages are Physically Constructed)
ISO 20022 is syntax-neutral.
It defines meaning, not format.
However, two syntaxes are commonly used:
✔️ XML
This is the main syntax used for CBPR+, TARGET2, CHAPS, SEPA, etc.
Messages like pacs.008 or camt.053 are XML-based.
✔️ JSON
Used increasingly for APIs and real-time payment systems.
ISO 20022 ensures that:
- The same dictionary element maps to consistent XML/JSON tags.
- Syntax can evolve without changing business definitions.
Analogy:
Dictionary = meaning
Syntax = grammar/language used to write it down
5) Governance, Rules, and Versions
ISO 20022 maintains strict global governance:
- New requests go through Change Requests (CRs)
- Releases are versioned (e.g., 2023, 2024…)
- Old versions are deprecated with clear schedules
- Consistency across domains (payments, securities, FX)
SWIFT plays a major role for CBPR+ by:
- Publishing Usage Guidelines (UHB)
- Defining Network Validation Rules
- Ensuring interoperability across banks globally
Governance ensures:
- No conflicts
- No ambiguous meanings
- Smooth upgrades over years
- Global alignment
The 5 supporting concepts you must also understand
The following concepts give ISO 20022 its real power.
A. Reusable Business Components
The same data component is used everywhere:
- Party
- Account
- Agent
- Amount
- PostalAddress
This creates:
- Consistency
- Simplicity
- Interoperability
ISO 20022 never redefines the same thing twice.
B. Structured, Rich Data
ISO 20022 allows:
- Full addresses
- Multiple identifiers
- Long remittance info
- Purpose codes
- Legal entity identifiers (LEI)
- Ultimate debtor/creditor
- Clearing system IDs
This richness enables:
- Better AML
- Fewer investigations
- Automated processing
Compared to MT or Proprietary messages:
MT fields = short and unstructured
ISO 20022 = detailed and structured
C. Domain Model
ISO 20022 is organised into domains:
- Payments
- Securities
- Trade
- Foreign exchange
- Cards
Each domain reuses the same dictionary and modelling approach.
D. Business Application Header (BAH)
A consistent envelope for all ISO messages:
- Sender
- Receiver
- Message type
- Creation time
- Identification
This header standardizes routing and metadata.
E. End-to-End Traceability (UETR)
ISO 20022 supports a unique end-to-end tracking reference.
This enables:
- Full transaction visibility
- GPI-like tracking
- Faster investigations
Why these fundamental concepts matter
Because they solve the biggest problems in legacy (MT, proprietary) formats:
- Inconsistent naming
- Unstructured text
- Different formats per country
- Limited remittance information
- High manual intervention
- Difficult AML/compliance checks
By defining business, data, messages, syntax, and governance as separate layers, ISO 20022 becomes:
- Scalable
- Globally consistent
- Machine-readable
- Adaptable for the next 20–30 years
- Perfect for automation and AI-based compliance tools
In One Sentence
ISO 20022 is a globally governed, business-driven, data-rich messaging standard built on a shared data dictionary and reusable components—enabling banks worldwide to communicate payments and financial information in the same structured, consistent language.
