Payments: Plan for dual messaging format to expand offerings

In the evolving payment processing landscape, there are two prominent message formats: ISO 8583 and ISO 20022. They both serve the fundamental purpose of facilitating secure and efficient transactions, but they differ in their structure, capabilities and adaptability to emerging payment methods such as peer-to-peer (P2P) and real-time payments.

As the financial sector and many governments strive to modernize their payment systems, they are turning to the ISO 20022 standard, which offers a more flexible and expandable messaging standard to handle richer data.

ISO 8583 vs. ISO 20022

While the industry is moving towards ISO 20022 as a universal payment messaging standard, ISO 8583 is currently the primary messaging standard for card payments. To navigate this complexity and ensure seamless transaction processing, payment processing companies increasingly require platforms capable of handling both ISO formats simultaneously.

ISO 8583 is a messaging standard with a rich history and has been a cornerstone of card-based payments for decades. While it remains a primary framework, its ability to support modern digital payments is limited.

According to Barry Tooker, principal of payments consulting firm TransactionBanker.com, “ISO 20022 has transformative impacts on real-time, high-value, and cross-border payments. It is driving standardization, interoperability, automation, efficiency and transparency across payment processes, systems and services.

Financial institutions, payment service providers and other stakeholders in the payments ecosystem need to embrace ISO 20022 adoption to capitalize on the benefits and opportunities it offers for enhancing payment capabilities and experiences.”

The two messaging standards operate differently and have unique advantages. ISO 8583 has been the backbone of card payments for decades, offering reliability and fast processing of high transaction volumes. It focuses on essential transaction details, and it is known for simplicity and efficiency.

On the other hand, ISO 20022 is an XML-based format with more data fields and can include richer transaction data in the payment messages. It is also highly adaptable, supports various payment types, and can send about ten times more data about each payment. Its ability to handle more data and more structured data is a significant advantage.

While ISO 20022 covers all transactions, ISO 8583 is specifically for card-based transactions. However, the disruption in the payments industry is quickly pushing more companies to adopt ISO 20022. Several industry timelines and compliance deadlines in the United States, the United Kingdom, and Europe may lead to the universal adoption of ISO 20022 by November 2025, but ISO 8583 will continue to be used in card systems for some time. Therefore, it will be important to support both.

The need for dual capabilities

While existing systems are optimized for ISO 8583, they lack the flexibility and sophistication to fully support ISO 20022-based transactions. Additionally, operating separate systems for each messaging format introduces complexities, increases operational costs, and hampers scalability.

To adapt to the changing landscape and meet the needs of diverse stakeholders, payment processing companies need a unified system capable of seamlessly supporting both ISO 8583 and ISO 20022 message formats.

Issuers, acquirers and processors of electronic payments who rely on software providers must ensure their provider supports both ISO 8583 and ISO 20022 in the payments domain. This allows payment processing companies to broaden their product offerings by combining account-to-account and card-based payments under one umbrella.

By supporting both formats, a unified system offers several advantages:

• Future-Proofing: A unified payment processing platform capable of handling both ISO formats ensures readiness for future developments in the payments industry. As new payment methods emerge and regulatory requirements evolve, businesses can adapt quickly without overhauling their infrastructure.

• Enhanced Customer Experience: By supporting a broader range of payment methods, businesses can offer their customers greater flexibility and convenience. Whether processing traditional card transactions or facilitating real-time payments, a unified system ensures a seamless experience for end-users.
• Operational Efficiency: Consolidating payment processing capabilities into a single platform streamlines operations and reduces complexity. It eliminates the need to maintain separate systems for different messaging formats, simplifying maintenance, training, and support processes.
• Compliance and Security: Unified systems enable consistent application of security protocols and compliance measures across all transactions, regardless of the messaging format. This ensures robust protection against fraud and data breaches while adhering to regulatory standards.

In conclusion

In a rapidly evolving payments landscape, the ability to process transactions efficiently and securely is paramount for payment processing companies. By embracing a unified approach that supports both ISO 8583 and ISO 20022 message formats, businesses can bridge the gap between traditional and emerging payment methods.

This enhances operational efficiency and customer satisfaction and ensures readiness for future innovations in the payments industry. As the demand for faster, more diverse payment options continues to grow, investing in adaptable and future-proof payment processing platforms will be imperative for staying competitive and meeting the evolving needs of the market.

Michael Meeks is Chief Technology Officer for BHMI.