ISO 20022: Understanding the Impact for Global Address Data
Address data is a critical component of both identity and financial transactions. SWIFT predicts that by the next few years, ISO 20022 will be the go-to standard for high-value payment systems of all reserve currencies, encompassing 80% of global volume and 87% of the value of transactions worldwide.1
This is further illustrated today by the US Federal Reserve Bank’s upcoming instant payments infrastructure (FedNow) adoption of the standard.
ISO 20022 applies to trade, securities, payments, foreign exchange, and cards, and the benefits of the ISO 20022 will collectively contribute to a more integrated and efficient financial infrastructure that will facilitate better data quality, enhance the efficiency of payment processing, and allow financial institutions to increase matches and reduce false positives in regulatory checks.
Unlike the MT message syntax, which amalgamates all data elements (account, name, address, & other) about a party into a single field, the ISO 20022 syntax assigns dedicated tags to each of these data elements.
These divide into specific fields like street name, building number, postal code, town name, and country code. The ISO 20022 transition to structured postal addresses is a significant step forward for the financial industry. But that is not without its challenges.
Unpacking the challenge of global address data in cross-border payments
We need to step back from our own regional bias of what an address is to understand the cross-border address data problem exposed in payments.
Most people reading this will reside in a developed western country that typically follows a government-regulated postal address standard with the format of premise, street, city, state and post-code.
What most people do not know is this is not the case for most regions in the world. Across the 250 countries and territories, there are over 130 different address formats. There are only about a half-dozen countries with government-regulated postal authorities (i.e., US USPS, Canada SERP, UK Royal Mail etc.).
In many countries, addresses are more of a description of a location – and this description can be based on a range of attributes including; neighborhood/locality names, points of interest, or even directions to a location.
For example, in India, there are at least 7 different formats for entering an address depending on the region of the country you are from. In Germany, the premise number comes after the street name in the first line of address.
Although the adoption of ISO 20022 is well designed and a significant improvement, it will expose challenges with address data availability, data quality, and standards.
"Financial institutions should conduct internal UX/CX assessments of every address data entry point, and look to third-party solutions like Loqate, which employ deep learning and curated pipelines to generate a global graph of all address elements"
The Banking UX Imperative
Accepting that address verification is now a critical component to deliver a structured address in an outbound SWIFT envelope, financial institutions need to look at their applications to ensure address data verification tools exist for every transaction type and at all points of address entry.
The time to resolve address issues is during ‘data entry.’ This is because once the address is entered by the initiating (or “originating”) party, financial institutions can do little to programmatically correct errors or omissions identified in the address entered.
Formatting of the addresses into the MT message is limited to “parsing” the address elements entered into the ISO structured format. Thus, it follows the adage of GIGO – garbage in – garbage out.
This is where tools like type-ahead global Address Verification do more than simplify address entry for the consumer. These tools ensure that the address data, which will populate the structured ISO message, is correct, verified, and properly structured before transmitting it to these backend systems.
It will provide the individual with the opportunity to accept the correct format. As a result, it will improve match rates and eliminate friction between originating and receiving institutions.
Financial institutions should conduct internal UX/CX assessments of every address data entry point, and look to third-party solutions like Loqate, which employ deep learning and curated pipelines to generate a global graph of all address elements.
Some of the largest financial institutions around the globe use Loqate's address verification APIs to ensure address accuracy in of use cases from fraud, identity, to BNPL and integration into cross-border payment rails.
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