To fully understand which cryptocurrencies are in the race for future payments, you must first understand ISO 20022. So, what is it?
ISO 20022
ISO 20022 is an ISO standard for the electronic exchange of data between two or more financial institutions. It describes a metadata repository hosting detailed descriptions of messages and business processes. The repository also contains its maintenance processes.
The ISO 20022 stretches to financial information transferred among different financial establishments; these include:
- – Payment transactions.
- – Information on all trades carried out.
- – Securities settlement.
- – Debit and credit card transactions, among others.
Simply put, the standard is responsible for ensuring interoperable communication between users, financial institutions, and their market establishments. One of the ways to view the ISO 20022 standard is through banks. Today, banks clash almost every time while trying to communicate with each other because they speak different “languages.”
A Real-Time Payments System. Large financial establishments, such as SWIFT, the Fed, and the ECB, aim to adopt an interbank messaging system concurrently. The financial giant SWIFT was supposed to migrate back in November last year, but decided to postpone the matter. This was similar to the ECB, pushing its migration by four months last year.
FED, via its newly launched FEDNOW program, is compatible with the previously mentioned regulation. Through FEDNOW, the United States Federal Reserve is organising a new program whose main agenda will be to meet the market needs 24 hours a day, seven days a week, all year round. Some of the features present include:
- – Simple clearing and settling capabilities, thus supporting numerous types of transactions and usage.
- – Utilising an ISO that has been accepted and adopted widely (ISO 20022) alongside other practices to facilitate interoperability.
- – Use of fraud detection and prevention tools. These include configuring low transaction limits while specifying conditions under which these tools would block a transaction.
- – Inclusion of a tool to manage liquidity. With this tool’s help, users can transfer funds amongst themselves, supporting liquidity prerequisites associated with instant and fast payments.
- – Implementation of a receive-only system. With the system in place, financial institutions will be able to obtain payments via the FEDNOW Service without the need to have the capability to originate payments.
ISO 20022-Compliant Cryptocurrencies. Since ISO 20022 is more versatile than its predecessors, it requires significantly more data volume. Banks must be equipped to handle vast volumes of databases and process them faster to facilitate real-time payments, effective daily liquidity management, fraud detection, and compliance controls. All these need to be carried out at a significantly faster pace than banks are accustomed to, if they are to catch up with cryptocurrencies and blockchain technologies.
Some technologies are favoured more by this change in our financial system, particularly those related to cryptocurrencies. The most obvious ones are the ISO 20022-compliant cryptocurrencies. At the moment of writing this article, only seven cryptocurrencies were ISO 20022 compliant; these include:
- Quant
- Ripple
- Stellar
- Hedera
- IOTA
- XDC Network
- Algorand
- Cardano
Ultimately, 2022 has been a significant year for cryptocurrencies, and with the current market situation, now is the ideal time to make necessary adjustments. Making changes during this recession will enhance the effectiveness of these changes and establish a strong foundation for the crypto market.
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Disclaimer: This article is provided for informational purposes only. It is not intended to be used as legal, tax, investment, financial, or other professional advice.
