Financial institutions are adopting the new interoperable standard financial messaging, ISO 20022, which is set to revolutionize the future of the financial sector. The transition to this new system affirms the functional capabilities of crypto assets and validates the potential of blockchain technology. ISO 20022 will enable faster, more efficient communication between financial institutions, improving compatibility, speed, and efficiency. However, the centralized nature of the new standard goes against the libertarian push for financial privacy and economic freedom, and some theorize that it could hold back non-compliant cryptocurrencies in the long term. Five coins currently comply with the standard: XRP, XLM, XDC, IOTA, and ALGO.
Financial institutions are undergoing a major transformation, where old forms of communication are being replaced by new, interoperable messaging systems. The use of new standards such as the ISO 20022 is set to revolutionize the cross-border payment system, with implications for the future of the financial sector. In this video, we will explore the ISO 20022 standard, its impact on the global financial system, and its implications for cryptocurrencies.
The Traditional Financial Sector
The traditional financial sector comprises different messaging systems or languages, such as the SWIFT standard, which have been used since 1977. However, these systems are time-consuming and not globally compatible, leading to inefficiencies in the payment system.
The ISO 20022 Standard
ISO (The International Organization of Standardization) introduced the updated modernized way for financial institutions to communicate with each other in 2018. The ISO 20022 standard language (MX messages) powered by Extensible Markup Language (XML) and Abstract Syntax Notation (ASN.1) protocols will replace all past messaging formats. The system will enable straight-through processing, reducing maintenance costs and lessening the need for banks to intervene, which leads to less delays for customers.
Global Adoption of ISO 20022
Over 70 countries worldwide are already utilizing the ISO 20022 standard, including Switzerland, Japan, India, and China, and many other countries have set their dates for their transitions. The United States Federal Reserve Board stated last October that Federal Reserve Banks will adopt the ISO 20022 standard for Fedwire Funds Service by November 2023.
Implications for Cryptocurrencies
While the ISO 20022 standard is beneficial for traditional financial systems, its centralization factor goes against the nature of cryptocurrencies. However, some cryptocurrencies have thought it would be a good idea to be centralized and to work hand in hand with banks, making them ISO 20022 compliant. Currently, XRP, XLM, XDC, IOTA, and ALGO are the five coins that are compliant. Their attention to international wire transfers and security puts them in the same basket.
ISO 20022 will revolutionize the global payment system, reducing inefficiencies, and leading to straight-through processing. While its centralization factor goes against the nature of cryptocurrencies, some compliant coins are set to benefit. Overall, this global transition to ISO 20022 language will have far-reaching impacts on the future of the worldwide financial sector.