A legacy of innovation: how financial institutions can overcome the challenges of open banking and ISO20022

Open banking payments in the UK grew at an annual rate of 69% in January 2024, reaching a record monthly high of 14.5m, research by Open Banking Limited (OBL) shows. The overwhelming majority of these transactions were single immediate payments, at 92%.

Additionally, between 2022 and 2023, open banking payments in Britain soared from 68m to 130m – a year-on-year growth rate of 90%. Small businesses are the fastest adopters of open banking, according to OBL, which says that consumer penetration stands at 13% versus 18% for SMEs.

Linked to open banking is the number of API calls, where banks share data with authorised third parties. The UK is roaring ahead in this area when compared to other major European nations. For example, in Germany, Italy, France and Spain, there were 6.4bn open banking API calls in 2023 – less than half the UK’s 14bn calls.

Another driver of digital transformation in financial services is ISO20022. And global business consultants EY say there were a number of major breakthroughs for the modern messaging standard in 2023. That’s because many global market infrastructures, such as the Bank of England and SWIFT, migrated their real time gross settlement systems to the standard last year.

ISO20022 is also a game changer for initiatives like the Single Euro Payments Area, which is streamlining cross-border payments within Europe, and real-time payments that are enabling instant funds transfers across various regions.

Modern technology heralds an era of change and challenge for financial institutions

It’s clear that the pace of digital transformation in banking is relentless and accelerating. And while it’s leading to more seamless, convenient services for end users, it also presents unique challenges for financial institutions – particularly those who still rely on legacy systems.

Let’s take a look at some of the issues.

Open banking and ISO20022 offer numerous benefits in information exchange and standardisation. Yet they can appear complex when held up against legacy systems. To compound this, more dated systems tend to structure data and messages differently.

Furthermore, when merging the old with the new, banks face the unavoidable task of mapping data and transformation in order to bridge any technical gaps and ensure compatibility. But this takes up significant time and resources.

Then there’s the need to accommodate the latest functionality and security updates – because today’s banking customers demand constant innovation from their providers.

Finally, many large financial institutions are incredibly complex, making it difficult to achieve the necessary collaboration across departments and entities.

Testing times: essential functions of payment innovation tools

So, how can banks and other financial entities overcome these challenges? The simple answer is by using modern testing technology. However, not all platforms are the same and banks researching the market should ensure prospective testing and certification providers deliver the following six fundamental functions.

First, the most basic requirement. In today’s evolving financial ecosystem where innovation and tradition coexist, a testing system needs to be able to facilitate data mapping between legacy and modern message formats, while streamlining the conversion process.

Secondly, a platform has to be comfortable testing any APIs that have been implemented as an intermediary layer. This should include comprehensive testing of various message types and scenarios involving many stakeholders – regardless of vastness of a message standard’s scope or diversity of use cases.

Thirdly, modern testing software needs to be capable of simulating all end points across various entities, while providing result and message transparency. Reports on the performance of new message types ought to be seen as standard.

Fourthly, a testing engine shouldn’t be phased by the size of complexity of the financial institution performing the tests. It should be able to centralise the testing process across different organisational silos – and obviate the need to purchase stand-alone testing tools for each department. As a result, users should be able to achieve significant cost savings – as much as 50% compared to traditional simulation methods.

Fifthly, a good testing platform will enable banking innovators to strategically create and automate tests. This allows development teams to optimise resources, reduce costs and build and launch dependable financial products to customers.

Lastly, organisations should be able to reuse tests and test assets throughout the development process. At Iliad, we believe this is the most effective way to address issues quickly and keep pace with DevOps and Agile deployments.

As we can see, these six essential functions of modern testing software are designed to ensure financial institutions can embrace digital transformation without the need to abandon tried and tested banking systems.

With the right testing tools in place banks with legacy systems can innovate with confidence – whether they’re integrating APIs to deliver open banking experiences to customers, or adopting the ISO20022 modern message standard.

Ready to learn more about what good looks like in modern payments testing? Talk to Iliad Solutions today.

Sources:

Latest Impact Report shows strong growth and the power of payments

How to transition from a tactical to strategic adoption of ISO 20022