In March 2023, Central 1 participated in the second release of Lynx, Canada’s new high-value payment system, which included the implementation of the ISO 20022 financial messaging standard. Acting as a universal “common language” for payments, ISO 20022 enables the flow of richer data with each payment.
The opportunities to leverage this data are important for credit unions and their customers. We sat down with Payments Canada’s Mike Hoganson, Director, Lynx, and Karl Lee, Senior ISO 20022 Analyst, to talk about Lynx, ISO 20022 and what credit unions can do with this new data.
How can credit unions benefit from enriched payment data?
Karl Lee: When we talk about enriched data, it means data that is of higher quality and contains more detailed information. That could be invoice numbers, discounts applied, or any special feature of the payment that – when accompanying the payment – makes reconciliation much smoother.
When it comes to high-value payments with ISO 20022, credit unions will experience a much faster and more efficient process. When sending or receiving a wire payment, for example, specific details in designated places can be included, such as the Canadian Clearing Code of the Creditor Agent or the Creditor’s account number. This significantly reduces the ambiguity of wire payment information and potentially eliminates manual entries, ensuring that the payment process is streamlined and efficient for both credit unions and their customers.
What’s in it for the end customer – credit union members?
Karl Lee: Let’s take the example of an invoice. When using the legacy MT messages, reconciling invoices can be challenging due to free format fields and limited data capacity. This limitation can result in missing information and unclear explanations from customers. With ISO 20022 messages, the length is no longer restricted to 140 characters – we can accommodate up to 9000 characters. This expanded capacity can include more structured information such as purpose codes.
A good use case is the inclusion of invoice issuer information if it differs from the debtor/creditor information. When customers receive a payment that includes invoice remittance information, they can easily identify the sender, ensuring clarity and transparency in their transactions.
With ISO 20022, credit unions can receive much more structured data from members, precisely labeled and granular in detail, providing valuable information for a more streamlined reconciliation process to the benefit of both themselves and their customers.
That’s exciting! New data usually means new innovation opportunities, as well. Are you seeing anything interesting happening in terms of how financial institutions are using the data?
Mike Hoganson: Definitely. The data is also being used to achieve greater security and better insights.
With ISO 20022, financial institutions get a comprehensive view of the payment’s entire life cycle. That makes anti-money laundering (AML) reporting and fraud screening and prevention measures much more streamlined.
At the same time, cleaner and more robust data improves data analytics, meaning financial institutions can leverage the new data to identify trends and customer preferences, and potentially expand their service offerings.
So, ISO 20022 is now embedded into Canada’s high-value payments. What comes next?
Mike Hoganson: Since March 2023, the Lynx system has been supporting both the legacy MT messages format and the new ISO 20022 (MX messages) format. This has initiated the Lynx MT/MX coexistence period, which will continue until the end of November 2025. During this period, all participating financial institutions are required to be able to receive ISO messages and process the enriched data and information they contain. However, there is flexibility in when each Lynx participant sends these messages. At Payments Canada, we will continue to track the migration of payment traffic from MT to MX during the coexistence period.
We are pleased to note that in Canada, approximately 50 per cent of payment volumes have been settled using ISO 20022 messages since March 2023. We will closely monitor this progress throughout the coexistence period.
There is more to come on ISO 20022 across other payment types as it’s foundational to our modernization program, including the Real-Time Rail.
To learn more about Lynx Release Two, payments modernization and Central 1 payments solutions:
Launching Lynx Release Two webinar
Central 1 Payments Center
