ISO20022 Migration – Benefits, Challenges, and Next Steps

Sujay Banka, Lead Consultant

The global adoption of ISO 20022 in the payment industry is growing rapidly. Financial institutions will have to face several challenges while migrating to ISO 20022. The complete process of migration will eventually benefit the global payments and business community.

What is ISO 20022?

First Introduced in 2004, ISO 20022 is an international standard for exchanging electronic messages between banks and financial institutions. It gives the finance industry a common language and model for sending payments messages and exchanging payments data across the globe.

According to the global provider of secure financial messaging services, ISO 20022 will be the de facto standard for high-value payment systems of all reserve currencies, supporting 80% of global volumes and 87% of the value of transactions worldwide. In the coming years, all worldwide banks and financial institutions will have to transition their payment systems from their proprietary/SWIFT messages to the new, highly structured, and data-rich ISO 20022 standard.

Benefits of migrating to ISO 20022:

  • Highly Structured and Enriched Data: ISO 20022 carries data in a more detailed and better-structured format.
  • STP (Straight Through Processing): Enriched data in structured format reduces manual intervention on financial messages and gradually reduces delays for the end customers.
  • Analytics and Automation: Enriched data helps in data analytics and creating automation which improves decision making and reduces processing time.
  • Financial Crime and Compliance: Enriched data in a structured format enables the system to detect AML (Anti-Money Laundering), Fraud, or Sanctions and help target financial crime.
  • Worldwide Adoption: About 70+ countries have already adopted ISO 20022 standards.
Data protection and secure online payments

What are the challenges that the finance industry will face while migrating to ISO 20022?

The migration to ISO 20022 will profoundly impact financial institutions’ legacy implementation. Let us shed some light on four key challenges:

1. Implementing ISO20022 as a Messaging Standard

Banks and financial institutions dependent on legacy systems will need to map their current systems to ISO 20022 standard using a payment solution. This solution will help translate the financial message format as per the standards, perform all the required validation checks, and enrich the data in the financial message. Apart from this, there are other auxiliary services that banks or financial institutions will have to maintain mandatorily. They will need to upgrade their existing systems to support ISO20022 message formats, systems like real-time Sanctions Screening, AML, Anti-Fraud, and other compliance checks.

2. Upcoming Payment Market Practices

All financial institutions will have to handle various challenges to support upcoming payment market practices like CBPR+ (Cross-border Payments and Reporting Plus), HVPS (High-Value Payments Systems), and HVPS+ (High-Value Payments Systems Plus). These market practices will follow ISO20022 messaging standards, but there are differences in guidelines for implementing them.

3. Global Implementation Timelines

SWIFT (Society for Worldwide Interbank Financial Telecommunications) has proposed a 4-year timeline using ISO 20022 as of November 2021 for cross-border and reporting payments. However, this decision has been recently postponed to the end of 2022. The US payments system (CHIPS, FedWire) will start switching to ISO 20022 in 2022. The UK financial institutions will start implementing ISO 20022 in 2022. In Australia, banks desire to migrate to ISO 20022 by 2021-2022.

4. Upgrading Current Infrastructure

ISO20022 messages are large in size compared to SWIFT (for global payments), CHIPS/FEDWIRE (US Payments), and other payment message formats. Financial institutions will need to resize all current infrastructure to consider the storage of financial messages. This would increase their interest in IaaS (Infrastructure as a service), which offers essential compute, storage, and networking resources on-demand.

Infrastructure as a service concept

How FinTech’s can help migrate to ISO 20022?

With the latest technologies in place, FinTechs are developing one-stop payment solutions for banks and financial institutions. They are helping replace their legacy infrastructure and mitigating all risks while migrating to the international messaging standard. These solutions manage all payment requirements right from a translation of legacy message format to the required ISO20022 format, including all validation checks as per defined requirements, data enrichment, financial crime compliance requirements, and connectivity to required payment channels.

FinTechs offer payments solutions as part of Cloud or SaaS-based platforms for Small and Medium-sized Financial Entities (SMEs) when they cannot manage and maintain huge payments infrastructure and products.

FinTechs can enjoy plenty of opportunities and benefits over migrating to ISO 20022. For example, they can provide payment solutions to their customers and customize their services as needed. Through ISO 20022 implementation, financial institutions can increase their operational efficiency, reduce human errors, and minimize payment delays. They can provide better customer services with more efficient, cost-effective, and higher-quality payment systems.

Looking for effective harmonization of payments messaging with ISO20022 migration? Reach out to our experts for a no-commitment consultation today!