ISO 20022

It would be difficult to underestimate the effort invested in this achievement. During the migration weekend, nearly 200 Commerzbank personnel and relevant providers were on site or on call, ready to coordinate in case of an emergency. Similarly, emergency contacts were maintained across the correspondent network. By closely monitoring the checkpoints along the entire payment processing chain, from order acceptance to controls, from booking to completion, manual interventions could be made if a message got stuck or was rejected.

Ultimately, these emergency measures were not called upon – in no small part thanks to considerable preparation in the preceding months, particularly testing. The groundwork began, working bilaterally with partner banks, then Commerzbank continued vital CBPR+ tests by making extensive use of the Early Adopter option provided by SWIFT. This enabled the exchange of CBPR+ formatted transactions with a select user group in a live environment. In fact, Commerzbank performed the program's first transaction and achieved the highest transaction volumes in this phase of any other bank.

Such trial payments also demonstrated that banks were largely aligned in their interpretation of the new standards while flagging any discrepancies and further issues. From here, penny tests grew from just a few payments to hundreds of transactions per day.

Sourcing partner banks for tests also revealed the extent that migration strategies and their pace differed across the market. Some banks were scheduled to complete their ISO 20022 preparations at the eleventh hour, not least because the migration overhauled legacy structures, requiring some housekeeping of their existing processes.

As one might expect, Europe's big bang approach, which saw the joint impact of T2 and CBPR+ migration, has given the region something of a head start. Even so, at Commerzbank we observed that beyond the Eurozone, other banks operating globally, including those in emerging markets, were equally well prepared to complete the first stage of their migration to ISO 20022 for CBPR+. This success underlines the importance of the incoming format – soon to become the new normal for cross-border payment processing within SWIFT's network.

The journey is now well underway – and offered up important lessons to inform the steps ahead.

Considering the scale of the migration, some challenges were, of course, inevitable. Small pain points did emerge – but both internally and across our correspondent network we observed that the groundwork had already been laid to solve problems quickly.

For instance, SWIFT's Relationship Management Application (RMA), associated with audit and access rights in connection with other banks, presented a few issues, but these were expected and well accounted for. Once resolved, we saw more or less regular payments flow within the SWIFT ecosystem.

More broadly, it is the standards, which are essentially rulebooks, that present some more general challenges. On the one hand, the T2 and SWIFT standards adopted in March were not totally compatible, which led to interoperability issues. As a result, transactions routed via T2 could get stuck between corresponding banks if the next payment leg was in CBPR+.

Thankfully, the number of payments affected was small – there are only five or six diverging points between the standards. In industry groups, efforts have already started to improve compatibility and implement checks to ensure transactions can be handled by both systems. Commerzbank may reject those payments failing to meet the right requirements, which are thankfully limited. Alternatively, banks can give them a push – massaging these payments through the system to complete the transaction. This is typically a technical adaptation of the payments message, so that the CBPR+ standard is met in accordance with regulatory requirements.

At this early stage in the transition, it is important to keep in mind that SWIFT's MT standard evolved over decades of use. Therefore, it is understandable – expected even – that the standards and their interpretation are still to be fully reconciled. Piece by piece, ongoing adjustments will support ISO 20022 to become as robust as its predecessor.

As of yet, corporates may not have felt the impact of the ISO migration because, for now, the processes are concentrated primarily between banks. Nonetheless, the capabilities of the messaging system are not yet fully realised.

For instance, as per the Payments Market Practice Group (PMPG) guidelines, banks are not incorporating the rich data capabilities of the ISO standard until all the relevant clearing houses make the transition. As such, Commerzbank has offered its German corporate clients a new type of digital statement, one that adopts the ISO 20022 standards and can, in future, confer rich data elements. To date, uptake for these façade ISO payments has been quite strong, and has been implemented with a more or less "like-for-like" approach in order to build sustainable, reliable and resilient services. As such, with each transaction, reporting processes are supported by a cash management message in the new format.

However, corporates are certainly not yet obliged to migrate. Depending on their bank's corporate offering and local payments infrastructure, these clients can continue using MT messages for SWIFT / CBPR+ until 2025. Some, conversely, may already be using ISO 20022 in their local clearing and reporting processes.

Commerzbank recommends that corporates beginning their migration start with the use of ISO 20022 reporting messages (camt.5x) and, at a later stage, implement the ISO 20022 payment initiation method when it is provided in their local markets. This is because SWIFT will enforce the use of a standardised input form, also called a structured address, for the payment receiver. Furthermore, we anticipate the biggest challenge for corporates will be the adaptation of their enterprise resource planning (ERP) systems in order to enhance the address pool in a structured manner.

In the early days of the new standard there are no set norms about how to isolate and deploy the insights hidden within the rich data. To assess these benefits, corporates need to consult closely with their partners within the ecosystem to build a business case and coordinate their strategy.

Of course, ISO 20022's rich data capabilities are not necessarily useful for all corporates – the increased complexity and associated costs can instead be a hurdle. Independent of their industry, the corporates with the greatest potential to benefit are those with a large volume of cross-border transactions, large cash pools and complex reconciliation processes, which rich data can help to streamline.

Banks have an important role to play here. Commerzbank, given our expertise and global reach, can help corporate clients sniff out the nuggets of information that demonstrate the value of incorporating rich data. And, where suitable, banks can support corporates in adapting their systems to implement the benefits.

So far, the new messaging standard has been adopted with a "like-for-like" approach, intended to limit overall disruption. From here, it is open what the next steps will be. On the one hand, these may be driven by corporates that adopt the new data elements or create the impetus for instant payments.

Alternatively, and more likely, regulators and standardisation bodies may set the pace of new initiatives, perhaps by requiring greater transparency regarding payments. These could take the form of international compliance standards as well as local requirements.

Other milestones for ISO 20022 are more concrete. The UK completed its CHAPS migration in June this year, while in the US, CHIPS, the largest private USD clearing system, will follow in 2024. The Federal Reserve's Fedwire will be the final major clearing house to migrate in 2025, opening the doors for banks to fully leverage ISO 20022's capabilities.

Later that same year, the coexistence phase will come to a close with the discontinuation of the MT standard for CBPR+ messages. Ahead of this key deadline, work is still underway among standardisation bodies to ensure that the new specifications are fully compatible and interoperable. The global migration to the new messaging standard is an ongoing journey and its steps will be accomplished over years rather than simply days. After the success of Europe's launch in March, it is full speed ahead for ISO 20022.