Payments, Uniting for payments: The success of ISO 20022 requires all financial institutions to step up to the mark
A collective front in being ISO-ready is crucial to ensuring the financial industry’s implementation efforts are rewarded, say Dr Roland Nehl, Programme Manager, and Ingrid Weisskopf, Head of Institutional Clients Advisory & Analytics.
With the ISO 20022 transition deadline edging ever closer for banks across the globe, our experts examine the latest adoption trends and the innovation that the new payments standard is enabling.
The transition to the new ISO 20022 global payments messaging standard has been convoluted and far from straightforward. With individual countries and their individual payments systems adopting different approaches and timescales for becoming “ISO-ready”, the migration has been fragmented, resulting in a period in which the “old” MT messages and the new ISO MX messages are both in the mix – the so-called “coexistence phase”. The migration has been further complicated by changing deadlines, mainly due to preparatory, network and logistical hurdles, with a total of 13 postponements made by various stakeholders between 2020 and 2023.
But the long-awaited implementation is now well underway, with the market infrastructures of the most used currencies adopting – or soon to adopt – the new standard. For example, the euro market has been fully adopted since March 2023, the US’s CHIPS system since April 2024, and the final migration date for the US expected in March 2025. Certainly, much progress has been made, with the average number of CBPR+ messages exchanged each day now in excess of one million. Yet, as at August 2024, only 26 % of Swift cross-border payments can be classed as ISO 20022 payments.
As payments gear up to be “fully ISO”, the industry sits at a pivotal juncture ahead of the effective “cut-off” of the MT messaging standard by Swift in around 12 months’ time. There remains much to be done before the industry can reap the benefits the new standard has to offer – of which there are many – and we cannot afford to take our foot off the gas. Until all industry participants are fully transitioned, the true potential of ISO 20022 cannot be realised by individual institutions or the industry as a whole. It is therefore critically important for the industry to unite in switching to ISO effectively, coming together to ensure that the collective hard work and efforts are worthwhile.
Preparing to get over the line: support from Swift and the banking community to help ease the ISO 20022 migratory burden
The fact that around a quarter of payments are functioning under the new standard indicates that, of the financial institutions (FIs) that have transitioned, some are more advanced along the journey than others. Smaller countries and smaller banks in particular may be choosing to postpone full implementation until 2025 due to the degree of the preparation, upgrades and resources that are required. But if any participants are holding out for further deadline extensions, they are unlikely to come at this stage, with Swift re-confirming its commitment to the November 2025 cut-off for MT messages earlier this year. FIs are therefore being urged to not hold off preparation for too long and risk not only having a short window in which to have everything in place, carry out testing and address any issues that may arise, but potentially not being ready in time.
With time ticking, to help with preparation, Swift has announced that reporting messages will not be subject to the same November cut-off date, enabling those that are struggling to meet migration requirements to focus on mandatory implementation of MX payment instruction messages, which are most important from a transaction perspective.
Further supporting those yet to migrate is the fact that, with many market infrastructures now fully ISO compliant, there are reference points and key learnings that can be taken from the experiences of participants in earlier implementation waves – real-life insights that weren’t available to those taking the first live leaps into the land of ISO 20022. Such knowledge can therefore equip payments systems and FIs that are getting ready to fully migrate for a smoother switch.
There is also a host of valuable tools and educational resources that Swift and its working groups have created in order to ease the migration burden – from tutorials and events such as CBPR+ webinars, to content such as in-depth whitepapers, material such as the ISO Accelerator Pack, and more bite-sized reference guides – all of which can be accessed via Swift’s website.
Benefits beyond the migration: new developments in automation and analytics
Importantly, many of these guides contain information on how FIs can ensure they are positioned to fully leverage the ISO 20022 transformation and the rich and structured data that it enables. Indeed, the implementation itself marks only the beginning of this new era for payments; it is what is beyond and the opportunities it presents that are the ultimate focus and driver.
Once ISO has been adopted, and banks’ systems and instruments are adapted to allow for the ISO 20022 environment of automation and analytics, payments will be transformed for the better for all. Each of the manual procedures that currently persist within international payments will become automated and streamlined, improving the entire transaction experience, while the enriched data and analytic capabilities will unlock a suite of enhanced functionalities for the benefit of banks and corporates alike. What’s more, the insights that are provided – and the subsequent opportunities they can allow banks and their clients to capture – will only improve over time as more and more data is collected. Certainly, the more banks migrate, the greater the benefits of migrating.
In terms of what is coming, exciting advancements include enhancements to Swift’s Case Management tool. Currently in a pilot phase – in which Commerzbank is participating – the new capabilities are designed to enhance exceptions and investigations by introducing a centralised service, using the structured format of ISO 20022 messages to generate automated messages and dialogue between relevant FIs. This will streamline the end-to-end case management process, generating considerable cost savings, transparency for corporates, and efficiencies, including contributing significantly to lean processing.
The roll-out of the SWIFT GPI Tracker to corporates is a good example of a key development, which effectively seeks to provide instant treasury capabilities, enabling companies to track and have clear, real-time visibility and oversight of their end-to-end payment activity – and, in turn, enhance their cash management, working capital and overall business activity.
What’s more, the data analysis that will be possible is notably beneficial and will become an invaluable component of FIs’ fraud defence strategies. Risk mitigation is a priority within cross-border payments and tremendous resources go into ensuring transactions are protected and secure. The new structured data sets allow far faster, detailed analysis and fraud detection, with in-depth checks and monitoring focused on particular cases where potential anomalies are identified.
Moreover, with fraud techniques fast evolving, having standardised data across the industry will mean that patterns, trends and threats can be identified and communicated more quickly and broadly – thereby raising awareness within the payments community and helping risks to be averted.
Timely migration by the whole payments community is crucial
Implementing ISO 20022 is a big endeavour but the payoff for all will be a vastly enhanced cross-border payments ecosystem. The success of ISO does, however, hinge on effective migration by the whole payments community. November 2025, however far away it seems now, will be here before we know it and it is paramount that those who are yet to adopt the new messaging standard are ready. With the practical guidance of Swift and those who have already trodden the ISO path, the route has been paved for adoption by all. Commerzbank, for example, has fully adopted ISO 20022 and is positioned with insights and experience to further develop the industry’s ISO journey. Importantly, this also extends to corporates. ISO 20022 is ultimately about enabling banks to deliver enhancements to their corporate clients, and Commerzbank is dedicated to collaborating with its corporate clients to ensure they are positioned to capture the range of opportunities it can bring.
The final push to get the remaining part of the Swift community over the line is bringing full migration ever nearer. And beyond that? A new world of enriched cross-border payments. Let’s ensure we are all ready to realise the benefits.