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The wait for ISO 20022 is nearly over

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For the SWIFT CBPR+ Cross Border and European Target 2 systems the highly anticipated live date is here. On Monday 20th March 2023, the ISO20022 messaging standard will go live for all the banks using these systems globally.

This is only the first step in the journey and there are many more elements to come over the next two years and beyond.

Over the coming months, you will start to see changes to the information contained with an MT message. If a message has originated in the new MX format it may not easily get translated to an MT message as there could be more data. Therefore you may start to see truncated or missing data in an MT message meaning that you will need to have plans in place to retrieve this data.

As well as SWIFT CBPR+ going live, other countries will also be going live on this date, including Australia, New Zealand, the Eurozone, and Canada. Some countries have already gone live and many more will be going live over the next two years. The change is inevitable.

It is worth looking at some of the reasons why the change is being made and what adoption strategies can be used.

Why is ISO 20022 being adopted?

The payments ecosystem continues to rapidly change and evolve. It has been driven by pressure from regulators, new entrants, and by customers who now expect payments to be instant, frictionless, and account-to-account. To address these challenges and meet client needs, a modern, structured, open payments language has been introduced in the form of ISO 20022.

Different parts of the financial community have other drivers for adoption. But most see the key drivers of adoption of ISO 20022 as the improved compliance, efficiency, and customer experience that having a single end-to-end standard for international, domestic, high value, low value, and instant payments delivers.

Why is ISO 20022 better than MT?

ISO 20022 is richer in content, more structured, and granular in detail than MT messages. That combination enables higher efficiency in end-to-end automation by allowing cleaner screening and adverse event detection, and therefore fewer false positives and straight-through processing (STP) breaks. Moreover, the richer data enables better end-to-end transmission of more and more helpful information for the benefit of customers and their business partners.

What to consider during the co-existence period (2023-2025)?

A co-existence of ISO 20022 MX and legacy MT format will be in place until November 2025. The ISO 20022 migration will occur in phases over the next few years and by 2025, it’s expected that 80 percent of global high-value payment volumes will use the ISO 20022 standard and MT message support ends.

SWIFT introduced a central Transaction Manager (TM) at the end of November 2022 and expects client traffic will only start to build in this application from the end of May 2023. TM will hold a master ‘transaction copy’ and orchestrate a transaction from sender to receiver, fundamentally changing the processing and communication of messages for participants in a payment. TM will also provide message interoperability in the co-existence phase (2023 -2025) including:

  • Application programming interfaces (API)
  • ISO 20022 messaging and
  • MT connectivity (ends 2025)

From a bank’s perspective, what should my ISO20022 adoption strategy be? 

A primary element of any bank’s ISO 20022 adoption strategy will be getting their systems ready and ensuring their platforms can cope with the new standard’s larger data sets in terms of capacity, storage, and performance. Many banks are already leveraging new technology and digitising their platforms, so they may already have the capabilities to accommodate large sets of data and support ISO 20022-based data models. 

It is essential to note that banks need to analyse their data models across the payment lifecycle. Any system that touches the flow of payment processing and settlement—including messaging, accounts data, sanctions screening, accounting entries, settlement reports, statements, reporting, billing, and inquiries—has the potential to be affected.  

Banks need to carefully consider all of the business components that could be impacted by the ISO 20022 changes. As banks transition to ISO 20022, several vital decisions must be made concerning strategic outlook and technological operations. There are several ways banks are approaching the adoption, most of which can be grouped into one of three categories mentioned below: 

  1. Full Migration – Each system within a banks’ payment processing chain is upgraded to accept, process and send ISO 20022 format messages natively. 

  2. Simple Translation – Translation tools transform inbound messages into their MT equivalents and outbound messages into their ISO counterparts, while underlying payment and reporting systems remain essentially unchanged. 

  3. Bridged / Linked Translation – Underlying payment systems remain largely unimpacted, and messages are translated from MT to ISO formats and back. Overflow information from inbound messages is stored to be restored and reintegrated into the corresponding outbound messages. 

Which approach is best for my bank?  

A bank may choose one of the approaches above or they may choose to create an incremental approach depending on their organisational structure. For instance, they may start with a bridged approach and then work towards the full migration approach.  

The below table provides some insight into which approach could be best suited for different types of organisations. 

Regardless of whether a full, simple, or bridged approach is taken, the following are some of the key characteristics that if addressed will lay the foundation of a successful migration to ISO 20022: 

  • A clearly defined long-term strategy 
  • A comprehensive impact analysis 
  • Robust and systematic project management 
  • Effective internal and external communications 
  • A future-proof technology and testing solution 
  • Effective training 

How Delta Capita can help 
Delta Capita is a leading global capital markets consulting, managed services, and technology solutions provider, with over 1,200 people across eight main geographies. 
We focus on resource augmentation and domain consulting for investment banks, financial market infrastructure and technology acceleration – and we have strong competency and experience in payment solutions including Real Time Payment adoption, Target Operating Models and ISO 20022 migration and triage. We have a proven track record and are trusted by some of the largest financial institutions. 
To see how we can help you maximise the benefits of ISO 20022 adoption, contact Delta Capita’s Global Head of Payments Michael Levens.