ISO 20022: Banks must and companies should

The changeover is regarded as an important initiative to modernize the global financial infrastructure. Global harmonization to ISO 20022 is expected to make financial transactions significantly easier, more transparent and clearer. 

The future of payments

Essentially, ISO 20022 is a standard designed to replace and thus unify regionally different financial message formats. It defines two key elements, syntax and semantics, and decouples them. On the one hand, this makes the syntax more future-proof, and on the other hand, it significantly improves accessibility to the information semantics. Due to the significantly higher number of data elements that the new format can map, ISO 20022 opens up numerous advantages for the financial industry, not only in terms of compliance, but also for the introduction of completely new business models. 

March 2023 marks the start of the coexistence phase and the go-live for cross-border payments and reporting (CBPR) for the new messaging standard in the financial industry. This fact is raising the pulse of IT managers in banks around the world. They only have until November 2025 to convert their systems to ISO 20022. In a joint study by renowned international research and consulting firm Celent and Seeburger, 72 percent of banks worldwide said they would have fully migrated to ISO 20022 by the November 2025 deadline.

Great advantages for companies

Following the migration of banks, Swift automatically expects companies to follow suit and plans to discontinue the old MT standard altogether, probably after 2030. All the more astonishing that in the same study, only 15 percent of the companies surveyed with sales of more than $15 billion said they had not even been informed about this migration by their main commercial bank.

The global standardization of payments through ISO 20022 brings great benefits not only for banks, but also for companies. These benefits include increased innovation potential, cost optimization through automation, improved customer experience, and simplified regulatory compliance. In concrete terms, however, there is more to it. Here is a selection of examples:

Financial transactions can be processed more efficiently and transparently; interoperability between the parties involved in the payment process is significantly increased by the uniform standard, also internationally; companies no longer have to support hundreds of different legacy formats of MT messages; requirements for precise and harmonized cash reporting can be met much more easily and quickly thanks to the uniform definition of data elements; all internal corporate cash management processes can be harmonized and optimized by converting to ISO 20022. Decision-making processes that depend on readily available and meaningful visibility of the financial situation can be significantly accelerated. The use of the ISO standard is future-proof due to the separation of syntax and semantics. Should the syntax ever change, it can be easily replaced, while the semantics can remain.

With ISO 20022, from originator to ultimate beneficiary, all parties through whose accounts a transfer passed are visible throughout. No matter if these are two, twenty or two hundred accounts. This transparency offers authorities and companies alike new opportunities for the detection and prevention of terrorist financing, money laundering and fraud. The new standard allows complex multi-bank connections to be integrated into a unified ecosystem via APIs or host-to-host connections, for example, giving treasury departments maximum visibility into the liquidity situation in real time.

A move to ISO 20022 will have a significant impact on how enterprise systems send and receive payment information from their banks. ERPs, TMS, HR and payroll systems, homegrown solutions, and any system that feeds payment information into these systems will be affected. According to the study, the industry has already invested the unimaginable sum of over two trillion US dollars in the changeover. However, this investment will only pay off if both sides actively seek and drive the benefits of ISO 20022 adoption.