ISO 20022: what you need to know about the new Universal Financial Industry Standard message system

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Banks and financial institutions around the world are gearing up to move from legacy SWIFT MT highly structured and data-rich ISO 20022 financial messaging system by November 2022.

In order to best prepare financial institutions for this changeover, Tuhinabhra MahapatraHead of Next Generation Payments, and Shantharam ShenoyVice President – ​​Payments and Banking Platform, Transaction Switching, both Attradetail the preparations companies can make for the migration and the impact they can expect.

Tuhinabhra Mahapatra, Head of Next Generation Payments, Attra

Tuhinabhra Mahapatra is the Next Generation Payments Practice Lead for Attra, a synechronous company, in Bangalore, India. He is a management professional with over 17 years of experience leading transformational programs in banking, cards, payments, annuities and mortgage applications. He has conceptualized various initiatives to expand solution offerings for the next-generation payments practice, spanning use cases in banking, digital payments, open banking, real-time payments, artificial intelligence, cognitive services, etc.

Shantharam Shenoy serves as Head of Transaction Switching Practices, also for Attra in Bangalore, India. He has over two decades of IT experience and has led and managed consulting engagements, and worked closely with product vendors, in Cards, EFT, Fuel Cards, SWIFT Messaging and AML business areas. . He has led and successfully implemented payment solutions for several banks, financial institutions, third party processors and retailers in India and globally. He has led consultancy projects for various clients in the US, UK, Australia, Malaysia, Bangladesh, the Netherlands and the Philippines.

The financial services sector is constantly changing. This is especially true as companies streamline their overall communication and messaging infrastructure by adopting a common “language” and standardized communication format.

ISO 20022 is an international messaging standard defined by the International Organization for Standardization. It is mainly used for the exchange of data between financial institutions. The genesis of the ISO 20022 messaging standard is to provide a common messaging protocol that will have a central defined dictionary and rules.

All financial institutions worldwide must migrate from current messaging standards (eg SWIFT MT Financial Messages) to ISO 20022 in a phased manner.

Why does the international financial services payments industry need ISO 20022 messaging standards?

Here are some of the main benefits of this transition:

  • Improved consistency and interoperability – Globally, financial institutions in different parts of the world currently use various messaging protocols, from proprietary standards to SWIFT MT messages. ISO 20022 was designed to address issues related to consistency and interoperability.
  • Enable richer data and increased efficiency – ISO 20022 messages are much richer in data, and the ability to accommodate more detail helps create differentiated digital solutions and improve the efficiency of existing payment processing systems.
  • Facilitating New Era Solutions with Real-Time Payments – The adoption of ISO 20022 standards in some parts of the world has accelerated thanks to straight-through processing (STP) and the establishment of real-time payment networks.
  • Enable better data quality and analytics – The ISO 20022 standard guarantees better data quality. It enhances data analysis capabilities that require less manual intervention and also helps in the accurate compliance process.
  • Cost optimization – Payment mechanisms supported by ISO 20022 have the potential to significantly reduce costs. Due to compatible message structures, payments between two countries could be almost instantaneous and very inexpensive.

The ISO 20022 standard was introduced in 2004, but it started gaining momentum with the rise of instant payments and the rapid digitization of the industry. The transition to the new standard will not be a landslide, the approach across the industry has been phased and different approaches are emerging.

In this context, one thing is certain: companies must prioritize their migration to reap the benefits of the new system and to be in control of the sector.

Industry preparation for migration to ISO 20022 should start now

The ISO 20022 migration is going to have a significant impact on the payments industry, and financial institutions should not postpone their plans to upgrade their systems to send and receive payments in new formats. Early adopters of the full ISO 20022 messages will have a distinct advantage in being future ready and creating more value for their customers and connecting to the wider payment ecosystem.

Payment systems around the world can take different approaches to migrate to ISO 20022 standards. Banks and other financial institutions will need to work closely with relevant regulators governing global implementation. However, banks will need to prepare their systems to accept ISO 20022 MX messages via SWIFT according to the schedule indicated.

Since changes are inevitable in the short term, these financial institutions should develop a comprehensive migration plan to the new standards.

Here are five points that financial institutions should consider when preparing to adopt ISO 20022:

  • Evaluate and define: Teams involved in the bank transformation program must be able to assess the current payment ecosystem and payment processing capabilities, then define an appropriate plan for data mapping, required changes, storage data and test and migration plans.
  • Ensuring robust processes: Banks need to put in place robust processes to upgrade their existing infrastructure to handle larger volumes of data and enable higher throughput, straight-through processing, instant payments, cash management systems, verification compliance, fraud and risk management.
  • Participate in end-to-end testing: Bank staff, including vital IT teams, must ensure that end-to-end testing, reconciliation, clearing and backend updates in associated payment systems are up and running and ready for larger volumes.
  • Document extensively: Documentation of standing order payments for all aspects of payments is of the utmost importance to resolve issues in a timely manner.
  • Educate and train: Training of employees and client companies is an important and often underestimated aspect of migration. Educating corporate clients about additional features, data, additional information to be provided while initiating payment transaction in online or batch mode is vital. Ideally, end-to-end testing should also involve client companies.

The payment industry is currently on the verge of undergoing a major transformation due to the ISO 20022 migration. Financial institutions must see this as an opportunity to bring more efficiency into their current services and align with an ecosystem wider payments industry, as ISO 20022 standards are likely to remove some of the current frictions in payments.

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