Tareq Shaheen, PDM Director, Payment Solutions at Eastnets
ISO 20022 is now imminent, with a go-live in March 2023. Are you ready for this essential transformational change?
After the delayed November 2022 launch date for ISO 20022, the new date of this new standard in financial messages is looming. March 20, 2023, is the new go-live date for ISO 20022.
There has been much noise in the banking sector about ISO 20022. However, the question remains, is the industry ready for this redefinition of messaging in the payments ecosystem? An investigation paper from Celent has found that 63% of large banks believe they will be prepared by November 2025. However, 25% say they will need help to meet the deadline or rely on available stop-gap measures. Even more worrying, only 3% of corporates expect banks to be 100% ready.
Quick update ISO20022 and go-live
ISO 20022 is a globally recognized open standard providing a common platform for financial messaging; the standard was prepared by the ISO Technical Committee TC68 Financial Services. ISO 20022 is critical in standardizing the flow of financial information for all types of business financial transactions and will be de facto going forward.
This standardization will improve cross-border payment transactions and the payments ecosystem by utilizing highly structured transaction data in payments messages. In addition, the standard is expected to deliver a better customer experience through automation and higher resilience and facilitate more effective fraud prevention. As such, adoption is predicted to rise as the go-live date rapidly approaches.
The framework underpinning ISO 20022 comprises a:
- Metadata repository (descriptions of messages and business processes)
- Maintenance process (for the repository)
The March go-live date includes a transition period through to November 2025; SWIFT is supporting the standard by mandating that all its member banks comply with the ISO 20022 messaging standard (MX format) by 2025.
Is my organization impacted by ISO 20022?
Any financial institution active in cross-border payments is impacted by ISO 20022. Also, any organization, including banks and corporates, is affected if they have a stake in payments.
Messages affected include:
- Customer and Inter-bank payments
- Related Advice
- Statement messages (MT1xx, MT2xx and MT9xx).
Importantly, affected organizations must consider an end-to-end solution architecture that can process and store ISO 20022 messages. The transition period to November 2025 helps organizations move to a fully supported ISO 20022 system. However, readiness must have started by March 20, 2023.
Getting ready for ISO20022
Industry requests for an extension to the original November 2022 go-live date to March have been accommodated to help banks with compliance. This phase will coexist with the current MT format system, but there is an expectation of being fully compliant by late 2025.
To help during the transition to full support for ISO20022, SWIFT has supplied a central translation service called In-flow Translation as a stop-gap measure.
In-flow Translation translates ISO20022 messages into the existing MT Format (ISO20022/MT) and vice versa. This service gives banks more leeway to move from legacy to the new standard. RegTech tools such as Eastnets Transactions Suite also play an essential part in meeting ISO 20022 requirements.
The co-existence period
The coexistence period from March 2023 through November 2025 will allow banks time to adopt the ISO 20022 standard. However, early adopters will have a competitive edge, as the bank and its customers will benefit from the improved, more structured data afforded by ISO 20022.
Once the period of coexistence starts, aka, from go-live, the framework will support the exchange of ISO 20022 messages for CBPR+ (Cross-border Payments and Reporting Plus) while continuing support for non-ISO 20022 messages. However, go-live means an organization must be ready to handle ISO 20022 formatted data, as any participant can send ISO 20022 messages, and payments are, after all, two-way. As a result, all affected organizations must be ready to receive ISO 20022 formatted messages and process the translated MT embedded within the message. SWIFT’s In-flow Translation will be essential for many banks moving over to full ISO20022 support.
What happens after the ISO 20022 coexistence period ends?
Once the November 2025 coexistence period ends, all the MT category 1, 2, and 9 messages that support CBPR flows will be retired. Swift has yet to indicate if they will continue with the In-flow Translation service after November 2025; it should be assumed that this support will end at this time or shortly afterward.
A readiness plan for ISO 20022
Understanding the complex nature of adhering to the new standard is essential to ensure uninterrupted transactions.However, preparing to comply with the new messaging format of ISO 20022 is complex and involves 750 new business components and more than1900 message definitions. Add to this the need for interoperability across the different payment systems and the significant impact on operational risk.
Therefore, deployment planning is essential and must consider the following:
Migration planning
Building your strategic vision of the move to ISO 20022 standardization should involve RegTech options to map messaging formats, as this will simplify and speed-up compliance.
Governance of the migration program and continued governance of the implementation into full-production mode is critical.
Migration risk assessment
Migration planning should also involve an impact assessment, as ISO 20022 compliance is complex and will impact your operational and business risk.
The move from legacy MT to standardized MX can be made easier using dedicated RegTech solutions, such as Eastnets Transactions Suite. These solutions can offer a bank a way to meet the complex needs of ISO 20022 quickly.
Look for technology to help with seamless migration
A bank wishing to meet ISO 20022 should look for a solution that works seamlessly with legacy MT and MX messages while retaining familiar user experiences and mitigating the issues of the transition from MT to MX.
How ISO 20022 messages help with anti-fraud
Payment fraud continues to plague the world: Juniper Research predicts that online payment fraud will exceed $343 billion globally by 2027. The rich structure and standard format of ISO 20022 messages provide an ideal substrate for detecting potential fraud. In addition, fraud detection and prevention tools such as PaymentSafe can use this standardization to deep mine messages and detect fraud as it happens.
Readiness for ISO 20022 is now an imminent need across the banking world. The extension and the transition period will give banks some breathing room to get ready, but this time will quickly pass. So, banks must act now to deliver this improved messaging standard to their customers.
