How To Migrate to ISO 20022? - A Complete Guide

What is the ISO 20022 standard?

The ISO 20022 standard is a global messaging standard specifically designed for financial transactions. It standardizes the structure and format of data used in financial messaging, particularly in today's real-time payments environment. ISO 20022 introduces a new data format that enables organizations to exchange information seamlessly across various financial services applications. It also facilitates the development of digital overlay services, enhancing the functionality and interoperability of payment systems.

What do financial institutions need to know about ISO 20022?

Financial institutions need to be aware of several key aspects regarding the ISO 20022 standard:

1. Origin and Syntax: ISO 20022 was first introduced by the International Organization for Standardization's Technical Committee 68 in 2004. It utilizes an extensible markup language (XML)-based syntax, which allows for handling larger data volumes, simplifies financial data parsing, and reduces the risk of data truncation and loss.
2. Enhanced Data Capacity: The adoption of ISO 20022 dramatically increases the number of data points that banks can send and receive with payments. This upgrade expands the data capacity from approximately 100 characters to nearly 9,000 characters, providing a much richer data format for financial messaging.
3. Interface and Machine Compatibility: ISO 20022 is designed to be both interface- and machine-friendly. It enables financial institutions to create comprehensive data records along the payments chain, enhancing transparency and traceability.
4. Industry Adoption: ISO 20022 has gained widespread adoption across the financial services industry. It is utilized by over 70 financial organizations, including major players like The Clearing House's Real-Time Payments network, SWIFT, the China National Automatic Payment System, and the Bank of Japan's Financial Network System.
5. Regulatory Perspective: While ISO 20022 adoption is not enforced from a regulatory standpoint, many payments system operators have set deadlines for transitioning to the new standard. Financial institutions should be aware of these timelines and plan accordingly to ensure compliance and seamless integration with the ISO 20022 framework.

Why is standardization important?

Standardization is important in payments because it helps different payment networks and systems work together smoothly. Think of it like everyone speaking the same language instead of each person using their own. 

This common language, such as the ISO 20022 format, makes it easier for banks and other financial institutions to connect and exchange payment information. It reduces problems and delays in cross-border payments and allows for more options in how payments are made. 

Standardization also gives flexibility for institutions to customize some parts while still following the common rules, making the whole system more efficient and reliable.

What are the benefits of migrating to ISO 20022?

• The rich data provided by ISO 20022 allows banks to create and deliver better experiences for their customers, leading to improved satisfaction and loyalty.
• Enables better fraud prevention measures, helping banks detect and prevent fraudulent activities more effectively.
• Facilitates greater compliance with anti-money laundering (AML) regulations by providing comprehensive data that supports robust monitoring and reporting processes.
• Adopting ISO 20022 reduces the need for manual investigations, leading to more efficient operations and higher straight-through processing (STP) rates, which contribute to lower costs and faster transaction processing.
• ISO 20022 empowers banks to enhance the quality of high-value services they offer to customers globally, supporting their competitiveness and growth in the international market.

What is the difference between SWIFT FIN (MT) messages and the new ISO 20022 format?

The new ISO 20022 format allows for more detailed and comprehensive data in messages compared to the older SWIFT FIN (MT) format. It uses a common XML format, making it easier to integrate with different systems. ISO 20022 also supports greater data volume, has a user-friendly layout, and provides a structured record of data along the payments chain, enhancing transparency and traceability.

What is the ISO 20022 equivalent of an MT103 message?

The ISO 20022 equivalent of an MT103 message is the Customer Transfer message type PACS.008. This message type is used for high-value payment schemes transitioning to ISO 20022, including SWIFT-like schemes, pan-regional schemes, and domestic schemes. Additionally, a Bank-to-Bank Transfer PACS.009 is the equivalent of MT202 and MT205 messages, with PACS.009 Cov corresponding to MT202 Cov. The ISO 20022 messaging framework also includes other message types like PACS.004, PACS.002, and CAMT.xxx for various payment and return scenarios.

Is it sufficient to convert from MT to XML when transitioning to ISO 20022?

Converting from MT to XML is a fundamental step in transitioning to ISO 20022, but it falls short in ensuring full compliance or offering the same user-friendly interface as the ISO 20022 format.

Why is a basic converter not enough for ISO 20022 migration?

A basic converter can establish connectivity between MT and XML systems, but it lacks the ability to handle data granularity and structure effectively. This can lead to data truncation and loss during the transition, especially when dealing with rich data and freeform fields.

What are the limitations of relying solely on a basic converter for ISO 20022 migration?

The limitations include reduced data granularity, challenges in mapping ISO-equivalent fields in legacy formats, and potential loss of information, particularly with rich data that legacy formats cannot handle efficiently. This compromises the benefits of ISO 20022, such as enhanced data richness and improved usability.

Which payment types are moving to ISO 20022?

The following payment types are moving to ISO 20022:

1. FI to FI Status Report Messages (PACS.002)
2. Customer Credit Transfer Messages — Single (PACS.008)
3. Customer Credit Transfer Messages — STP_STP EU (PACS.008)
4. General Financial Institution Transfer Messages (PACS.009, PACS.009ADV, PACS.009COV)
5. Financial Institution Direct Debit Messages (PACS.010)
6. Confirmation of Debit/Credit Messages (CAMT.054)
7. Customer Statement Messages (CAMT.053)
8. Transaction Report Messages (CAMT.052)
9. Return of Funds Messages (PACS.004)
10. Resolution of Investigation Messages (CAMT.029)
11. Payment Cancellation Request Messages (CAMT.056)
12. Notification to Receive Messages (CAMT.057)
13. System Event Notification Messages (ADMI.004)
14. Receipt Acknowledge Messages (ADMI.007)
15. Customer Credit Transfer Initiation Messages (PAIN.001)
16. Customer Payment Status Report Messages (PAIN.002)
17. All Xsys Messages (XSYS.XXX)

How does ISO 20022 relate to cross-border payments?

The ISO 20022 global payments standard enhances interoperability between payment networks and schemes, making it vital for processing cross-border and cross-rail payments efficiently. Additionally, ISO 20022 enriches payments with richer data, eliminating manual parsing and creating more detailed payment chains, ensuring seamless cross-border transactions.

Do banks need to be able to send and receive ISO 20022 messages?

Yes, banks must be able to send and receive ISO 20022 messages for high-value payment rails to remain compliant with network and system updates. This is crucial for banks, especially correspondent banks, to continue transacting on behalf of their customers and pass structured, enriched data to the next party in the payment chain.

Is migrating to ISO 20022 mandatory?

Migrating to ISO 20022 is becoming mandatory for various real-time gross settlement (RTGS) domestic and regional schemes, each setting its own migration timeline. Some schemes, like SWIFT, offer coexistence periods where both FIN and ISO 20022 messages are accepted.

However, even during coexistence periods, if a financial institution or intermediary sends an ISO 20022 message, the intermediary must be capable of receiving and forwarding that message. Any workaround, such as using a translator, still requires dealing with the global shift and its impact on correspondent banking business.

What is the timeline for ISO 20022 migration?

The timeline for ISO 20022 migration varies across different schemes, with each setting its own deadline and implementation plan. Some key timelines to note include:

• SWIFT has announced a revised migration timeline starting in November 2022, with a deadline of November 2025.
• The European Central Bank (ECB) has set a deadline of November 2022 for ISO 20022 migration.
• The Federal Reserve's Fedwire Funds Service is expected to go live with ISO 20022 migration by late 2023.
• The Reserve Bank of Australia and the Australian Payments Council aim to complete their ISO 20022 migration by November 2024.

How long does it take to migrate to ISO 20022?

The duration of an ISO 20022 migration can vary depending on the partner and the solution chosen. Typically, a migration timeline ranges from nine to twelve months. Techzert Payment Platform is a comprehensive solution that streamlines ISO 20022 migration and replaces legacy systems, providing banks with an efficient and effective migration process.

How can banks migrate to ISO 20022?

A: Banks can migrate to ISO 20022 in a phased and controlled manner without the need for a complete overhaul of their legacy systems. Techzert's Enterprise Payments Platform offers a solution that acts as an intermediary step in the migration process. This solution integrates with existing legacy systems, ensuring compliance with ISO 20022 standards and enabling banks to manage and utilize rich ISO data effectively. By transitioning to Techzert's solution at their own pace and according to a smooth, controlled, and low-risk timeline, financial institutions can successfully migrate to ISO 20022 without disrupting their operations.

What challenges are associated with ISO 20022 implementation?

Each ISO 20022 migration is unique, and the challenges faced by one financial institution may differ from those of another. However, there are some general best practices that participant banks should follow to ensure a smooth implementation process:

1. Conduct a comprehensive gap analysis of core payments processing capabilities to identify systems that need modernization for ISO 20022 and prioritize them accordingly.
2. Familiarize yourself with the ISO 20022 requirements of relevant domestic and regional schemes before migration to ensure compliance.
3. Take a phased approach, initially focusing on essential tasks like connecting to payment rails and handling larger data volumes (e.g., setting up end-to-end payment flows for straight-through processing), and then gradually migrate additional systems and interfaces.
4. Provide adequate training to staff on the significance of ISO 20022 and ensure they are well-equipped to use new systems effectively.
5. Embrace a forward-thinking mindset by identifying opportunities to pursue before starting the migration and incorporating them into your ISO 20022 strategy.

What kinds of rich-data services are possible with ISO 20022?

The data richness afforded by ISO 20022 enables a range of valuable services for banks. This includes leveraging artificial intelligence (AI) for personalized financial guidance and streamlining the automated reconciliation of invoices. Moreover, ISO 20022 plays a pivotal role in facilitating the expansion of alternative payment methods, empowering proactive banks to seamlessly integrate and offer these diverse payment options to their customers.

Which payment schemes/systems are already using ISO 20022?

Several payment schemes and systems have already adopted ISO 20022. SWIFT, for instance, has been supporting ISO 20022 through its SWIFT MX format, which operates under a distinct set of ISO 20022 guidelines. As of September 2019, approximately 10 high-value payment schemes have gone live on ISO 20022. Examples include China's CNAPs and Japan's NET.

Is it a case of SWIFT gpi vs. ISO 20022, or SWIFT gpi and ISO 20022?

SWIFT gpi and ISO 20022 are not competing but rather complementary initiatives. While SWIFT gpi focuses on enhancing cross-border payments with improved speed, transparency, and tracking capabilities, ISO 20022 is a global messaging standard that standardizes data structures for financial messages. Both initiatives can work together to enable real-time payments and offer additional value-added services, especially as high-value payment schemes transition to ISO 20022.

Most instant payments schemes are already based on ISO 20022, which creates a seamless environment for financial institutions to leverage both high-value and instant payments schemes. SWIFT gpi Instant, for example, integrates with high-value payments schemes and local instant payments schemes, allowing for cross-border or domestic payments with enhanced tracking and notification features. This integration reduces friction in message translation and enhances the overall efficiency of payment processing across different payment schemes.

What’s the impact of ISO 20022 on Universal Confirmations?

The impact of ISO 20022 on Universal Confirmations primarily affects smaller financial institutions that may find it challenging to meet the Service Level Agreement (SLA) requirements of SWIFT gpi. Universal Confirmations focus on a narrower scope of messaging types, specifically Customer Transfers, which are required to provide a response to the SWIFT Tracker. However, the SLA response time for these responses is slower compared to SWIFT gpi requirements.

It's important to note that Universal Confirmations are not directly related to the migration of high-value payment schemes to ISO 20022. Instead, the impact is felt in the context of Credit Transfers, where the transition from the MT103 message format to the ISO 20022 PACS.008 format is significant.

Techzert offers solutions designed to assist financial institutions in managing SWIFT gpi, Universal Confirmations, and the migration to ISO 20022, providing support for navigating these complex processes and ensuring compliance with evolving industry standards.