Banks and financial institutions around the world are preparing will transition from legacy SWIFT MT financial messaging system to the highly structured and data-rich ISO 20022 standard by November 2022.
In order to best prepare financial institutions for this switch, Tuhinabhra Mahapatra, Head of Next Generation Payments, and Shantharam Shenoy, Vice President – Payments and Banking Platform, Transaction Switching, both of Attra, detail the preparations that firms can make for the migration, and the impact that they can expect to see from it.
Tuhinabhra Mahapatra serves as the Next-Gen Payments Practice Lead for Attra, a Synechron company, in Bangalore, India. He is a management professional with more than 17 years of experience in leading transformational programs in banking, cards, payments, annuity, and mortgage applications. He has conceptualised various initiatives to broaden solution offerings for the Next Generation Payments practice, covering use cases in banking, digital payments, open banking, real-time payments, artificial intelligence, cognitive services, and others.
Shantharam Shenoy serves as the Transaction Switching Practice Lead, also for Attra in Bangalore, India. He has more than two decades of IT experience and has led and managed consultancy engagements, and worked closely with product vendors, across Cards, EFT, Fuel Cards, SWIFT messaging, and AML business areas. He has successfully led and implemented payments solutions for multiple banks, financial institutions, third-party processors, and retailers in India and globally. He has spearheaded consultancy projects for various clients in the US, UK, Australia, Malaysia, Bangladesh, Netherlands, and Philippines.
The financial services industry is always evolving. This is particularly true as enterprises streamline their global communications and messaging infrastructure by adopting a common ‘language’ and standardised communications format.
ISO 20022 is an international messaging standard defined by the International Standards Organisation. It is predominantly used for data exchange between financial institutions. The genesis of the ISO 20022 messaging standard is to provide a common messaging protocol that will have a defined central dictionary and rules.
All financial institutions across the globe need to migrate from current message standards (e.g., SWIFT MT Financial Messages) to the ISO 20022 standard in a phased manner.
Why does the international financial services payments industry need ISO 20022 messaging standards?
Some of the key benefits for making this transition include:
- Enhancing 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 has been designed to address issues related to consistency and interoperability.
- Enabling richer data and enhanced efficiency – ISO 20022 messages are much richer in data, and the ability to accommodate more details helps in the creation of differentiated digital solutions and in efficiency improvement of the existing payment processing systems.
- Facilitating new age solutions through real time payments – Adoption of the ISO 20022 standards in certain parts of the world has accelerated through straight through processing (STP) and with the implementation of real-time payments networks.
- Allowing better data quality and analytics – The ISO 20022 standard ensures better data quality. It improves data analytics capabilities which require less manual intervention, and it also helps in the accurate compliance process.
- Optimising costs – ISO 20022-backed payments mechanisms have the potential to bring costs down drastically. Due to compatible message structures, payments between two countries could be almost instant and significantly inexpensive.
The ISO 20022 standard was introduced in 2004, but it started gaining impetus in line with the rise of instant payments and rapid digitalisation in the industry. The shift to the new standard won’t be a landslide, the approach across the industry has been staggered and different approaches are emerging.
Within this, one thing is certain – firms need to prioritise their migration to reap the benefits of the new system and be in the driving seat of the industry.
Industry preparation for the migration to ISO 20022 should start now
ISO 20022 migration is going to have a significant impact on the payment industry, and financial institutions should not postpone their plans to upgrade their systems to send and receive payments in new formats. Early adopters of full ISO 20022 messages will have a clear advantage by being future ready and creating more value for their customers and connecting with the larger payment ecosystem.
Payment schemes across the world may take different approaches to migrate to ISO 20022 standards. Banks and other financial institutions will need to work very closely with the relevant regulatory bodies governing the implementation globally. Nonetheless, banks will need to prepare their systems to accept the ISO 20022 MX messages through SWIFT according to the given timeline.
Since the changes are inevitable in the not-so-long-term, those financial institutions should chalk out a complete migration plan to the new standards.
Here are five points that financial institutions should consider in readying for ISO 20022 adoption:
- Assess and Define: Teams involved in the transformation program for banks should be able to assess the current payment ecosystem and payments processing capabilities, and then define a proper plan for data mapping, changes required, storage of data, and plans for testing and migration.
- Ensure robust processes: Banks need to have robust processes in place to upgrade their legacy infrastructure for processing larger volumes of data, and enable higher throughput, straight through processing, instant payments, systems for liquidity management, compliance check, fraud, and risk management.
- Engage in end-to-end testing: Bank staff, including the vital IT teams, should ensure end-to-end testing, reconciliation, clearing and backend updates in associated payment systems are in working order and ready for larger volumes.
- Document broadly: Documentation of Standing Order Payments for all aspects of payments is of utmost important for resolving issues in a timely manner.
- Educate and train: Training employees and corporate customers is an important, and often underlooked aspect of migration. Educating corporate customers on additional features, data, additional information to be provided while initiating the payment transaction in online mode or batch mode is vital. End-to-end testing should ideally involve corporate customers as well.
The payment industry is on the cusp of major transformation right now because of ISO 20022 migration. Financial institutions need to look at it as an opportunity to bring more efficiency in their present services and to harmonise with a larger payment ecosystem, as ISO 20022 standards are likely to remove some of the current frictions in payments.