ISO 20022 proves its credentials in harmonisation efforts


A relatively mature standard in Europe, momentum is building behind ISO 20022 globally as its benefits across a wide range of financial services activities become more apparent.

Since the first reflections on the Single Euro Payments Area (SEPA) credit transfer (SCT) in 2008, momentum has built behind its underlying standard, ISO 20022. A common global messaging standard, the attraction of ISO 20022 lies in its ability to be flexible enough to work with current technologies and be adapted to any new technologies that emerge. It is also a richer format that allows more information to be sent within a message. In Europe’s payments landscape, the standard is now used for SEPA direct debits (introduced in 2009) and instant payments (SCT Inst, introduced in November 2017). In the securities industry, ISO 20022 has been used for Target2-Securities, the European Central Bank’s (ECB’s) securities settlement mechanism, which was launched in waves since 2015.

The migration of correspondent banking messages from the MT world to ISO 20022 will be difficult because it will be an exciting and long-lasting multi-stakeholders project. The industry will have to invest a great deal in this, but in the long term it will help us to save costs by delivering higher rates of straight through processing and fewer operational risks as the transported information is richer

Laurent Lafeuillade
Deputy Head of Interbank Relationships, Global Transaction Banking

SWIFT, which is the Registration Authority for ISO 20022, has launched a survey to gain market feedback on migrating financial messages, and especially the correspondent banking ones, from the MT series on to ISO 20022. This is an interesting time for the industry as it is caught between two worlds: the open and richer world of ISO 20022 and the private and globally used world of SWIFT’s MT message. In the correspondent banking business, the move from the MT world to ISO 20022 will need to be handled carefully as it is a totally new approach impacting all financial institutions. However, it will be worth it because of the newness and fullness of ISO 20022 versus the MT series.

The momentum behind ISO 20022 can be attributed to two main reasons – the need to overhaul aging central bank systems and the success that has already been seen with SEPA and other similar initiatives around the world in retail payments. The potential of ISO 20022 for market infrastructures is being explored globally: Australia, Japan and Switzerland have been frontrunners. Elsewhere, the Bank of England has committed to introduce ISO 20022 for the high-value payments system CHAPS and in the US, the Fed is introducing ISO 20022 as part of a payments system. The ECB will also move its new high value payments system on to the standard by November 2021.

In retail payments, the experience with SEPA has demonstrated the potential of a richer format for banks and their customers. Information not just about the payment itself, but also regarding other activities such as reporting can be sent with messages. This helps banks and their clients to improve decision making and also delivers more opportunities for new commercial and business capabilities. For example, ISO 20022 will give banks the opportunity to add non-financial information for new use cases by customers, such as geolocation information that could be used to help prevent fraud.

ISO 20022 migration is not just technical. Change management will be a key factor in facilitating migration to ISO 20022 and ensuring its success

Frantz Teissèdre
Head of Interbank Relationships, Global Transaction Banking

The migration to ISO 20022 involves high costs, but if the industry is to reap the full benefits of this standard a fully-fledged, smooth migration is required within a reduced timeframe. Also required is an understanding that migration is not just technical, but also involves change management in front, middle and back offices and on the client side. Training of staff here will be required so they understand this new format and its potential. Harmonisation is also important, again not just from a technical viewpoint but also in terms of business rules; banks don’t tend to use the same message in the same way, with tiny differences between countries and also within the same country.

By participating in industry groups such as HVPS+, the Payments Market Practice Group, etc., financial institutions can ensure standard market practices are well-defined and adopted, which will help to ensure the successful conversion of MT messages into ISO 20022 ones. International banks that operate in multiple countries, like Societe Generale, welcome harmonisation efforts as they lead to less costs and operational risks. Harmonisation also creates more business opportunities, so it is worth investing time in this. Over the medium to long term, financial institutions will reap the fruits of migration to ISO 20022, which is why they should welcome the migration and embrace harmonisation efforts.