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ISO 20022’s implementation should be treated as a collaborative and "non-competitive" matter for the payments ecosystem, as the co-existence period with legacy messaging standards begins next month.
November 2022 is a big month for the payments world. It is when the switch to ISO 20022 starts to become more concrete.
As of that date, financial institutions will begin to need to be able to receive ISO 20022 payment messages. As of November 2025, all messages, both sending and receiving, must be based on ISO 20022.
“November of this year isn’t really the finish but the start,” said Richard Dzina, senior vice president at The Clearing House, while speaking at the Sibos panel, "Powering payments: The dawning of a data-rich era".
The discussion was just one of many on the subject of ISO20022 at this year's Sibos as the march towards the richer, higher quality data standard becomes ever closer. This will mean more data being able to be added to financial messages, and helping improve the quality and standardisation of this data.
Compliance teams should also take note, as it will mean fewer errors and manual intervention, helping streamline process and reducing the number of false positives.
Evoking Winston Churchill, Dzina said it is not the end or even the beginning of the end, the industry is at the end of the beginning in relation to ISO 20022 implementation. The switch will begin in the eurozone, and then with Sterling-based transactions, before US-dollar transactions.
Although panellists were under no illusion of the challenges the transition will face, market stakeholders remain positive about the global standard being implemented.
The current system is outdated, said Dimitri Pattyn, deputy director general of payments at the European Central Bank (ECB).
“The first reason to be positive is the need, the second reason is the benefits,” he said.
In addition, the designing of the ISO 20022 rails is completed, he said, referring to payments market infrastructures around the world. “The burden is behind us.”
For example, the majority of instant payment systems around the world are built on ISO 20022 standards. According to a recent Mastercard report that looked specifically at instant payment systems, nearly two thirds of the 61 surveyed were ISO 20022 based.
However, using these rails will be more tricky, he said, noting that legacy standards can also be done on these rails because banks and commercial company systems are not yet ready. “On the one hand, this is a necessity, at the same time, it is a threat, as people may be wanting to use the same trades.
“Using a chemistry analogy, it is not enough to have all of the ingredients to make a reaction, what you need is also the temperature,” he said. “If we put things together without the right temperature, then things will not work out, and right now, we have the right level of temperature.”
Pattyn said that he “trusts personally” that all of the elements are there to make things happen.
Adding to this, Dzina said that the true value of ISO 20022 will not ultimately be realised until all infrastructures migrate, keeping in mind the staggered implementation.
For example, it is advised that ISO 20022-enriched data is not sent to countries that are still reliant on legacy standards, and have not yet converted to the new standard. “This is a very important practice to keep in mind in transition,” he urged.
“The temperature is critical but so is the sequencing,” said Dzina. “Tremendous effort has gone into the industry conversation to make sure that we get the sequencing correct.”
Until all markets have implemented, there will be a co-existence challenge, he continued. “I think that we are well equipped to handle that in transition.”
Keeping up with the chemistry quips, fellow panellist Marc Recker at Deutsche Bank said that “the temperature needs to be kept low in November”.
Corporates need to do heavy lifting
In spite of the optimism on the panel, Recker warned that a weak spot will be corporate clients' reaction to ISO 20022.
“When you look at it from a corporate client perspective, they will not move until they see a business benefit.”
“If you want a consultative approach towards clients, you need to start now, and talk about the actual benefits of moving to ISO, because they will need to do the heavy lifting on their side,” he said.
The banks in the middle are not inventing the data, he pointed out. “The data tends to come from clients.”
There needs to be education, he urged. “You need to start the journey now, and hopefully by the end of the co-existence period, there will be a good baseline to see the first real benefits.”
One area of value will be innovation around the new messaging, said Dzina. “This is an unanticipated value that perhaps none of us can foretell.”
“Banks will have to think about whether to buy, build or partner,” said Nish Dharmaratne, head of global transaction services at Westpac.
These data services are not inherently in the banking system, she said. “Bankers probably don’t have the innate ability to create it, so it might be worthwhile thinking about the right kind of partnership.”
In this instance, it could be fintechs that are the beneficiaries, she suggested. “There are great opportunities for fintechs, both sides of the equation to realise this and there are good companies building excellent tools.”
As November nears, it is inevitable that these sorts of questions will be going through market players' minds, as the countdown draws closer to the end.
In spite of this, as the panel showed, there is optimism that once the systems begin to switch over, all will go relatively smoothly.
Now, only time will tell.
