In this blog, we explore the transition to ISO 20022 and how it’s transforming the future of financial messaging and cross-border payments. Sharing insights from AutoRek’s global payments sales manager, Nick Botha, and Brian Riley from Javelin, it explores the key challenges and opportunities ISO 20022 presents for financial institutions, from the recent payments journal podcast.
- What is ISO20022?
- How will the transition to ISO 20022 impact firms?
- How can firms leverage the opportunities ISO 20022 brings?
- How can firms navigate the challenges of ISO 20022?
- How can firms overcome these challenges and best prepare for the transition?
- Key Takeaways
What is ISO20022?
ISO 20022 is an open global standard for financial information. By adopting ISO 20022, SWIFT aims to deliver a standardised approach for processing payments from a cross-border perspective.
As Nick highlights, currently there are “a lot of disparate networks, in different geographies, operating within their own regime.”
So, the introduction of the new messaging standard aims to “create standardisation across the market, as we move towards a more centralised payments economy around the globe,” Nick says.
How will the transition to ISO 20022 impact firms?
Although SWIFT originally adopted ISO 20022 in 2021, the deadline to enable ISO 20022 for cross-border payments of November 2025 is soon approaching.
So, how are firms being impacted by the transition?
“When you think of these firms, operationally they’re set up to process these payments […] Theres’ a lot of technology that’s been put behind the transition and a lot of workshopping that’s been happening across different geographies globally within the SWIFT network.”
However, “we are going through a transitional period where some firms may have adopted the messaging system, while others have older versions. Not all firms will have the resources or funds to switch it on immediately.”
As a result, there is going to be a “transitional period where firms are trying to transact with other firms, but the messaging may conflict. This will create some friction in terms of interoperability,” Nick reveals.
Therefore, the transition to ISO 20022 could present challenges of interoperability between firms due to differing levels of adoption.
But how will it affect firms internally?
As Nick highlights, when it comes to the process of migrating to ISO 20022, firms must consider if their “internal systems can handle the complexity of all the data they’ll be processing. This is where it becomes a challenge, in terms of interoperability between your tech stack internally.”
“Firms are going to have to put a lot of resources and funds behind this project and migration to ensure, not just interoperability between their counterparts in the wider economy, but also in terms of their tech stack and how they communicate effectively between each other. This is going to be hugely important moving forward,” Nick emphasises.
Thus, the transition to ISO 20022 will involve “not just engineering the front end of the process, but getting it smooth all the way through the cycle of payments,” Brian adds.
How can firms leverage the opportunities ISO 20022 brings?
The transition to ISO 20022 presents both challenges and opportunities for financial institutions.
How can firms navigate these challenges and leverage opportunities?
As Nick explains, ultimately ISO 20022 is “going to help reduce some of the cost associated with payments. Firms will be able to gain some economies of scale within the actual payments themselves.”
Another benefit of ISO 20022 is that it will “facilitate more improved measures to help manage payments, data processes and data analysis.”
Evidently, there are numerous benefits of adopting the new messaging standard, including the potential for improved interoperability, data management, cost reduction and economies of scale.
So, if you haven’t already jumped on the bandwagon, “it’s definitely something to engage in, look for and understand how it’s applicable to your strategic direction of cross border payments for your business, especially if you’re in the SWIFT network,” Nick emphasises.
How can firms navigate the challenges of ISO 20022?
While there are a lot of benefits, it’s important to flag some of the challenges ISO 20022 may bring. One notable challenge is resource deployment. As discussed, it’s an expensive exercise to move migrators across to ISO 20022.
If organisations are going to be putting lots of funds behind this project, what can financial institutions do to keep their operational costs down?
The answer lies in automation.
Some firms face challenges of diseconomies of scale, whereby the cost of doing additional transactional volumes increase in parallel with revenues generated. Consequently, margins per transaction fail to increase over time and a diseconomy of scale is generated – it costs more to produce more transactional volume than it is bringing in volumes.
“The best way to counteract this is to create operational efficiencies, which reduce the operational cost per transaction […] and allow you to benefit from economies of scale. That is when your company will start to gain more revenue from processing more transactional volumes,” Nick explains.
How can firms overcome these challenges and best prepare for the transition?
Creating operational efficiencies through automation is key.
This is because “automation can help financial institutions gain economies of scale for higher transactional volumes.
“If you’re ingesting a CSV file with one line of data with maybe 10 or 15 fields, that could probably be done manually […] But when you start getting into these millions of transactional records, with a significant amount of data, that needs to be automated,” Nick highlights.
Automating reconciliations, therefore, can drive operational efficiency by reducing the operational cost of transactions.
Further, “when speaking specifically about ISO20022”, it’s important “that external software vendors are able to ingest that message, which AutoRek does.”
You should also consider if they can “handle the types of data, format of the data and volume of data available to them. AutoRek absolutely does that,” Nick highlights.
Key Takeaways
• SWIFT have introduced ISO 20022 (a new messaging standard), with the objective to standardise the processing of cross-border payments.
• The transition to ISO 20022 could cause issues of interoperability between firms and within firms.
• ISO 20022 could reduce some of the costs associated with payments and improve data insights, analysis and management.
• Migration to ISO 20022 is an expensive exercise; firms can keep their operational costs down by creating operational efficiencies.
• Automation is key when it comes to creating operational efficiencies.
• AutoRek can ingest ISO20222 messaging and handle all data types, formats and volumes.