ISO 20022 is fast becoming the lingua franca of the payment’s world, where corporates, banks and others all speak the same interoperable language, making communication more effective. More data means more automation, with payments becoming simpler and more efficient, which in turn will impact the global economy if corporates can get paid more quickly.
Many systems already use ISO 20022 and SWIFT, the global payments messaging network, is making it mandatory for its member banks to adopt the new standard for cross-border payments by the end of November 2025.
In the first of two Treasury Today articles on ISO 20022, Gareth Lodge, Principal Analyst at Celent, explained the value of SWIFT’s MX standard and the implications if corporates and banks don’t comply with the deadline.
Lodge’s recent ‘Ready or Not, Here it Comes: There’s No Hiding from ISO 20022’ captures the current state of readiness in the industry, which makes for interesting – and at times worrying – reading.
Celent’s ISO 20022 Global Readiness Survey polled 211 senior executives at banks in 22 countries, from institutions ranging from at least US$50bn to over US$500bn in assets. The survey also polled the same number of executives at corporates in the same countries. “Simply put, the industry won’t be ready,” the report notes.
The survey showed that globally, an average of 72% banks believe they will be ready by 2025. In Europe, the figure was 68%; in Latin America it was 74%, in Asia Pacific, 73% and in North America it was just 56%. This means that 44% of banks in North America won’t be ready – and if this figure is extrapolated globally and applied to SWIFT’s 11,000 member banks, this could mean that nearly 5,000 banks might not be ready, points out Lodge.
This could have serious implications for the whole migration, especially if the larger correspondent banks – those that provide a major junction point into countries – have not got on board. The report notes approximately 100 banks account for more than 70% of payment volumes, which could have a major impact.
The corporates’ view of the industry’s readiness is more pessimistic, with 68% believing the banks will be ready. That optimism tails off as the size of the corporate goes down. “The bigger the corporate the slightly more bullish they are,” says Lodge. Perhaps more worrying is that only 3% of corporates believe the industry will be 100% ready.
Lodge comments that the corporate view of the industry’s readiness may be a more accurate indicator because they are multi-banked and frequently talk to their banks about how ready they are going to be.
ISO 20022 migration is not mandatory for corporates, unless they are direct participants, but many mistakenly believe they do not need to do anything. In fact, 15% of corporates globally with revenues above US$15bn say their main bank still has to tell them the migration is even happening.
It is not just about complying with a deadline, however, but ensuring the migration is done properly. Many measures that are being taken, such as using message converters “are a stop gap at best and not going to work at worst,” says Lodge.
One risk is that corporates will receive even less information than before. A long ISO 20022 message – which carries additional information – will be truncated if it is being received by the old format with limited characters. Key information may be chopped off if it is not put in the first part of the message.
Many corporates are making contingency plans for this kind of scenario and banks should take note: many corporates are prepared to change their main bank if they are not ready. “Banks may lose customers as a result. The flip side is that readiness could be a competitive differentiator for banks,” the report notes.
