ISO 20022, the global messaging standard that will introduce a universal language for transferring financial information on everything from payments to securities trading and settlement, holds important implications for corporate treasury. Some commentators are concerned corporates are ill prepared and have been slow to act on preparing for ISO 20022 and the upcoming changes and could lose out on the benefits.
The migration to ISO 20022 has been many years in the making. Now, the transition to the new standard is finally happening with payment schemes worldwide, including SWIFT cross-border payments and several domestic high-value and real-time payment systems moving to the new format. For example, SWIFT is making it mandatory for its member banks to adopt the new standard for cross-border payments by the end of November 2025.
ISO 20022 allows for more detailed and structured data to be included with the payment message. More data means more automation, with payments becoming simpler and more efficient, in turn meaning corporates will get paid more quickly.
“Currently, CHAPS allows for just two unstructured data fields where users can enter an invoice reference or any other detail to identify their payment. This approach will now change thanks to ISO 20022, with the BoE mandating the inclusion of extra information in CHAPS transactions,” explains Anish Kapoor, founder and CEO of AccessPay which provides secure, cloud-based payment automation and cash management solutions.
Companies (as well as all the other organisations making or receiving payments) need to update their finance systems and processes to collect and receive this new information. For many corporates, this will involve working with numerous parties, including finance, IT, risk, sales and customer servicing.
“Adding to the complexity, the mandated information requirements all run to different timelines, starting with the inclusion of purpose codes and Legal Entity Identifiers for certain transactions from November 2024,” says Kapoor.
Richard Ransom, Strategic Customer Success Manager for Corporates, Bottomline explains that without any compelling regulatory compliance, corporate readiness for ISO 20022 falls into three camps. “Either a company’s ERP is ISO-ready out of the box; their bank offers ISO as an option for corporate-to-bank connectivity or, thirdly, ISO 20022 is on their strategic radar, but nothing is happening without a business case, which is currently difficult to justify,” he says.
He adds UK businesses understand the benefits of ISO 20022, but until Bacs and Faster Payments use the ISO Standards, they won’t see the benefits or, in the main, invest in taking advantage of the structured data and increased fields and characters for reference information.
Today, he says, most businesses just want insulation from the impact of the change. “They are looking for their payment hubs and cash management solutions to translate and, where necessary, enrich the legacy formats to ISO or vice versa depending on the demands of the channel.”
AccessPay found in a recent survey of corporate finance teams that 52% had made no preparations at all for the switch to the new standard, while just 14% had spoken to their bank to understand what preparations were needed or conducted an internal data review to understand missing gaps.
Moreover, the survey found readiness tails off for smaller companies. The bigger the corporate the better prepared they are. And because ISO 20022 migration is not mandatory for companies, unless they are direct participants, many mistakenly believe they do not need to do anything.
A lack of corporate readiness will have implications for banks, continues Kapoor. For financial institutions, the lack of corporate preparation means there will be migration issues with the new standard. “For example, if banks do not receive the correct information to make forward payments, there will be an increased proportion of failed payments, as well as a rise in the number of payments that require fixing. This will inflate costs.”
Financial institutions need to renew their efforts not just to build awareness but also to highlight the benefits ISO 20022 can bring.
“Equally, corporates that have yet to take steps to prepare for ISO 20022 should reach out to their banks and confirm timetables. Most major financial institutions are running old and new formats in parallel for some time at least, providing some leeway for organisations to create a migration strategy.” Treasurers should start conversations with their ERP and treasury management system providers. Treasurers should also explore investing not only in technology, but also in operational resources around testing and validation to support the shift to ISO.
“There remains a resounding lack of activity. This will create migration issues for financial institutions, as both parties must be ready to send and receive the additional information. Financial institutions need to review their messaging to clients to spur them into action and ensure that staff, especially those on the front line, are appropriately trained to support ISO 20022-related queries,” he concludes.
