Insight & Analysis

ISO 20022: someone else’s problem?!

Published: Feb 2023

The deadline to migrate to the ISO 20022 financial messaging standard is fast approaching, but many aren’t prepared. In this first of two articles on the industry’s readiness, Gareth Lodge, Principal Analyst at Celent, explains what’s at stake for those who don’t get on board.

Payments are entering a new era, declares SWIFT in a video, with the introduction of ISO 20022 – the financial messaging standard that means corporates and banks will soon be speaking the same, more advanced, language.

For SWIFT members, which comprise the network of more than 11,000 banks that make global cross-border payments possible, migration to ISO 20022 will be mandatory, and the first deadline is looming. And, as a recent detailed report – entitled Ready or Not, Here it Comes – by Gareth Lodge, payments expert and Principal Analyst at Celent states, there’s no hiding from it.

There is, however, a lot of feet-dragging going on, and many are still unprepared. The first deadline is in March 2023, which marks the beginning of a coexistence period of the new and old formats, and a final migration end point of November 2025.

“With all the other industry migrations that have taken place, it doesn’t matter when the first deadline is – everyone focuses on the last one,” says Lodge. He adds when the BACS payments network in the UK migrated to Faster Payments, 95% of the participants moved in the last three weeks before the deadline.

The approaching deadline was already pushed back by SWIFT to March because many parties weren’t ready, as Treasury Today previously reported. Did this make any difference? Not at all, says Lodge.

The recent Celent report details the current state of migration and the banks and corporates readiness for ISO 20022 – the results of which will be outlined in an upcoming Treasury Today article.

A small number of major banks account for a substantial portion of payment flows, and if they aren’t on board, it could potentially undermine the whole project. “Payments is a two-sided business – both sides have to be ready,” says Lodge.

Despite the current lack of readiness, perhaps more worrying is that many banks and corporates don’t see the need to migrate, or the benefits of doing so. There is a shocking attitude, says Lodge, where many corporates think this is a bank problem and they don’t need to do anything.

Why should corporates care? ISO 20022 is the de facto standard used by many players, such as e-invoicing schemes. If all parties are speaking the same language, it is possible to incorporate more data with a payment, such as batching invoices, using credit notes, referencing purchase orders, applying discounts and so on. Once the language is in place, notes Lodge, all the automatic reconciliation can begin. “There are large efficiency gains,” he says of the new standard. “The information about the payment is as valuable as the payment itself,” he adds, and that extra information is possible with the MX messaging.

If corporates have not migrated to this new standard, they’re missing out on its benefits, says Lodge. “If the corporates cannot generate that data, or receive it, then they are not going to get any value from it at all.”

Not only does not getting paid efficiently have implications for the global economy, there is also the amount of time, effort and money that has already been spent on the ISO 20022 migration effort.

Lodge explains that Celent estimates banks and corporates will have spent US$2trn on the ISO migration. With so much at stake, those corporates that are prepared have already started making contingency plans and will switch back to the old format if their banks aren’t ready. Corporates cannot take chances on this, notes Lodge, and will seek out banks that are serious about migration. And as the deadline approaches, there will be some clear losers and winners in this new era of payments.

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