The payments industry globally is moving to ISO 20022. How long do you think this is going to take?
Edward Ireland (EI): There are different Market Infrastructure timelines and approaches. Whilst most financial institutions are moving in November 2022, local specifics need to be taken into consideration. For instance, the Bank of England (BoE) has announced that they will go live with ISO 20022 later in April 2023. Presently, there are 3 approaches – hard cut-over (European Central Bank), co-existence period (SWIFT), or like-for-like (MAS Electronic Payment System). All of them are moving towards only leveraging their full data in the ISO 20022 standard alone in the near future.
The feedback on bank adoption is that rates are slow. Besides those Market Infrastructures with a hard cut-over and defined project milestones to hit (RITS, ECB Target2), we have seen slow take-up and tendencies to lean towards a phased adoption where possible. This is particularly prevalent in markets that are less familiar with ISO 20022 such as the UK. Whereas, in markets that have had ISO 20022 in place for some time, such as Switzerland (SIC 5), adoption is more proactive. It is our view that this proactive approach is more efficient over the life of the project and makes for a stronger business case by capturing benefits earlier and shortening the project timeline and workload.
There is a mix of Strategic and Tactical approaches. Strategic is to go to ISO 20022 Native. Tactical is to try to leverage co-existence and like-for-like data, for Market Ready
In November, we will see the start of the 3-year SWIFT MT-MX migration. What do you see as the main benefits of this change for the corporate community?
Mark Sutton (MS): I think it’s important to set the scene for this question. Firstly, and most importantly, the current MT-MX migration is focused on the interbank space as opposed to the corporate-to-bank space. The second important point is that this SWIFT transformation will be based on a more recent version of the XML message set – specifically from the 2019 ISO annual maintenance release. So, in terms of corporate benefits, we need to look at what is going to be different about the current processing of these MT101 corporate pass-through messages. These messages are typically used for liquidity purposes to de-fund a bank account or to avoid the use of a core partner bank sending a payment request to a non-core partner bank to remove the time and cost of integration.
Today, you can only send individual MT101 payment messages to support these flows. However, despite the richness and comprehensive structure of the XML payment message, you will still be only limited to single payment requests.
Currently, you are limited to 140 characters of payment details in the MT101 message and again, despite the richness of structured data that potentially could be provided, the base SWIFT proposition, during the co-existence period, is just 140 characters of unstructured data. However, there is some good news. The CBPR+ guidelines have now included that up to 9,000 characters can be supported in the structured remittance block of the version 9 message – but this will be subject to a bilateral agreement during the coexistence period. Given the increasing importance of data, this could be a real benefit and I suspect this could become table stakes in the future as more structured information will help the beneficiary automate their cash application process and reduce the associated manual Account Payable enquiries.
Additionally, whilst many of The Payper’s readers will be familiar with the fact that XML messaging supports local language characters today, the CBPR+ guidelines largely limit the character set, during coexistence, to the same MT-based Latin character set. A decision to explain the character set will only occur once the coexistence period is finished.
On a broader implementation level, probably the most important concern is the mandated use of the structured address, but we will address that ‘hot topic’ later.
So, to summarise, the initial SWIFT MT-MX migration appears to offer limited benefits to the end customer at this stage. The main advantages will come with the future corporate adoption of the XML version 9 payment message and when the coexistence period is finished. At this point, I can imagine a few readers will be thinking: ‘I am currently using the XML version 3…and we are now up to Version 9’. Not quite, at an industry level, we are now awaiting the release of version 13 and yes, in 2023 we will have version 13 of the XML payment message. However, focusing on the anticipated industry option of version 9, this offers additional functionality based on the evolution of the clearing systems over the past 10 years. It supports the Legal Entity Identifier, Proxy, or Tokenisation which is required by the faster payment schemes as well as the UETR (Unique End-to-End Transaction Reference) that is used as part of the SWIFT GPI initiative for payment tracking purposes.
I am not a direct participant in any scheme – I clear through a bank. At what stage should I get involved?
MS: First, you should speak directly with your bank and really understand their timelines. When will they introduce the changes? What is their adoption approach and when would they like/need to be receiving and sending messages to you? These questions should be answered across different areas – instructions, reporting, exceptions, and investigations.
There are different drivers for further change, such as a structured address, the use of LEIs and Purpose Codes, extended remittance information, and party identification. You should look carefully at these requirements from local markets and be clear when you will need to use them and what benefits you can derive from them.
The timelines for the adoption of these changes are incremental, MI-driven, and increasingly business value-led. There is a growing trend to look at Payments processing as Transaction processing and to leverage the additional data this provides. All this will inevitably result in better services.
What are my options, when considering how and when to adopt the latest supported version of ISO 20022?
MS: There are 3 key points to consider:
a) Firstly, and most importantly, when is the SWIFT/banking community going to advise on an associated target migration plan for the corporate community and will this include the need to upgrade the current file formats being used? At this stage, the focus and timelines purely relate to financial institutions. As most corporates already have an established development roadmap in place with relative priorities, the do-nothing approach is predominant at this stage given that the CBPR+ migration does not start until November 2022 and runs through to November 2025.
b) Secondly, when are my core banking partners ready in terms of a comprehensive XML version 9 service proposition? For corporates to benefit from the anticipated simplification and the greater standardisation that the XML version promises to offer, banking partners need to offer a capability across their coverage as opposed to simply supporting the limited pass-through services.
c) Finally, when are my software vendors ready to support this new industry format, ideally as an out-of-the-box solution. It's much more cost-efficient to leverage an existing software provider's capability than to progress a customised development.
So, it's a case of watching this space, but given the potentially bilateral nature of some capabilities, the potential migration onto the XML version 9 message might be a good time to progress an RFP process. Afterall, there will be several table stakes that need to be considered, as well as taking a pulse check on any value-added capabilities that banks have not only recently launched, but also understanding what is on their future roadmap.
Are all the schemes moving at the same time? Which ones should I prioritise first?
EI: The financial world has come a long way since SEPA first adopted this new financial messaging standard back in 2008. If we look at the landscape today, ISO 20022 has already been adopted for payments in more than 70 countries, replacing both the traditional SWIFT MT messages and the domestic proprietary formats. ISO 20022 is gaining increasing momentum and is firmly establishing itself as the global de facto financial messaging standard. So, this is a journey in terms of market infrastructure adoption, but we already know that the Eurosystem – so TARGET2, EURO1, the Bank of England, Hong Kong, and Singapore will all be building new RTGS payment rails underpinned by ISO 20022.
It’s probably also worth highlighting that SWIFT is currently estimating that by 2025, 80% of the RTGS volumes will be ISO 20022-based, with all reserve currencies being either live or having already had a live date declared (USD, EUR, JPY, GBP, CNY, CHF). Therefore, the industry move to ISO 20022 XML-based messaging is becoming truly mainstream.
How important is the market practice in the adoption of ISO 20022 and who is defining this?
MS: This is of paramount importance as a market practice helps provide a more standardised way of implementation. I specifically want to highlight the work of the Common Global Implementation Market Practice Group (CGI-MP). Formed in October 2009, this industry collaboration now has 160 member organisations across banks, corporates, software vendors, payment clearing associations, consultants, and of course, SWIFT. The primary focus of this group is on delivering message implementation guidelines that help all stakeholders achieve a more harmonised implementation.
The original aim was to remove the pain of implementing the ISO 20022 XML messages through a more common interpretation of field usage and codes. The many lessons learned from the global adoption of the XML version 3 payment message has resulted in this group taking a more prescriptive approach to the forthcoming XML version 9 industry guidelines. Prescriptive in terms of which specific XML tags must be used to support a specific data point, like the purpose of a payment code. This will be an important requirement if a bank wants to say it is CGI-MP compliant. So, when we go back to the possible RFP table stakes, this is one area that I would strongly recommend is included.
What are the likely material changes that will impact me first, related to the information I send and receive?
MS: Regarding payments, what you send will be driven by your bank’s requirements, which in turn will be driven by value add, efficiency, and market infrastructure requirements. Static Data Clean Up to structure data is going to be a necessary exercise. ISO 20022 requires more structure to information that has until now been in unstructured fields or covered by bilateral codes. Going forward, this information needs to be in the recognised ISO 20022 format. This is a benefit that is being driven across market infrastructures.
New business data should include the purpose of payment, LEIs, related transaction information which are specific requirements that are already being labelled for implementation.
Regarding reporting, we should expect more granular and detailed information in reports. Dynamic reporting will occur, moving from intraday and, around exceptions and investigations, we will notice improved reporting. Last, but not least, alignment with Pre-Validation and gpi will provide end-to-end automation and visibility.
Will implementing ISO 20022 improve:
a) End to end visibility?
MS: Yes, through gpi and Pre-Validation, as mentioned above.
b) Speed, both in terms of money-in, money-out, and implementation of new tech?
MS: We will notice improved STP rates, alongside better visibility of the underlying transaction and related parties and faster implementation of a common standard across payment channels.
c) Risk?
MS: Yes, risks will be reduced by enabling more visibility and having clearer data.
d) Flexibility – leveraging real-time & Request to Pay, or other Alternative Payment Methods?
MS: Through ISO 20022, we should expect the ability to flex across payment rails using a common standard.
e) Problems with lack of IT resources for further modernisation in the future?
MS: Building ISO 20022 expertise is a short-term problem until it becomes the de facto standard in operations.
f) Cost?
MS: Today, despite the promises around simplification and standardisation through the adoption of the original XML version 3 payment message, we know of many cases where banks have taken a very proprietary view around their implementation. This has resulted in those corporates that operate in a multi-banking environment having to develop multiple proprietary implementations. The work of the CGI-MP group should finally help deliver in terms of enabling a more standardised and simplified implementation This will significantly reduce the cost of implementation and will also provide a degree of bank portability that will result in making a change of banking partner more seamless from a technical standpoint.
What are the key considerations to be aware of when considering how transformation can protect legacy systems?
MS: I totally agree that the main impact around legacy infrastructure will be on the banking community as the MT-MX migration represents a significant change from a network bandwidth perspective. I would add from a corporate perspective, if you are already supporting the XML version 3 message today, migration to the XML version primarily relates to a newly updated schema.
Is this project limited to the next few years or can we expect to see ISO 20022 being implemented on an ‘ongoing’ basis?
EI: Like any digital transformation, this is a journey and not a destination. Migrating to XML version 9 will take time. As more clearing systems are underpinned by ISO 20022 XML messaging, this will create the need for further change. However, an important point is around the benefits of structured data, which the XML messages can support. Today, remittance information is normally received separately from the actual payment via email as a PDF or text document, which then needs a typically manual effort to reconcile and complete the cash application process.
A rise in the availability of Intelligent Automation-based solutions, combined with the possible inclusion of this structured remittance information with the payment through the in-country clearing system, will enable the acceleration and complete automation of this process, delivering benefits to both originating and beneficiary customers. Now it is up to corporates to seize the opportunity to start redefining what is possible. It will be those that are bold in being industry first that will reap the rewards.
Want to know more about ISO 20022 from a bank or FI perspective? Click here
About Edward Ireland
Ed has more than 15 years of experience in payments and financial technology. His current role is to drive thought-leadership and solution development for ISO 20022 and the larger product set of Payments Transformation as a Service. Ed has a global remit for existing customers and new logo with areas of specialisation including operational resilience, security, compliance and regulatory change.
About Mark Sutton
Mark is a Senior Manager in the Treasury & Risk consulting practice at Zanders UK focusing on industry financial messaging standards, SSC process improvements, technology, and project management. Mark is based in London with over 34 years of experience in finance and financial messaging across the corporate, public and financial sector. UK elected representative of the ISO TC68 Payment SEG (2005-2014), Mark was part of the original design team for the ISO 20022 XML version 3 messages. He was also a founding member of CSTP Bank Group and the CGI-MP industry groups and is now supporting the creation of the XML V9 implementation guidelines. Finally, Mark was chair of ISO TC68 SC2 sub-group covering Security (2010-2014).
About Bottomline
Bottomline delivers a single SaaS platform for payments, securities and messaging that helps financial institutions and corporates to achieve lower costs, wider reach, speed-to-market, industry compliance, greater security, and improved risk management. Payment & Cash Aggregator • Financial Messaging & Connectivity Aggregator • Securities Aggregator • Fraud & Financial Crime Management • Data, Insight & Analytics
About Zanders
Zanders is an international consultancy firm focused on treasury management, risk management and corporate finance. From our offices in the Netherlands, Belgium, UK, Switzerland, Sweden, Japan and US, more than 200 qualified professionals service corporates, financial institutions, public sector entities and NGO’s.
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