ISO 20022 migration: where we stand and the road ahead

 

Ingrid Weißkopf and Dr. Roland Nehl from Commerzbank discuss how, with the ISO 20022 go-live imminent, banks face adoption challenges; but successful migration promises richer data, greater efficiency, and an improved customer experience.

With just under a month until the ISO 20022 go-live, what is the state of play when it comes to migration, and what will be the challenges moving forward?

It is vital that financial institutions (FIs) finalise their ISO 20022 migration strategies, in order to meet the November 2025 deadline. As ever, preparation is key: personnel training and extensive tests are needed.

For many FIs, the process has been challenging – and this is borne out in the figures. Today, the payments sector sits at a 50% ISO 20022 adoption rate, not necessarily where we expected we would be by this stage of the migration. There are several reasons for this, including the migration’s high capital demand versus its limited short-term reward; the subsequent lack of senior management buy-in; as well as the high level of technological complexity involved in the switch.

Corporate migrations are progressing too, but slowly – despite the clear payment tracking benefits that ISO 20022 can hand to treasury. Corporates’ biggest challenges include budgetary constraints, updating enterprise resource planning (ERP) systems, and even cultural inertia.

By the November deadline, ISO 20022 adoption rate is likely to be at 80-90%. While this level of adoption is unlikely to have any negative systemic knock-on effects, it will prove an unnecessarily resource-intensive workflow for many organisations. Smaller banks, in particular, will feel the pressure the closer they get to the deadline – when legacy MT messaging formats must be retired and new ISO 20022 MX formats for cross-border payments supported.

Fortunately, there are tools provided by Swift that offer support with these challenges. The conversion service, for example, is a transitional mechanism that helps institutions translate the legacy message type to the new ISO 20022 XML-based format. This means that if a bank still uses only MT messages after the deadline, and its counterparty is ISO 20022-ready, they can still exchange information. 
The conversion service, however, is only a temporary, bridging solution to stave off fragmentation and interoperability in the short term. Ultimately, conversions are expensive and lossy; some fields, such as purpose codes and remittance data, may not survive a translation intact. For these reasons, Swift encourages banks not to rely on the conversion tool in the long term. Instead, it urges full ISO 20022 adoption as soon as possible. Only then will banks unlock the full benefits of migration.

Indeed, interoperability is proving a persistent challenge – and is only compounded by the multitudes of new card providers, fintechs offering blockchain solutions, and other stablecoin initiatives. While such solutions drive end-user value, it is incumbent on the industry to brainstorm – alongside Swift – how to improve their reach and reduce fragmentation.

One way to do this is to ensure migrations are carried out in lock-step, across the sector. If we cannot achieve this, the risk of a continental divide grows – where large institutions with the necessary resources can support the new messaging standard, and the rest cannot. A level playing field is key to a healthy marketplace. 

Another point of friction to be resolved is found in case management: the exceptions and investigations (E&I) process. Though there have been structural gains in the way FIs handle E&I in the last couple decades, numerous inefficiencies remain, including low levels of automation, opaque communication, and slow resolutions. The ISO 20022 migration is a good opportunity for the payments sector to further standardise case management and streamline the process. The ISO 20022 E&I migration kicks off from November 2025, but the development of a centralised case-handling capability would be a welcome addition. 

What benefits will robust ISO 20022 adoption bring to the payments industry and its customers?

We should think of ISO 20022 migration as the building blocks of a Lego house. A successful migration lays the foundations of that house. Already, many institutions have in place the initial bricks: richer and more structured data for straight-through processing (STP), enhanced automation, and streamlined reconciliation capabilities. This ultimately results in greater transparency, higher levels of efficiency, reduced costs, faster investigations resolution, and, in turn, improved customer experience.  

Structured data also enables a compliance boost; circumventing much of the usual regulatory back-and-forth and even supporting banks’ fraud prevention efforts. In order to preserve banks’ competitiveness, we must strive for a scenario where 99% of payment orders are cleared without delay.

The key question, however, is: How can we build on these foundational blocks to hand greater service and product value to customers? Unfortunately, there is no straightforward answer to this. Banks must consult with their ecosystem partners to build a business case and coordinate on strategy. And they must look inward, too – considering their customers’ unique needs, and workshopping the requisite solutions.

Generally speaking, richer, more structured data offers invaluable insights into customer behaviour and market trends, thus supporting improved analytics and strategic planning, as well as more personalised services. Moreover, when combined with application programming interfaces (APIs) and open banking, the ISO 20022 standard has the potential to fuel digital commerce and new business models. 

But ISO 20022's rich data capabilities will not necessarily be useful to everyone. The organisations that will benefit most are those with large cross-border transaction volumes, or complex reconciliation processes, which rich data can help to streamline.

What should banks be considering beyond the November 2025 deadline?

The global migration to ISO 20022 will not end in November 2025. It is an ongoing journey which will be achieved over years, not days.

Looking beyond, standardised case management will greatly improve E&I tracking and, in turn, the end-user experience. Banks should have already started thinking about the ISO 20022 E&I migration and how they will allocate the resources needed to meet the November 2027 deadline. Again, centralised case-handling capabilities will supplement efforts. 

About the authors

Ingrid Weißkopf serves as Head of FI Cash Advisory at Commerzbank.

 

 

 

Dr Roland Nehl serves as Programme Manager at Commerzbank.

 

 

 

About Commerzbank

Commerzbank is an international full-service bank. It is the leading bank in the Corporate Clients business in Germany and for the German Mittelstand and a strong partner for around 24,000 corporate client groups. Commerzbank transacts approximately 30% of Germany’s foreign trade financing. The Bank is present internationally in more than 40 countries in the corporate clients’ business – wherever its large corporate and institutional clients need it.