ISO 20022 is a global financial messaging standard applied to a variety of different business uses. In all cases, it’s a standardized, extremely robust and machine friendly data structure rule book designed for financial messaging and recently for today’s modern real-time payments world. ACI supports institutions with both the business and technical aspects of ISO 20022 with a variety of solution options and business knowledge from tenured subject matter experts around real-time gross settlement (RTGS), Instant, ACH and value-add overlay services.
What do financial institutions need to know about ISO 20022?
At a glance, the ISO 20022 standard:
Was first issued by the International Organization for Standardization’s Technical Committee 68 in 2004.
Uses an extensible markup language (XML)-based syntax, which allows for greater data volumes, makes parsing financial information easier and prevents potential truncation and data loss.
Dramatically increases the number of data points banks can send and receive with payments from approximately 100 to nearly 9,000 characters.
Is both interface and machine-friendly plus helps create a record of data along a payments chain.
Is currently used by over 70 financial services organizations, including instant payments schemes around the world, Swift, and RTGS schemes today, plus others migrating in 2024, 2025 and further in the future.
Is not enforced from a regulatory perspective; however, at the payments system level / payment market infrastructures, operators have set their own deadlines, as highlighted above, & regulations for switching over to the new standard.
Why is standardization important?
Payments messaging standards play a critical role in ensuring interoperability between domestic and international RTGS, Cross Border, Instant Payments and ACH based networks.
Historically, financial institutions developed products each using their own, independent standards; we can think of this as each speaking its own language. Without true, universal standardization across payments messaging within an ecosystem and across the industry, that is, without a shared common language, financial institutions struggle to connect and communicate, which in turn creates friction and slowing or preventing offerings and or processing cross-border payments and using alternative payment methods.
The common ISO 20022 rulebooks (CBPR+, HVPS+, Instant and ACH) solves the fore-mentioned issue by creating a common language with extremely marginal deltas. The common ISO 20022 creates a universal standard for maximum interoperability, while still offering different payment schemes and financial institutions the flexibility to customize their messaging syntax according to their needs with relatively little effort.
What are the benefits of taking on ISO 20022?
When natively embraced within your ecosystem, there are many benefits to ISO 20022:
Removes friction when communicating the data from the payment to different systems, because even though each system has its own distinct business purpose, all systems communicate speaking the same language.
Similarly, it exponentially reduces the effort to process a payment across rails without the fear of losing data and further eases the effort of where to put information from field X to Y.
Faster time to market as common changes such as rolling out mandates, improvements and introducing new products to the market are completed, hence saving money.
Improving straight-through processing (STP) and thus operational costs of manual investigations are reduced.
The rich data also allows for improved fraud prevention and greater compliance with anti-money laundering (AML) regulations.
ISO 20022 empowers banks to roll out new products and improve the services they offer to global customers (e.g., variety of digital overlay services and taking on new payment types one was initially hesitant to progress).
Ultimately, banks have to migrate their RTGS and Swift processing systems to ISO 20022 as the payment networks they leverage for their business evolve to this new standard.
Is it enough to convert from legacy to ISO?
A basic (short term) conversion tool, or middleware, can provide connectivity between legacy format and ISO by moving data between the two systems, but it cannot ensure compliance, same interface-friendly usage as the ISO 20022 format, and most importantly it is not a long-term solution for rolling out new products and payments types.
To elaborate, conversion limits the granularity of data, and how it is passed between systems. Passing data from an ISO 20022 format to a legacy format many times, and growing, requires truncation. On the outbound side, in most cases, freeform data must be mapped to the ISO freeform fields instead of the ideal granular ISO-equivalent fields. Moreover, since legacy formats cannot handle rich data — hence the inbound truncation path — a significant amount of data will be lost when passed through outbound legacy engines.
Which payment types are moving to ISO 20022?
The ISO 20022 message format is relevant to an ever-growing list including:
FI to FI Status Report Messages (PACS.002)
Customer Credit Transfer Messages — Single (PACS.008)
Customer Credit Transfer Messages — STP_STP EU (PACS.008)
General Financial Institution Transfer Messages (PACS.009, PACS.009ADV, PACS.009COV)
Financial Institution Direct Debit Messages (PACS.010)
Confirmation of Debit/Credit Messages (CAMT.054)
Customer Statement Messages (CAMT.053)
Transaction Report Messages (CAMT.052)
Return of Funds Messages (PACS.004)
Resolution of Investigation Messages (CAMT.029)
Payment Cancellation Request Messages (CAMT.056)
Notification to Receive Messages (CAMT.057)
System Event Notification Messages (ADMI.004)
Receipt Acknowledge Messages (ADMI.007)
Customer Credit Transfer Initiation Messages (PAIN.001)
Customer Payment Status Report Messages (PAIN.002)
All Xsys Messages (XSYS.XXX)
What is the timeline for ISO 20022 migration?
There is no singular timeline for ISO 20022 migration. Instead, each scheme has set its own deadline for switching over to ISO 20022, with some offering coexistence timelines and workarounds.
Some key timelines to note:
SWIFT announced a revised migration timeline with an official start date of November 2022 and a deadline of November 2025.
The Federal Reserve’s Fedwire Funds Service ISO 20022 migration is slated to go live by November 2025
How does ISO 20022 relate to cross-border payments?
The ISO 20022 global payments standard allows for greater interoperability when sending transactions across RTGSs, Swift and other cross border schemes. Further, Instant Payments industry is growing its offering of cross border payments amongst instant payment schemes plus instant payment and RTGS schemes.
ISO 20022 also attaches richer data to payments, eliminating the need for manual parsing and creating more detailed payment chains.
Going forward, financial institutions to remain relevant will have to send and receive cross-border and cross-rail payments and thus, be fully equipped for ISO 20022 — that is, be fully able to send and receive rich data to prevent information loss and gaps from forming within payment chains.
How can banks migrate to ISO 20022?
Contrary to popular belief, migrating to ISO 20022 does not require a “rip and replace” of legacy systems at step one. For financial institutions that want to protect their existing engine and numerous back-office systems, ACI offers its ACI Enterprise Payments Platform solution. This solution acts as an iterative step in the migration process, standing in front of the legacy engine, ensuring compliance against various deadlines, enabling banks to manage and leverage rich ISO data and streamlining ISO 20022 migration for other various systems. This empowers financial institutions to migrate to ISO 20022 and transition from their legacy engine onto ACI’s solution according to their own smooth, controlled and low-risk timeline.
How long does it take to migrate to ISO 20022?
A typical migration timeline can run anywhere from nine to twelve months, depending on the partner and solution. ACI’s Enterprise Payment Platform is banks’ ultimate answer to ISO 20022 migration and replaces legacy solutions.
What challenges are associated with ISO 20022 implementation?
Each ISO 20022 migration is distinct, and no two banks’ implementation will look exactly alike. For this reason, it’s impossible to say what challenges are associated with ISO 20022 implementation; what challenges one financial institution faces, another may not. That said, there are some general best practices participant banks should follow to ensure a smooth migration process:
Conduct a thorough gap analysis of core payments processing capabilities to fully understand which systems must undergo modernization for ISO 20022, and how to prioritize those systems.
Become familiar with each applicable domestic and regional scheme’s ISO 20022 requirements prior to migration to ensure proper compliance.
Take a gradual approach, first doing only what’s absolutely necessary to connect to payment rails and accommodate larger data volumes — for example, setting up end-to-end payment flows for STP — and then migrating over additional systems and interfaces.
Educate staff on the significance of the new ISO 20022 format and invest in adequate training for new systems.
Adopt a forward-thinking perspective, consider which opportunities to pursue prior to beginning the migration process and build those opportunities directly into ISO 20022 strategy.
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What kinds of rich-data services are possible with ISO 20022?
The rich data provided by ISO 20022 opens a world of possibilities, from helping banks apply artificial intelligence (AI) to financial advice, to speeding up the automated reconciliation of invoices.
The growth of alternative payment methods will also be enabled by ISO 20022. The rich data captured will allow forward-thinking banks to better incorporate and deliver on these payment types.
Which payment schemes/systems are already using ISO 20022?
Swift has supported ISO 20022 for some time now, called SWIFT MX. SWIFT MX is optional and uses a different set of ISO 20022 rules. As of September 2019, there have been 10 high-value payment schemes live on ISO 20022. China’s CNAPs and Japan’s NET are just two examples. Of course, as of March 2022, Swift now supports the CBPR+ rulebook.
There are a tremendous number of ISO 20022-based instant payments systems live around the world and continue to come on the market. ACI’s presence in this payment space is quite extensive around the world.
What is the difference between SWIFT FIN (MT) messages and RTGS legacy messages compared the new ISO 20022 format?
ISO 20022 messaging allows for data-rich transmissions not previously possible with legacy formats (used by SWIFT & SWIFT-like regional and domestic schemes). In essence, ISO 20022 is exponentially larger than any legacy non ISO layout with field lengths, numbers of fields and now all the different business types of fields.
For instance, in too many cases to count, using legacy structures, to process one transaction, the financial institution would send a payment message followed by an informational message with all the data that would not fit in the payment. Further, the receiving FI would have to receive both, cross reference, to then process. With ISO, it is now possible to put all the information in one transaction thus improving efficiency, costs and speed.
What is the ISO 20022 equivalent of an MT103 message?
To directly answer the question, the ISO 20022 Customer Transfer message type PACS.008 is the equivalent of an MT103. It’s also worth noting that a Bank-to-Bank Transfer PACS.009 is the equivalent of an MT202 and MT205; PACS.009 Cov is equivalent to MT202 Cov.
All high-value payment schemes converting to ISO 20022 — including SWIFT-like schemes, pan-regional schemes and domestic schemes — typically use the same message types to address their payments. These message types include PACS.008, PACS.009, PACS.004, PACS.002 and a handful of CAMT.xxx message types.
Finally, a return — whether Customer Return (MT103 Return) or Bank Return (MT202 Return) — and then a PACS.004 is used, with some granularity distinction noted in the payload of the data.
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Do banks need to be able to send and receive ISO 20022 messages within the Swift and RTGS worlds?
While Swift and select schemes offer co-existence periods until 2025, banks must be able to at least send and receive ISO 20022 messages for high-value payment rails to remain compliant with network and system updates and to continue transacting on behalf of their customers. This is especially true of correspondent banks, which must be able to pass structured, enriched data to the next party in the chain, as well as receive new ISO 20022 messages from across their global network of partner financial institutions.
Is migrating to ISO 20022 mandatory?
Various real-time gross settlement (RTGS) domestic and regional schemes have mandated the new ISO 20022 standards, with each establishing their own migration timeline. Certain schemes, such as SWIFT, offer coexistence periods, during which both FIN and ISO 20022 messages will be accepted.
While Swift and some other schemes offer co-existence periods until 2025, banks must be able to at least send and receive ISO 20022 messages for high-value payment rails to remain compliant with network and system updates and to continue transacting on behalf of their customers. This is especially true of correspondent banks, which must be able to pass structured, enriched data to the next party in the chain, as well as receive new ISO 20022 messages from across their global network of partner financial institutions.
Is it a case of SWIFT gpi vs. ISO 20022, or SWIFT gpi and ISO 20022?
SWIFT gpi and ISO 20022 are separate initiatives but can open the door to real-time payments and a host of new value-added services, especially when high-value payment schemes go to ISO 20022. Given most instant payments schemes are ISO 20022-based, there is friction in translating the message to and from the legacy high-value payments system. When the high-value payment schemes migrate to ISO 20022, much of that friction will be removed and it will become almost seamless for a financial institution to leverage both high-value and instant payments schemes. SWIFT gpi Instant (gInstant) is a payment with three features:
The payment can be domestic or cross-border, but it must be sent via a high-value payments scheme.
The payment must be marked with the associated GPI Service Call
The payment should originate and/or settle into a instant payments scheme
When the instant payments scheme gives the originating financial institution the response, the originator returns a response to the recipient, so the other financial institution is notified of the outcome.
What’s the impact of ISO 20022 on Universal Confirmations?
For many smaller financial institutions, where adhering to the level of SLA required under SWIFT gpi is not feasible, a smaller scope of messaging types and a lower-level response time mandate is being implemented. This is called Universal Confirmations. Only Customer Transfers are required to provide a response to the SWIFT Tracker, and the response has a slower SLA response time.
This task is not really related to high-value payment schemes migrating to ISO 20022. The impact is on Credit Transfers (MT103 migrating to PACS.008).
