In our highly networked world, data is increasingly being exchanged in real time and between an increasing number of participants. Therefore, the quality of the data is of particular importance. This applies especially to payments. Nowadays various parties are involved in every global monetary transaction. Consequently, the need for comprehensive standards is obvious.
About 16 years ago, ISO 20022 was introduced as a new standard for messages in payment transactions. Now the standard is facing a milestone that will bring profound changes for banks and customers. The aim is to standardize existing and new message standards in different areas of the financial world – and thus to create a globally identical language for payment data.
More recent platforms and systems are usually designed for ISO 20022. However, SWIFT is the predominant transaction network for cross-border payments. Traditionally it and its associated participants such as banks and trading houses use a different standard: so-called MT messages. In 2018, the SWIFT community agreed to gradually replace them. Cross-border and large-value payments will use the more comprehensive MX messages of the ISO 20022 standard in the XML format. This has far-reaching consequences. This is not simply a new technical format. Various underlying business and control processes are affected as well as basically all departments that deal with payments. Employees and customers must be prepared and trained. All in all, the payment industry will face enormous challenges, which will require considerable resources.
SWIFT announced in March 2020, that the migration of the two message formats will be postponed by one year to the end of 2022. This now gives banks more time to prepare for the introduction. SWIFT thus reacted to feedback from the sector. However, the deadline to end the coexistence of the two standards remains at the end of 2025. Influenced by the SWIFT decision and the industry’s challenges by the corona crisis, another change in the schedule was announced this summer. The European Central Bank has also postponed the launch of its consolidated settlement platform T2-T2S until November 2022. This will also be based on the ISO 20022 standard.
Even if the industry is facing major challenges, the effort will pay off in the long term for both banks and their customers. Globally standardized payment transactions will be significantly more automated, secure, and economical. Additionally, the development towards real-time payments is being driven forward. Plus, in the fight against financial crime, more accurate data is an effective tool.