POSTPONEMENT OF THE ISO20022 FOR X-BORDER PAYMENT AND THE COVID-19 CRISIS

Did that get your attention?

The ISO20022 implementation for cross border payments has been delayed, but not due to the coronavirus crisis. It could, however, be impacted.

SWIFT cancelled SIBOS this year due to COVID-19, but the decision to postpone the go-live of ISO20022 for cross border payments (MT Categories 1, 2 and 9) from November 2021 to the end of 2022 (note that no specific date has been announced), is essentially a response to the more mundane problem of Financial Institutions struggling with decommissioning and updating their legacy systems. The ‘coexistence period’ remains unchanged; November 2025.

According to SWIFT, the delay is introduced to provide enough time to all financial institutions to prepare their systems and infrastructure for the change. The delay is not a big surprise given the lack of readiness of some Financial Institutions; a situation made only more challenging with the coronavirus pandemic. The new deadline allows Financial Institutions to be ready by adopting the best approach and avoid “short-lived investments”.

Nevertheless, it’s worth noting that the new deadline will not affect the go-live of the T2-T2S consolidation project and the launch of the Eurosystem Single Market Infrastructure Gateway (ESMIG) and T2, scheduled for November 2021 (source ECB).

Also, worth noting is that this new deadline applies only to cross-border payments and not to securities. Currently there is no end-date for the use of MT category 5 messages but after the ECMS project go-live, scheduled in November 2022, the only way to exchange securities messages with the 19 Central Banks of the Eurozone will be via the MX format. Institutions dealing with Eurozone Central Banks will need to be ready with MX messaging by then.

The delay certainly brings comfort to many Financial Institutions for whom the road to ISO20022 is not easy to navigate. Eurosystem Banks will need to manage this delay by maintaining their capability to receive and send SWIFT Message Type (MT) during the interim period (between November 2021 and the end of 2022) in addition to supporting the ISO 20022 MX messages.

As if the migration to ISO22022 is not complicated enough, the coronavirus crisis adds another layer of complexity, uncertainty and new challenges to the financial sector. The pandemic has put a strain and additional burdens on FI’s systems and showed the importance of having modern and digitalized processes.

It is a wake-up call to accelerate digital transformation within the Financial Institutions. It pushes FI’s to question and to reprioritize their projects in order to remain competitive and meet client and partner expectations.

To some, the one-year extension may provide a reason to take the foot off the pedal for the benefit of other digital projects. We don’t think that this is a good decision.

The new delay should not be considered a reason to reduce the pace towards ISO 20022. We believe that this extension is an opportunity for a better migration and implementation. It provides more time to adjust, to question the migration strategy and to test the solutions rather than postponing and resource reallocation.

Financial Institutions should seize this opportunity to question their initial strategy and decide whether they need to go for a Converter MX to MT messages and vice versa, or to implement a full end-to-end ISO20022 solution. The advantages of using MX messages and the risk of being excluded from payments networks need to factored into that decision.

By replacing MT messages, ISO 20022 is expected to be “the de facto standard” for financial messaging and the new global standard for higher quality payments. The new ISO will create, according to SWIFT, “a common language and model for payments data across the globe” and will improve the quality of financial messages by managing and allowing richer and higher quality data to be channeled within the payment message.

More data means more knowledge, more capabilities to aggregate and process data. Artificial Intelligence and Machine Learning allow the development of predictive models leading to new competitive and innovative services offerings.

ISO 20022 will improve the quality of payments transactions, increase efficiency by supporting higher STP rates and higher automation of compliance activities to identify legitimate transactions and fight money laundering.

The migration to ISO20022 will not be simple but it is a worthy endeavor.