ISO 20022 delay: a stitch in time saves nine
European financial institutions are leaders in ISO 20022 implementation, according to an International Information Systems Security Association (ISSA). However, organizations that delay the process deliberately can ultimately be left in the lurch.
The landmark year of 2023 is coming to an end. In March, several global payment systems moved to ISO 20022. Among them were T2 (TARGET2) and real-time gross settlement (RTGS) systems in several key national markets: Australia (RITS), Canada (Lynx), Europe (EURO1 and T2) and New Zealand (ESAS). SWIFT, the international intermediary for the settlement of cross-border payments, has also set its sights on compliance with ISO 20022. This is an important step toward unification and improvements in global payments.
Three levels of readiness for ISO implementation according to Celent
The general consensus in banking was that the transition to the new ISO standard would be gradual. In our e-book on ISO 20022, we noted that not everyone will manage to implement the new standard effectively and painlessly. In its “Race to ISO 20022” report, Celent distinguished three groups of financial institutions around the world in terms of their readiness for migration, and its progress.
The first group were the leaders, who would have completed more than the necessary minimum of work by March 2023. The second group are those who would be ready in time to handle the new ISO 20022 XML message format, but only at the basic level (most of the banks surveyed by Celent fell into this category). The third group consists of organizations convinced that they have done “enough,” but will ultimately prove to be unprepared, and the others – those who simply won’t make it in time for ISO 20022 adoption.
How ready are banks, according to ISSA
ISSA concluded that without the introduction of relevant regulations and market initiatives, the rapid and smooth implementation of the new standard will remain more a science fiction than a market scenario. Indeed, the report notes that it is the ISO 15022 standard that is still the most widely used messaging format in the industry. The hope is that as the euro region leads the way in terms of change and innovation in terms of ISO 20022, investment within the EU may drive more global companies to use the new format. And from there, it won’t be long before ISO 20022 is more widely implemented in other regions, which could tip the scales for worldwide implementation.
As ISSA notes, while the ISO 20022 standard has evolved to meet API standardization, this new capability is not widely used eventhough files are protected with encryption. And since the two standards – ISO 15022 and ISO 20022 – will coexist for some time, this means for the banking industry to maintain two ways of integrating with APIs. Banking, then, will not be as free to take advantage of open banking and real-time banking. The fundamental question, then, is whether banks that have decided they still have time are surely doing the right thing by ignoring the new possibilities?
There is risk in delaying the implementation of the new standard
Postponing to implement can come with a vengeance. Timely implementation of ISO 20022-related changes requires the bank to make comprehensive changes to all banking architecture systems and processes. Another important step is properly guided communication with customers. It takes an average of two years to implement the changes enforced by ISO 20022 and touches a very sensitive area of the bank’s business. And failed transactions, payment errors or delayed operations carry the risk of serious business consequences.
A bank that starts an infrastructure transformation last in the stakes faces a huge challenge with a schedule stretched to the limit. In our blog, we explain the importance of nfot just implementing, but testing the solutions (read the article: “ISO 20022 migration: how to avoid the testing cost spiral?”). Any problems with access to money and delays in payments can seriously shake customer confidence. It is worth remembering that a successful implementation is not only about systems, but also about experienced staff. When demand increases, experts who have the necessary knowledge and skills may simply run out of the market. If the bank is late in getting hands on, the delay will also affect the other steps.
Banks can reach for help during the transition period
There is a way to offset both the financial and technological burden of change. During the 2023-2025 transition period, banks can turn to an ad hoc solution – a message converter. One of them is Payres, which accompanies the implementation process of the next ISO stages. It’s a Java application that converts the old messaging format to XML and back without burdening the core system. It allows the bank additional time to complete implementation and testing in their banking architecture. Payres protects the bank from the consequences of failing to meet the go-live deadline. At the same time, it allows the new financial information to be used immediately in real time, in areas that are completed.
Moreover, the Payres converter secures not only the first stage of ISO 20022 implementation and the use of additional information. Subsequent business rules added in the converter activate new metadata exchange processes. Systems, messages and even individual information can be modeled using business rules. Payres will efficiently handle any business scenario. It will also work well for medium and smaller banks, as it does not require a complicated, lengthy and expensive implementation.
Converter: a step on the path to modern banking
Implementing the ISO 20022 standard is a challenge for the financial industry. It requires significant changes in banking architecture, processes and communication with customers. Delays in implementation can lead to serious business consequences. The Payres converter can help banks during the transition period, and lay the foundation for future operations already built under ISO 20022.
By choosing an ISO 20022-compliant transaction converter, the bank is betting on a future-proof solution. After all, implementing an ISO converter without a plan how to reuse it after the transition period is a dead end. With Payres, the bank can efficiently use the transition period and available resources, while setting the framework for expanding new capabilities.