ISO 20022 implementation: let not the little leaks sink the ship

The financial industry around the world is undergoing the most profound transformation since the launch of the first core systems. The time has come for instant payment platforms, an entirely new market infrastructure, based on the international messaging standard ISO 20022 Financial Services.

Enhanced data, new opportunities for financial institutions

ISO 20022 is an increasingly common global language for financial messaging. This standard, based on the XML structure, allows easy data exchange in a flexible standard. Already used in cross-border payments in over 70 countries, ISO 20022 will become the standard for high-value payment systems in the coming years.

By creating a common language and payment data model, ISO 20022 standard significantly improves data quality across the entire payment ecosystem. Its richer and structured data will open up new user benefits while improving transaction compliance and efficiency, and prevent financial crime around the world.

The adoption of ISO 20022 standard in the major currency reserve payment systems means that the financial community has agreed to unify payments and reporting between financial institutions. However, the new ISO standard requires the adaptation of banking IT infrastructure.

In the next five years, the financial industry will face a huge challenge of adapting internal processes and daily operations to ISO 20022 so that these messaging standard changes are not cumbersome for the customer. And since banking system errors have painful consequences for banks, not only in terms of image but also legal, the bar of reliability of banking IT solutions is extremely high. So how should banks plan ISO 20020 migration tests?

The ISO 20022 clock is ticking

The first stage of introducing the new enriched messaging standard, i.e., the TARGET2 and TARGET2-Securities systems’ consolidation, was extended until November 2022. However, to meet the November 2025 project deadline, financial institutions are already working to modernize all major clearing platforms worldwide. Due to the sheer volume of changes to market infrastructures that banks will experience during migration to ISO 20022, effective, efficient, and rapid testing of end-to-end payment processing will be critical.

In banking, testing is not defined by the application, but by the process, which can run through dozens or even hundreds of different applications. It includes different customer channels, the payment engine, numerous filtering and transaction monitoring systems, and of course, the core system. Financial institutions who are latecomers will face a tsunami of change as ISO 20022 payment messages start flowing into the entire global SWIFT network.

When determining their ISO 20022 implementation testing strategy, banks should first consider the impressive scope of changes. The number of scenarios to be validated to avoid negative impacts of ISO 20022 implementation on customers and operations, especially cross-border payments is broader than in any regulatory project of the last decade, including SEPA.

ISO 20022 migration: go ahead without losing your head

To confirm that the designed business scenario works in production, banks will have to create multiple variants. Unfortunately, today’s standard test automation frameworks can’t quickly test a massive number of changes within a short time without spiralling the test costs.

How to maintain comprehensive testing frameworks and not lose on their performance? What variants to create to cover all business scenarios? ISO 20022 implementation will not so much require an army of testers but a team of analysts with in-depth domain knowledge, as explained by my colleagues in this article.

Meeting the challenges of ISO 20022 implementation requires solutions that combine efficiency and accuracy in processing and analyzing many test cases in a short time. As banks’ IT architecture is changing dynamically and must be subject to continuous validation in the spirit of Continuous Integration, the importance of automated regression testing increases globally.

To accelerate the work of manual testers, and reduce costs for financial institutions, in the last quarter of 2020 we have integrated the proprietary PATT application with one of the most popular solutions for testing web applications, Selenium. From the end-user point of view, integration enables extensive system validation, ensuring a reliable banking process representation.

Rake in the benefits of ISO 20022

In ISO 20022 migration, implementation of the required format changes to ensure straight-through processing of cross-border payments after November 2025 is no small task for financial institutions across the globe. The timeline is strict, and the funds are limited.

By applying the right strategy of testing changes related to ISO 20022, banks can dramatically accelerate the test cycles, while increasing the dependability of the implemented solutions, to cope with the coming wave of changes.

For more information on ISO 20022 messages, see our post on Pan-European instant payments where we take a peek at the British financial market and the challenges to their payment system TIPS in terms of ISO 20022 migration.

If you need expert support in successful migration to ISO 20022 messages by November 2025, drop us a note! In over 15 years, we have supported cross-border implementation projects for financial institutions around the world. See our case study portfolio here. Looking forward to talking to you, no strings attached!