If corporate back-office systems are not upgraded in time for the implementation of ISO 20022, we can expect critical payment bottlenecks in large companies. How to convert SWIFT messages to upgrade corporate ERP systems?
This article discusses:
- what are the challenges of ISO 20022 for global settlements
- what is the specific challenge for corporate ERP systems
- what updates need to be made before November 2022 and what will happen if the ERP is not ready
- what low-cost solution will keep corporate settlements running smoothly
From November 2022, a new format for cross-border transfers enters into force, SWIFT MX, which is compliant with the ISO 20022 standard. It is based on an XML structure and enables data exchange in a common, more flexible standard.
The new ISO20022 messaging standard will enable control and transparency in international cash management, not only between financial institutions. By creating a common language and model for payment data, ISO 20022 significantly improves the transparency of transactions and increases their efficiency. Corporate customers will also benefit enormously, as they will finally have the ability to add additional information to payments that will improve cash flow forecasting and reconciliation for each payment.
However, the path to benefits involves a huge amount of work, not only for financial institutions, but also for corporate IT departments that need to adapt complex back office systems such as ERP to process both SWIFT MT and SWIFT MX messages.
A revolution in ERP systems
Duże korporacje, które każdego dnia pobierają wyciągi w różnych walutach z systemów bankowych, rozliczają od kilkuset do kilku tysięcy tygodniowo, w zależności od wielkości firmy. Dopóki funkcjonuje standard SWIFT MT, korporacyjne interfejsy ERP do systemów bankowych przeprowadzają tę operację automatycznie.
From November 2022, the transition period for the implementation of ISO 20022 will apply. Messages in the old and new standard, SWIFT MT and SWIFT MX, will begin to function side by side. ERP systems that are left unprepared for “translating” between them will start to reject unknown messages. Downloading statements could stop altogether, or errors will start appearing in statements.
Companies that settle 1,000 invoices a month will probably face the unavailability of automatic statement download. The accounting staff will simply handle the clearing manually (probably working overtime). However, the larger the company, the greater the data volume, especially in the case of retailers or producers. In companies that have to account for 1000 transactions a week, the lack of automation can seriously disrupt the flow of transaction settling.
For example, a debt recovery company runs a single account to collect payments from its clients. The company downloads the statement to settle what customer has paid which amount, and its accounting system assigns several thousand payments per day to individual names of debtors. The accumulation of backlogs from just a single day can prove disastrous not only for back office processes. When dissatisfied customers start storming the customer service center, the company’s image will also suffer.
MT to MX: one small amendment? Think twice!
According to experts quoted in Theglobaltreasurer.com portal, one of the major challenges of the new standard for ERP systems is the need to fully structure addresses in transfer messages. As explained in the article MT/MX message conversion: parlez vous ISO 20022?, the “new” message (SWIFT MX) has a multi-level structure. This allows easy and unambiguous aggregating of its elements and assigning them correctly to the “old” format (SWIFT MT).
On the other hand, the information clusters in the “old” format do not always have clear rules for interpreting (“unpacking”). For example, the address field is an all-in-one field, but to meet the requirements of the proposed new ISO 20022 structure, the building number and the street name must be in separate fields. Therefore, the mandatory fields for payments should be modified not only in banking systems but also in ERP systems.
Large ERP system vendors, such as SAP, Oracle, and Microsoft, have already introduced updates to support ISO 20022 MX messages. However, it is possible that minor vendors will not make it before November 2022, as shown by delays in the implementation of other requirements, such as PSD2.
The budget needed to introduce the necessary changes could also prove to be a problem. As reported by TheGlobaltreasturer.com, the financial cost of converting the current address data in Line 1 to a fully ISO-compliant format could cost half a million euros, excluding tests with banking partners! However, as long as ERP providers do not complete the upgrade, no company will be back on track with their settlements.
The workaround: MT to MX message converter for ERP
Converters supporting validation, enrichment, and translation from any standard or format into any other are already available. One of them is the native SWIFT converter, which will certainly be appreciated not only by financial institutions, but also international corporations. However, its complexity and cost of use do not make it a good fit for everyone.
Smaller corporations can take advantage of an independent converter of MT/MX messages. It is a stand-alone business application that easily integrates with the company’s ERP via API. A good example of such a solution is our proprietary system, Payres.
As a SWIFT MT/MX message converter, Payres enables full-scale processing of international payments in accordance with XML ISO 20022. Contrary to “classic” MT/MX converters, Payres processes data in real time. By supporting back-office applications that do not support the new format, or do so only partially. The solution works in Real-Time Transform (RTT) flow mode, and the support of the Drools rules engine minimizes the inevitable delay resulting from the serial inclusion of the converter in the payment message flow.
Efficient payments in the world of ISO 20022
SWIFT estimates that by 2025, 80% of global high-value payments will be handled using the new standard. The task of adapting ERP to support both the old MT format and the new format is the responsibility of the corporate IT department. The cost-efficient way to avoid backlogs in the accounting of transactions before your ERP vendor makes the necessary updates, you need a “lightweight” MT/MX message broker. Such a solution will not cut the efficiency and flexibility of your ERP system, and requires no complicated implementation process.
Payres is a cost-optimized solution that will allow smooth transaction settling, whether the messages come in the new, or the old MT format. In addition, with the help of Payres you can spread the costs of updating the ERP system even over several years. If you want to know more, send us an email, or schedule a 15-minute call, no strings attached.