1. Overview of ISO 20022: History and Evolution
2. Why is this Transition Necessary Now?
3. The Key Features of ISO 20022
4. Impact on the Payment and Banking Sector
5. How can Tx assist with the Migration Process?
6. Summary

The global banking and payment industry is going through a vast transition, integrating a large variety of legacy data formats and financial messages to ISO 20022. The finance industry has rapidly transformed in almost three decades, with ISO 20022 being the most critical standard in global payment messaging systems. Since the year of its publication, more and more banks and financial firms have integrated this standard within their payment system. For instance, SWIFT – Society for Worldwide Interbank Financial Telecommunications back in 2019 announced the creation of common E2E implementation to accelerate the transition of cross-border payments. 

It is a global migration process, and this E2E messaging standard will streamline the financial and banking services sector by implementing a highly effective compliance process, structured data exchange, and enhanced message flow. The financial message format will have rich data elements and more detailed transaction information, allowing for better interoperability between FIs, customers, and market infrastructures globally.  

Overview of ISO 20022: History and Evolution 

ISO 20022 is a global standard for exchanging financial messages in the form of electronic data more efficiently. It would allow for richer and more structured data in the payment messages. Banks and financial institutions can reduce manual intervention to improve CX and make compliance processes more accurate. The need for ISO 20022 standard was driven by the rapid growth of Internet Protocol (IP) and Extensible Markup Language (XML). This opened the need for technical standards for electronic communication. Then, there were also many uncoordinated XML-based standardization initiatives with their own dialect.  

Why is this Transition Necessary Now?

The ISO 20022 standard was introduced to provide the financial and banking industry with a common platform for handling payment messages and data. Almost 80% of global high-value payments (HVPs) rely on ISO 20022. Over 70+ countries have already adopted it to optimize cross-border payments’ efficiency, speed, and security. One of the critical factors behind this change was cryptocurrency, which revolves around blockchain technology. It uses a central dictionary, a series of XML (Extensible Markup Language), ASN.1 protocols, and a standard modelling methodology.  

SWIFT is scheduled to retire its existing MT message standard in 2025 and replace it with MX format. It has been made mandatory for banks and FIs globally to migrate to ISO 20022 by November 2025. Following are some of the reasons why this transition is necessary for the financial sector: 

• ISO 20022 messages support higher STP rates while minimizing exceptions. 

• Enables better risk management by leveraging richer data for effective targeted data screening and faster software release deployment. 

• Meet users’ demands for payment fee transparency, estimated settlement times, and concise remittance information, thus enabling efficient reconciliation. 

• A better understanding of customers’ requirements and accelerate product innovation through richer reporting and data-driven insights. 

• Reducing data translation and truncation issues by unambiguously mapping cross-border payment data elements scattered over different formats, market practices, and networks.  

• Easily accommodate varying technical syntaxes like XML and JSON and integration styles like APIs and messaging. 

The Key Features of ISO 20022

The ISO 20022 standard is evolving continuously, necessitating new updates and retesting so that the banking processes can utilize the latest version and enhancements. Moving from legacy MT messaging to data-rich ISO MX standard will be a positive step for all banking and payment chain businesses. Some of the key features of ISO 20022 include: 

Change in Payment Processing:

Payment message processing will be transformed by introducing a more structured and richer format. The process will involve detailed data, including payment purposes, transaction details, and information about the parties involved. This will result in improved data accuracy, transparency, and error reduction during payment processing. Banks will be able to facilitate faster, secure, and efficient cross-border transactions. 

Optimized STP Rates:

In the payment sector, efficiency depends on the STP levels or the number of transactions that pass through the system with minimal manual support. With ISO 20022 involvement, there will be fewer transaction delays for end customers. 

Regulation and Compliance:

Banks and FIs can implement improved fraud detection measures by utilizing richer data to identify and target financial crime. Banks can obtain better regulatory reporting and more secure payment details by implementing higher levels of details and identical standards, formats, and protocols. 

Enhanced Data Carrying Capacity:

ISO MX standard will increase the data carrying capacity of financial messages compared to MT messaging. The richer and more structured data fields will include more detailed data about payments, counterparties, and transactions. It will also support complex transactions and additional regulatory details, thus improving reporting and payment processing. 

Non-Latin Alphabets Support:

ISO 20022 standard will support longer references for non-Latin alphabets, allowing businesses to set character limits ten times larger compared to MT messages. This will allow them to share a great deal of details with the end users, create better risk management processes, and facilitate a seamless interaction with AI/ML solutions.  

Supporting New Revenue Streams:

The new standard will be a great asset in improving liquidity management. It will support a new level of financial communication, adoption of data analysis, precise transaction monitoring, and much more to improve customer insights details. 

Better Interoperability:

Banks and the payment sector can facilitate better harmonization among payment systems globally. This will also streamline cross-border payments, positively impacting market infrastructures while improving processing accuracy and time. 

Impact on the Payment and Banking Sector

A majority of clearing system users and operators know the perks of shifting from old formats to global standards that support rich data and improve speed and accuracy. The ISO 20022 migration process will significantly impact various banking processes, such as KYC checks, liquidity management, and electronic banking. The success factor will depend upon their commitment and strategy to change. This transition will open doors to new levels of cost-effectiveness and efficiency, although banks have to invest a significant number of resources and time to complete the migration process. They have to create a region-based approach and closely monitor any updates or changes in the ISO 20022 standard. Banks deciding not to shift to ISO 20022 will be unable to offer advanced banking services like their competitors and will be left behind in the industry. 

The new standard will also change how payments are recorded and translated by making them more efficient and accurate. By adequately adhering to data, FIs can better support regulatory compliance practices and crime monitoring. It will facilitate E2E transparency and consists of elements dedicated to items like tax identification, purpose codes, and regulatory reporting. The financial institutes will get a more comprehensive and actionable view of transactions and can optimize the efficiency of analytics tools like payment tracking. 

How can Tx assist with the Migration Process? 

We have a team of experts with extensive knowledge of MT and MX message formats and top-of-line technical solutions to assist in the ISO 20022 migration process. Tx QA experts understand the past and future of banking and payment infrastructure and offer tailored and constructive solutions for ISO 20022 migration, which include: 

• Adaptability training to instruct your resources on how to sync with the new payment standard 

• Implement our in-house accelerators like Tx-HyperAutomate, Tx-Secure, etc., to support the migration process. 

• Message Mapping (MT-MX mapping equivalent) and transformation (automated MT & MX message format generators)  

• Business Process Verification (validation of the legacy and redesigned business processes for data transformation and completeness.) 

• Security testing 

• Performance/load testing 

• Functional testing 

• Automation services 

• E2E migration assistance concerning the transformation 

We assist with pre-migration assessment to actual migration and post-migration monitoring support. Tx’s out-of-the-box payments solutions, and specialized cutting-edge innovative industry-wide domain and services expertise drive the accelerated yet seamless transformation journey of migration to be on Fastrack with eventful insights of progression. 

Summary 

ISO 20022 is a transformative global standard for financial messaging, providing more structured, data-rich messages to improve transparency, accuracy, and efficiency in the banking and payment sectors. The standard supports better Straight-Through Processing (STP) rates, enhances risk management, and facilitates more detailed regulatory reporting. It also enables seamless global interoperability across financial institutions (FIs), streamlining cross-border payments. With its support for complex transactions and non-Latin alphabets, ISO 20022 opens new opportunities for improved liquidity management and customer insights.  

Partnering with Tx ensures a seamless ISO 20022 migration, with tailored services like pre-migration assessments, performance testing, and security testing. Tx’s in-house solutions, such as Tx-HyperAutomate and Tx-Secure, support the migration process, optimizing compliance and ensuring operational success for financial institutions. To know how Tx can help, contact our experts now.