A primary element of any bank’s ISO 20022 strategy will be getting their systems ready and ensuring their platforms can cope with the new standard’s larger sets of data and Operational readiness.
For banks that still predominantly use legacy systems, the move to ISO 20022 will be more of a challenge. Such banks usually take one of the two routes: either update their existing legacy platforms to incorporate the data or build separate external systems from which to integrate and link the data.
Lack of interoperability due to different standards and formats have resulted in significant delays and inefficiencies in processing cross border payments. ISO20022 is here to change how we transact and the global adoption of the standard is accelerating across market infrastructures aiming to achieve multiple strategic initiatives through the 4-year migration and coexistence period.
What can banks consider in this migration and coexistence period?
- Keep the migration period short: Adding new capabilities during the migration will be ongoing and costly. Phased implementations reduce the risk, but it does bring in their own risks and this will not be a good time to get into any sort of operational risk.
- Reduce the Operational Risk - Limit the maintenance period of MTs, have a cut-off date, and inform it the teams and correspondent banking participants. This will reduce operational risk, especially with truncated messages.
- MT cut off date: Having a clear date to limit MT maintenance, one to one conversion is not the aim here.
Bank-wide impact
The new messaging standard, ISO20022 will introduce significant changes to the extended ecosystem that supports the payment value chain and banks will definitely find significant changes across the organization.
It can be tempting for payment processing centres of banks to take this exercise as just one more system upgrade. In fact, this migration holds several opportunities that banks have been chasing for years. Banks have either failed to implement AI in reporting and ML in automation because of the unavailability of structured data or haven’t been able to unleash their full potential.
ISO 20022 implementation is just the tip of the iceberg. One of the many benefits of the standard is that it has the potential to dramatically improve straight-through-processing (STP) rates. Removing the need for manual intervention along the payment chain promises to cut delays and improve efficiency.
Richer data will make it easier for businesses to stay on the right side of compliance, and allow greater security levels and cost savings. Time and resource-intensive activities—such as payment processing, data analytics, investigations, and reporting—all have the potential to become automated off the back of ISO 20022 implementation.
A few impact areas are changes in client systems, manual or smart payments forms, online payments interface, user guides, reporting, effect on STP, dropouts, and exceptions.
No doubt, the migration will involve the allocation of significant time, money, and resources. That said, it is important for senior management to take stock of how migration will impact their businesses.
A strategic plan assessing the current state of processes, data storage, application, and interface gaps, and reporting gaps will reward banks in the long run. Involve analyses of the number of transactions executed annually, whether external providers need to be used and how businesses, in general, will be affected internally.
Clearly, migration is about more than just core-payments processing anti-financial crime applications, liquidity management, and reconciliation. It will have a wave effect.
We at Nth Exception collaborate with Banks and Financial Institutions to analyze, solutionize, and optimize your ISO 20022 journey.
We at Nth Exception collaborate with Banks and Financial Institutions to analyze, solutionize, and optimize your ISO 20022 journey.
