ISO 20022 Payment: The Pathway to smooth migration | VERMEG
ISO 20022 Payment: The Pathway to smooth migration

ISO 20022 Payment: The Pathway to smooth migration


Once the magnitude of the implied changes in payment messaging is understood, financial institutions must carefully plan the migration to the new ISO 20022 standard. This may well involve a number of issues which are not obvious with no clear pathway to a smooth migration.
There are multiple factors to be considered in developing a suitable strategy. Unlike other financial functions, payments are processed across various departments including Trade Finance, Foreign Exchange and Billing. An inventory of existing tools and solutions inside the financial organization usually reveals large number of components with diversified technologies and architectures, which are sometimes so old that any change or upgrade is not practical. Finally, skilled resources with a solid knowledge of legacy systems and operations are extremely difficult to acquire. Additional key IT, business and consultant resources will need to be mobilized in the migration process creating high demand on consultant firms.

Therefore, in my opinion there are three possible strategies to develop the migration plan.

1/ The Converter

This is a tactical solution which consists on mapping FIN messages to new ISO 20022 messages and vice versa. Also known as the “transformation solution”, it is the least complicated plan. The idea is to deploy a tool to act as a gateway from the organization to the external world. It will be responsible for transforming all outgoing messages into ISO 20022, and received messages into FIN messages or specific formats supported by internal systems.
It is very easy to deploy and onboard. VERMEG have made available to the industry a SWIFT Converter deployed on the cloud, shortening the migration time using this method.
Even though it is the most efficient delivery option, it should be considered as a temporary solution to give an organization to plan a longer term full migration. Important new features in the new standard are “lost in translation” with this solution with data being truncated from messages to fit in old format.

2/ Spot and Upgrade

This strategy consists of identifying each tool and software solution producing or consuming SWIFT payment messages and then upgrade each to fully support ISO 20022. This approach aims to ensure that all components will be working correctly and enhancements are effected properly. Once it’s done, the organization’s IT landscape will natively process the new standard messages.
This is the ultimate target, and destination. However, it demands time and resources and needs efficient risk and project management. Only organizations with enough resources and budgets, who started the migration plan earlier enough to meet the deadlines, can go down this road. And they are very few.
Fortunately for the remaining organizations, a third way exists.

3/ The Hub

This consists of creating a Payment Hub inside the organization. It will act as a gateway for all payment transactions (and not payment messages as in the Converter strategy) between the organization and external counterparties including clients, payment infrastructures and correspondents. The Hub comprises the following functions:
– Receive a payment messages in any format (FIN, new ISO 20022, XML, CSV…)
– Create an internal payment transaction
– Enrich the transaction data such as SSI, Counterpart identification, Intermediary Network, fees and taxes. This data can be stored locally in the Hub or be gathered from the other systems using APIs or even database access if required. Best practice consists of processing this data locally in the Hub while configuration is gathered from reference systems with APIs.
– Screening transactions: interface with AML system to ensure that proper screening is done with the appropriate information.
– Send the outgoing transactions to the target system using the agreed format (FIN, new ISO 20022, XML, CSV …)

The key benefit of a Hub is the transformation of the message into a local transaction. Data enrichment is performed on the local transaction and not in the message transformation. The typical services inside the Hub are message decoding/coding, fees calculation, SSI, tax calculation, workflow management, exception management and screening interface.
The Hub option has the advantages of time-to-market, less complexity compared to “Spot and Upgrade” and data enrichment that is missing from “The Converter” option. It is a sustainable solution involving limited budget and mitigated risks.

I strongly recommend “the Hub” strategy. Keep in mind that pragmatic planning with an ambitious evolutionary program is the ideal combination to meet the compliance deadline while creating the foundation of a scalable and adaptable payment processing operation including the ability to address upcoming challenges of payments in blockchain platforms and in cryptocurrencies.

Boujemaa Khaldi








Boujemaa Khaldi – Director, MEGARA & SOLIAM Product