ISO 20022 payment: The revolution in payment industry

ISO 20022 payment: The revolution in payment industry

2021-04-01

The migration to ISO 20022 MX payment messaging is set to reshape the payment industry and is recognized as the worldwide standard for the future. Many countries are in the process of migration their infrastructure systems and all the financial institutions have initiatives with the highest priority.

The standard FIN messages in place today restrict the potential of digitalization, automation and transparency required to process increasing volumes, widely used payments and to comply with increasing AML regulations. The format of the existing messages limits the adoption of evolving needs for cross-border payments, domestic High Volume clearing and instant payments.

 

Advantages of the new MX payment messages:

In contrast to FIN, the format of the new MX standard incorporates additional comprehensive data describing all aspects of payment transactions. It incorporates new fields and detailed information on debtor and creditor, critical data on intermediaries and on fees and taxes. The scope of the message has drastically increased. Intuitively, more efficiency in transaction processing is expected, and automation levels increased to reach full straight-through processing.

 

The advantages of MX payment message processing can be grouped into the following categories:

  • Data quality: with richer fields, it will be possible to send accurate and complete data on clients, intermediaries, accounts and accounting method.
  • Transaction state information: the state of the transaction process is recorded in the message throughout the full cycle of the processing.
  • Intermediaries network: complete and accurate information on intermediaries involved in the payment chain will avoid disruptions that prevent high STP.
  • Transparency: transparency on applied fees will protect the end customer. Complete information on client identification will help in AML screening.
  • AML: with the enriched data, the new messages will reduce the complexity of compliance and help financial institutions to better detect and prevent financial crime.

More vitally, the new standard will provide the foundations to innovate and deliver better payment and digital experiences to end customers.

 

Migration Timeline:

Financial institutions and payment market infrastructures across the globe are working to take on MX messaging. While in most cases the change is Big-Bang, SWIFT offered a 3-year window for cross-border payments and reporting.

The following picture provides the timeline of announced migration programs of major domestic payment infrastructure (HVPS and RTGS) and the cross-border messaging.

 

 

The major migration programs in HVPS/RTGS are expected in 2021 and 2022, which puts pressure on financial institutions to be ready in this challenging timeframe. While SWIFT allowed the coexistence of old and new SWIFT CBPR+ messages, financial institutions must deal with this additional complexity. By November 2025, only the new format MX will be used in all transactions.

While compliance with the new SWIFT ISO 20022 payment messaging will bring cost savings and efficiencies to both financial institutions and end clients, the road to implement the change is challenging. Different strategies are possible depending on an organisation’s capacity, complexity of legacy systems and, of course, the business case regarding benefits conferred by the new ISO20022 standard.

With its established track record in SWIFT standards and payment systems, VERMEG supports its clients in defining and implementing their migration programs, through both its software products and expertise.

My next blog will bring more insights to these migration strategies and how to approach their implementation.

Boujemaa Khaldi

Boujemaa KHALDI – Director, MEGARA & SOLIAM Product

 

 

 

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