DEBUNKING THE MYTHS AROUND ISO 20022

DEBUNKING THE MYTHS AROUND ISO 200222

With these deadlines fast approaching, the pressure is on for financial institutions and intermediaries (FI&I) to act now and update their engines. Fail to do so, and they’ll encounter significant problems in just a few short years.

Unfortunately for FI&Is, this is far from straightforward. Most of these organizations are powered by a number of varied and highly customized back-office applications and payment engines, which are difficult to adapt to new standards. And while some systems are ready for ISO 20022, many real-time engines are lagging behind.

THE WORLD’S APPETITEFOR REAL-TIME PAYMENTS IS GROWING.

Global corporations expect to transfer funds quickly, safely and with full visibility — no matter the value (or journey) of the transaction. Financial messaging standards such as ISO 20022 are designed to support this sort of payment, providing rich data, agility and speed.

Both domestic and international regulators have therefore recognized the need for modernization and for a move to standardization, leading local real-time gross settlement (RTGS) systems to set timelines for moving to the ISO 20022 standard.

DEBUNKING THE MYTHS AROUND ISO 200223

WHY IS ISO 20022 IMPORTANT?

THROUGHOUT THE HISTORY OF PAYMENTS, MANY DIFFERENT FINANCIAL MESSAGING STANDARDS AND SYNTAXES HAVE BEEN USED TO TRANSFER INFORMATION. THIS DISPARITY WASN’T SUCH AN ISSUE WHEN LARGE, CROSS-BORDER PAYMENTS WERE LESS COMMON — OR WHEN A FIVE-DAY TRANSACTION PERIOD WAS INDUSTRY-STANDARD.

But nowadays, the digitalization of banking services requires real-time readiness and interoperability, so standardization of financial messaging is essential. ISO 20022 aims to achieve this, empowering organizations to share information across a variety of financial services applications.

ISO 20022 works on three layers: "the top layer provides the key business processes and concepts; the middle layer provides logical messages or message models; and the bottom layer deals with syntax." Overall, this helps to simplify the delivery of the transaction. This last point is particularly crucial; XML syntax, an international open standard that has support across industries and widespread jurisdictions, can enable straightforward manipulation of messages, which includes mapping the information contained onto other formats.

This ultimately delivers a universal language for financial messaging, providing faster, simpler and automated transactions; a standardization of multiple formats and an improved experience for the end customer. Perhaps most crucially, the rich data provided by ISO 20022 opens up a world of possibilities, from helping banks apply AI to financial advice, to speeding up the automated reconciliation of invoices.

DEBUNKING THE MYTHS AROUND ISO 200224

CHALLENGING THE MYTHS

WITH ALL OF THIS IN MIND, IT’S NO SURPRISE THAT GLOBAL HIGH-VALUE SYSTEMS — SUCH AS CHAPS, EBA, TARGET2, FEDWIRE AND SWIFT WORLDWIDE — ARE MANDATING THE ADOPTION OF ISO 20022.

In Europe, for example, the European Central Bank (ECB) is converting all the payment mechanisms under its control to the standard. SWIFT estimates that 80% of global high-value payments (by volume) will use ISO 20022 by 2023.

Those deadlines are now fast approaching. Schemes like EBA (EURO1, STEP1) and ECB (TARGET2) are early movers with a November

2021 date, so those banks who haven’t made plans for migration are putting themselves at serious risk. The U.K. (CHAPS) and U.S. (Fed and CHIPS) follow close behind, with 2023 deadlines. Although SWIFT has extended the timeline to be able to recieve ISO 20022 start point by one year to November 2022, “the end date to enable full ISO 20022 for cross-border payments remains as originally planned, November 2025.”

But altering existing systems to support ISO 20022 messaging — and thus becoming compliant with local payment schemes — is a challenging prospect. And there is a great deal of confusion around what the standard actually means; many misconceptions have sprung up around it. With expert insight from payment experts across the globe, we’ve debunked some of the most common myths to bring clarity to a complex topic.

DEBUNKING THE MYTHS AROUND ISO 200225

BECOMING COMPLIANT WITH YOUR LOCAL RTGS SCHEME REQUIRES A FULL RIP AND REPLACE OF YOUR EXISTING PAYMENTS ENGINE

MYTH ONE:

THE COMPLEXITY OF LEGACY PAYMENT ENGINES CAN MAKE IT VERY DIFFICULT TO GET NEW STANDARDS UP AND RUNNING. MANY BANKS THINK THEY NEED TO "RIP AND REPLACE" THEIR ENGINES TO MEET THE UPCOMING DEADLINES — WHICH FRANKLY ISN’T FEASIBLE AT THIS POINT, GIVEN THIS PROCESS TAKES SEVERAL YEARS.

However, there are alternatives that can meet banks’ requirements in the short term, helping them to hit the deadlines and buy time for further planning. ACI’s solutions can provide the required translation and orchestration layer for the receiving and sending of robust ISO messages, ensuring that banks are ISO 20022-ready in time to meet key deadlines. This rich ISO solution includes a user interface to offer manual translation that would otherwise be truncated by simple convertor tools.

The solution is also able to reuse the complete inbound ISO data on redirected messages, and wherever possible on the outbound portion of the message, ensuring end-to-end granular ISO. Importantly, this can be achieved without creating technical debt. Our solutions can then be extended and added to with additional real-time payments capabilities as new mandates emerge — all while running in parallel to a bank’s older environments.

This creates a more flexible and adaptable infrastructure which can serve banks in the future, acting as the first step towards a more strategic solution. After all, compliance and standards will continue to evolve, so it isn’t just a matter of building for today. Instead, it’s about finding ways to solve the initial challenges of implementing ISO 20022, while also giving the ability to adapt and expand in the future.

So, while the long-term target may be to have a payments engine that is native ISO 20022, banks don’t need to carry out a full rip and replace right now. There are solutions available which not only achieve compliance, they will also create value and support future changes.

DEBUNKING THE MYTHS AROUND ISO 200226

ISO DEADLINES ARE SOFT OR NEGOTIABLE, SO THERE’S NO URGENCY TO BECOME COMPLIANT

MYTH TWO:

Confusing matters further, some timelines have shifted. In the U.K. and U.S., for example, some of the initial milestones for RTGS schemes migrating to rich ISO by 2022 have paused. And it’s also true that there will be a period of interim interoperability, during which both legacy and ISO 20022 standards will be supported.

This uncertainty — coupled with the fact that banks are often busy keeping up with different regulations, from anti-money laundering (AML) to sanctions — means that ISO 20022 is not always prioritized as highly as it should be. But this relaxed attitude can’t continue. Creating a safe, secure and compliant ISO 20022 environment is a complete payments transformation process. So those who haven’t begun need to move quickly to redress this.

Critically, even if a country has not yet migrated its RTGS system to ISO 20022, as in the cases of Canada and the U.S., correspondent messages sent via SWIFT will be mandatory in 2022, and Europe's high value payment systems are mandating a year earlier, in 2021. So the pressure to achieve compliance is global, not limited to markets that have set a domestic mandate.

Quite apart from the deadlines, banks will soon find themselves losing customers if they aren’t able to conform. When corporate customers are sending billions of dollars around the world, the need for security, speed and compliance is non-negotiable. And banks will come under pressure in the near future from their corporate customers (especially their largest and most important corporates) to provide the rich data that will enable them to streamline and automate their billing and reconciliation efforts.

AROUND THE WORLD, DIFFERENT DEADLINES HAVE BEEN SET BY RTGS SYSTEMS, SUCH AS NOVEMBER 2021 IN EUROPE AND 2023 IN THE U.K. MEANWHILE, SOME HIGH-VALUE SCHEMES, HAVEN’T YET COMMITTED TO DATES AT ALL, BUT ARE ALSO INDICATING 2023.

DEBUNKING THE MYTHS AROUND ISO 200227

IMPLEMENTING SWIFT’S CONVERTER BY ITSELF IS ENOUGHTO ENSURE YOUR ORGANIZATION IS ISO 20022-READY

MYTH THREE:

THERE IS CONFUSION AROUND THE RELATIONSHIP BETWEEN THE SWIFT CONVERTER AND ISO 20022. SOME BELIEVE THAT HAVING THE CONVERTER IN PLACE WILL AUTOMATICALLY ENSURE COMPLETE COMPLIANCE, WITH NO ADDITIONAL WORK TO DO.

While converter tools will help banks dealing with inbound ISO messages, they will not provide complete visibility of the transaction — meaning banks will not be able to truly "own" their full ISO 20022 data. And this data is vital: without it, banks have no way of knowing if the message is wrong, incomplete or even fraudulent, opening them up to risk and potential fines. Ignorance is no defense in the eyes of the law, and particularly when we consider AML and sanctions responsibilities.

Greater visibility is required, which is why ACI has solutions that put banks in full control of their data. As well as making the conversion, banks can carry out their own mapping, store both formats of the message, and truly understand the data for both incoming and outgoing transactions.

This rich set of functions will ensure any payment can be made securely and compliantly — giving banks peace of mind in an increasingly complex payments landscape.

DEBUNKING THE MYTHS AROUND ISO 200228

MYTH FOUR:

"SWIFT gpi MANDATE", "UNIVERSAL CONFIRMATIONS" AND "ISO 20022" ARE ONE AND THE SAME

SWIFT’S gpi MANDATE AND ISO 20022 ARE OFTEN SPOKEN ABOUT IN THE SAME BREATH, LEADING SOME TO THINK THAT IF THEY ACHIEVE COMPLIANCE WITH THE FORMER, THERE’S NO NEED FOR ACTION ON THE LATTER.

This is incorrect. The SWIFT gpi initiative aims to make payments safer and more transparent; where previously transactions took three to five business days and customers experienced no visibility on a large, cross-border business payment, SWIFT gpi improves the traceability and certainty of the transaction.

SWIFT is now mandating that banks are able to share information on the originator of the payment, provide full transparency over where a payment is at any given point and send the universal confirmation of payment to the ordering party.

SWIFT gpi and ISO 20022 may use the same data standard, but they are not the same thing. SWIFT gpi provides payment status (including where it is and how long it’s been there, related to the mandate from SWIFT for network participants to have enabled for universal confirmations by the end of 2020).

Whereas ISO 20022 is the format and messaging standard for the payment itself, enabling the smooth, fast and compliant transfer of information. SWIFT may be driving both gpi and ISO 20022 migration, but these two are not one and the same.

DEBUNKING THE MYTHS AROUND ISO 200229

MYTH FIVE:

FINANCIAL INSTITUTIONS CAN AFFORD TO CARRY ON AS USUAL AS ISO 20022 ROLLS OUT

THERE ARE ADMITTEDLY A HUGE NUMBER OF NEW MANDATES, REGULATIONS AND EVOLUTIONS ANNOUNCED EVERY YEAR, AND THIS CAN CREATE A SENSE OF FATIGUE OR EVEN INDIFFERENCE. ISN’T ISO 20022 JUST ONE MORE HOOP TO JUMP THROUGH, AND CAN’T BANKS CARRY ON AS USUAL WHILE SLOWLY WORKING OUT HOW TO IMPLEMENT IT?

Unfortunately, the answer is no. Banks must meet regulatory mandates or face the consequences — and they must do so quickly. Corporate customers expect to continue to be served by their financial institutions, and banks will rapidly find themselves losing customers if they can’t serve ISO 20022 compliant end-to-end payments.

Eventually, the entire infrastructure within a bank will need to support ISO 20022, both across core banking engines, and a wider wheel of capabilities, like fraud management and FX. So, while this change represents a significant investment for banks, they can’t afford to not act. Those who fail to do so will lose out, lose customers and lose ground to the competition.

DEBUNKING THE MYTHS AROUND ISO 2002210

IT’S TIME TO ACT ON ISO 20022

ALTHOUGH IT WOULD TAKE MANY HOURS TO DISCUSS AND CLARIFY EVERY ASPECT OF THIS COMPLEX NEW STANDARD, THERE ARE SEVERAL KEY POINTS TO REMEMBER.

The most important is that ISO 20022 deadlines are fast approaching: to achieve EBA (EURO1 and STEP1) or ECB (TARGET2) compliance by 2021, and SWIFT by 2022, for example, banks must start getting a solution in place within the next few months at the latest.

But ISO 20022 shouldn’t only be thought of as another regulatory box to tick. It can also be an opportunity for innovation and an improved customer experience, providing the agility, flexibility and speed global

corporations now expect, such as least-cost or SLA-driven routing of payments across all RTGS and instant payment types — as well as the rich data that will enable key advances like automated reconciliation.

Ultimately, the transition to ISO 20022 isn’t just about meeting current regulations: it will also create a foundation for future growth, ensuring that banks can drive digital innovation while building strong customer relationships.

So, while this is undeniably a daunting process, the urgency is clear. And despite the complexity involved, there are solutions available that can help banks tackle this challenge confidently — positioning them to successfully meet the deadlines, respond to customer expectations and create new opportunities for growth.

From modernizing and meeting regulations to delighting customers through innovation, ACI can take your organization where it needs to be, fast. Learn more about our ISO 20022 Translator from UP® Real-Time

Payments™ solution today.

ABOUT ACI WORLDWIDE

ACI Worldwide, the Universal Payments® (UP) company, powers electronic payments for more than 5,100 organizations around the world. More than 1,000 of the largest financial institutions and intermediaries, as well as thousands of global merchants, rely on ACI to execute $14 trillion each day in payments and securities. In addition, myriad organizations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software solutions delivered on customers’ premises or through ACI’s private cloud, we provide real-time, immediate payments capabilities and enable the industry’s most complete omni-channel payments experience. To learn more about ACI, please visit www.aciworldwide.com. You can also find us on Twitter @ACI_Worldwide.

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