The Impact of ISO 20022 on Corporate Treasury
ISO 20022 migration is ramping up. As the world’s payment market infrastructures (PMIs) and banks move closer to adopting this new global standard, there are a few things that all corporate treasurers should know.
What is ISO 20022?
The International Organization for Standardization (ISO) is an international standard-setting body comprising representatives from various national standards organizations. It promotes worldwide proprietary, industrial and commercial standards.
ISO 20022 is an international standard for electronic data exchange between financial institutions, designed to simplifying financial messaging, namely payments and achieving a higher level of automation. While the standard has been around for more than ten years, it is finally picking up traction, in large part driven by SWIFT.
Today, sending and receiving payments is challenging, in large part due to the disparate exchange protocols and messaging formats. ISO 20022 promises to address this by standardizing and enriching the underlying metadata, which would eliminate the need for any format conversions. An ISO 20022 message contains much more data, and more fields, than other formats. This will make interbank communications smoother and improve straight-through processing and reconciliation, helping banks offer improved levels of service to their customers.
When will ISO 20022 be implemented?
While ISO is already used by payment systems in over 70 countries, in the coming years it will be the de facto standard for high-value payment systems of all reserve currencies, supporting 80% of global volumes and 87% of value of transactions worldwide. SWIFT is facilitating this community-wide adoption with the ISO 20022 programme and it is expected to go live as of November 2021.
After a period of four years of coexistence, the corresponding legacy SWIFT MT messages will be decommissioned on the SWIFT platform. Other transactions such as corporate payments and cash management, securities post-trade, clearing and settlement, corporate actions, FX, treasury and trade finance are currently not in scope.
The adoption of ISO 20022 applies only to payment instructions and reporting messages exchanged bilaterally between financial institutions.
What does this mean for corporates?
Once ISO 20022 is implemented, incoming payments may carry additional information or different information, such as structured remittance data, details of ultimate parties and the new unique end-to-end transaction reference (UETR). There is no direct equivalent of F72 (Sender to Receiver Information) in ISO 20022 messages. Field mapping will be challenging, and so will reconciliation.
Starting in November 2021 bank-initiated ISO 20022 payments will require all involved parties to be provided in structured data formats with additional information. Corporates will need to provide the majority of that data, which will more than likely require enhancements to their TMS and ERP systems as well as the need to obtain and provide the requisite counterparty data in the required format.
Fides exists to reduce the complexity of bank connectivity, payments and messaging. Whether you are using SWIFT, host-to-host connections, EBICs, APIs or any other channel, we have you covered. We already have a long history of automating bank message format conversions, and will work with you to make sure you’re covered for ISO 20022, whether you choose to switch to initiating messages in the new format or simply need to receive them.