The global payments industry is moving towards a significant watershed in adopting and migrating to a unified language and model for financial transactions. The ISO 20022 standard offers substantial benefits and opportunities for both financial services firms and their clients.

With important milestones coming in 2022, it’s a very opportune time to take a readiness assessment and perform a health check of in-flight programmes to ensure the bigger picture benefits are not being lost in a scramble to adopt the standard in time.

A quick recap on ISO 20022

For those in the industry, the background to ISO 20022 is well known and documented. ISO 20022 is a global standard for high value and cross-border payments, and adoption is well underway, with several APAC countries such as China and Japan already live. Most of the rest of the world are planning to transition over the next few years. In the UK, ISO 20022 has been adopted as part of the New Payments Architecture introduced by Pay.UK and will replace and unify existing CHAPS, Bacs and Faster Payments messaging.

The Bank of England is also upgrading its Real-Time Gross Settlement (RTGS) system and will adopt ISO 20022 to streamline interoperability across interbank payments systems and ensure compatibility with the emerging international standard. SWIFT is adopting ISO 20022 for cross-border payments and cash management messages. This will be phased in until the end of 2022, after which the MT standard will be maintained for backward compatibility only. They estimate that by 2023, 80-90% of high-value payments will be migrated to ISO 20022.

The change programme - not one size fits all

On the face of it, ISO 20022 is the same for everyone. It is a necessary change programme to introduce a new mandated messaging standard with a series of adoption deadlines. However, the change programme's shape can be unique to the individual firm based on factors such as the scope of business activities, existing systems, budget and ambition.

The payments stack is complex covering multiple business-critical processes and systems. This means many touchpoints of change across different systems, internal and external dependencies to be managed, data models to be mapped, and data flows to be tested.

As with most of the mandated / regulatory change programmes I have been involved with over the last 10-20 years, there is always the upfront choice to make about scope and objectives - do you focus only on meeting minimum compliance requirements, tick the box and breathe a sigh of relief? Do you take the opportunity to modernise? Do you take a forward-looking approach and attempt to define a programme that will deliver compliance and business benefits?

Delivery risk is a key consideration, but often taking a strategic approach to modernise and engineer a future-proofed scalable and extensible solution is lower risk. This approach enables more modern engineering practices like continuous integration and automated testing to be put in upfront, allowing the team to go faster and change direction more easily. Also, the team will generally be motivated by a forward-looking strategic modernisation effort. Incorporating business benefits where there is a large overlap in the capabilities to be delivered for compliance can significantly add to the ROI and secure more business buy-in.

The alternative of a tactical approach often builds more fragility incrementally onto an existing legacy stack. While the overall amount of coding may be less, velocity is lower, and it can be more challenging to deploy and test. In the end, you will be left with a hangover of technical debt.

The temptation is to push on to hit the compliance date and worry about the rest later, but making decisions now with a full vision for the future potential in mind will ensure the investment is maximised.

Well-structured programmes will begin with the ideal target state in mind and follow an agile methodology that de-risks the programme through incremental delivery, whilst also enabling decisions to be taken quickly and decisively if compliance goals fall behind or become at risk.

Time to take a health check

Regardless of how your programme has been set up, with a little over a year and a half to go, it is a good time to conduct a health check to take stock of progress to date and take any corrective actions needed while there is still time. Or maybe you haven’t started yet, in which case now is the time to get moving!

A health check should take both a qualitative and quantitative look at all aspects of the programme, including objectives and outcomes, governance, delivery methodology, scope and requirements, estimates, dependencies, solution architecture, planning, testing, resourcing, team morale and risks & issues. It is useful to have an independent set of eyes conducting the review - people who are not directly involved in the programme who can provide an objective assessment.

A structured health check will produce corrective action if needed. On a fixed delivery date programme this may come down to resource/budget, or more often scope decisions. An agile approach with a laser focus on an initial minimal compliant solution that can be further built on as time and budget allows is a common strategy.

The health check should also produce a set of further recommendations to improve the programme's general health and enable the team to be more effective and efficient, reducing risk and improving the working environment.

Don't take your eye off the benefits

The potential future benefits and business opportunities enabled by the new standard are so big that it is critical to keep them front of mind. If your programme is running behind, it’s essential to take corrective action, but it’s also important not to panic and go into tactical compliance mode. If the programme was solely compliance-focused to start with and is on track or ahead of schedule, maybe now is the time to look further ahead.

I think of the opportunities of ISO 20022 as falling into three areas:

• Maximise mandatory spending: Maximise the opportunity and spend to modernise existing systems and infrastructure as discussed above.
• Benefits intrinsic to a global standard: Reduction in complexity of the ecosystem, interoperability, reduction of cost and operational risk through Straight-Through Processing (STP) and future extensibility.
• Benefits through leveraging the enhanced data available: Data and analytics-driven business opportunities for improved customer experience and new products & services.

Once compliance is achieved, and we have a global ecosystem of actors all speaking the same language, an abundance of business benefits and possibilities opens up.

The standardised definition of message syntax and semantics will remove translation and interpretation steps. The enhanced data such as the Legal Entity Identifier (LEI) and remittance data will accurately identify parties and the context of payments. This will vastly improve the speed and accuracy of processing payments, to the benefit of customers. It will also help significantly in areas such as fraud and financial crime detection.

The improved STP and leveraging technologies such as Intelligent Automation should enable a large take-out of cost and operational risk inherent in the complexity of the current systems (for example data lookups, mappings and translations across multiple systems) and the manual oversight, reconciliation and remediation that is done in today’s world. The industry will move towards real-time, and those with systems that can keep up will be those that come out ahead.

Those who plan ahead to leverage the enhanced data available in ISO 20022 will also be at an advantage. This new data provides much more context around a payment by providing standard party identifiers (LEI’s), links to payment details such as invoice numbers, references, policy numbers (remittance data), along with purpose codes, structured addresses and an extended character set. Payments can also be sent at a more granular level (unbundling of larger payments to link to specific invoices). Standard syntax and semantics lead to higher quality data, and advanced analytics and AI open up opportunities to extract value from these richer datasets.

This also offers up the possibility of providing improved experiences and value-adding services to clients to help them monitor, manage and understand payments. For example, provided automated reconciliation of payments to invoices. The speed with which payments can be made also means that cash balances can be managed across accounts in a more fluid fashion.

Act now

ISO 20022 is coming and promises significant benefits to financial services firms, but only if they have a solid plan and delivery programme that will enable them to be achieved. With key adoption milestones in 2022, it is the ideal time to conduct a programme health check to ensure that you are both ready in time for the cutover and well placed to be a frontrunner in gaining future business advantage from the new standard.