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Is Your Bank or Credit Union Ready for ISO 20022?

January 10, 2024

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ISO 20022 Digital Payment Transformation

Digital transformation to migrate to the new ISO 20022 standard will take time. Is your bank or credit union ready for this payment modernization?

ISO 20022 has ushered the world into a new era of real-time payments, becoming a catalyst for strategic and technological transformation. The standard aims to consolidate the global payments ecosystem through standardized messaging formats. Banks and credit unions need to migrate to the standard before November 2025 if they still wish to offer instant digital payments, both domestic and international, to their clients. The first step to the transition to the new standard is to assess your readiness and prepare a transition roadmap to migrate to the global standard efficiently. Financial institutions (FIs) must prepare to receive, store, and process data at the granular level prescribed by the standard.

ISO 20022 is “a single standardization approach (methodology, process, repository) to be used by all financial standards initiatives.”

More Than a Compliance Mandate

FIs, especially infrastructure-providing banks and credit unions must appreciate the standard as more than a compliance project. It is paramount to comprehend the value that this granularity and uniformity of payment messaging is expected to provide.

ISO Covers All Kinds of Transactions

The enriched data sets that the new standard will provide will offer immediate benefits, such as:

  • Streamlined reconciliation through improved STP rates.
  • Simplified cross-border remittance.
  • Easier interoperability and seamless integration.
  • Rich payment analytics.
  • Minimal errors and improved back-office efficiency.

 

Why a Rich Granular Data Structure?

ISO 20022 uses clear and stable data definitions and roles to reduce ambiguity in financial messaging. Thus, the standard facilitates building transparency into the modern payment ecosystem. Rich data structures will help drive business decisions to deliver value to third-party partners and end customers. Eventually, these will translate into enhanced revenue generation and growth opportunities. With well-defined standards, routing international payments will become seamless across payment rails. This will boost competition, reduce costs, and speed up settlement.

Additionally, rich data sets and alignment with global standards will help prepare FIs for the payment ecosystem of the future by:

  • Providing greater control and oversight of transactions.
  • Helping overlay services to improve bandwidth use and enhance communication.
  • Preparing the organization for open finance and open banking.
  • Improved analytics that facilitates customer-centric product and service innovation.

ISO 20022 and FedNow

While the standard has been rolling out incrementally since 2004, the official launch occurred only in March 2023. The sweeping adoption of the standard has played a key role in inspiring the Federal Reserve to launch the innovative FedNow Service.

FedNow is aimed at empowering participating banks and credit unions to send and collect funds instantly. It offers an infrastructure that enables instant P2P, G2C, C2G, B2C, C2B, and B2G transactions. ISO 20022, on the other hand, is a standard for exchanging transaction messages among participating institutions. The two can be a powerful combination to propel the adoption of real-time digital payments in the US. Moreover, both FedNow and the ISO standard are flexible and agile. This means both can accommodate the changing needs of all stakeholders, including banks, credit unions, regulators, corporates, and end-users, as they evolve.

Assess Your ISO 20022 Readiness

The deadline to fully migrate to ISO 20022 is November 2025. Financial institutions must at least be prepared with messages for cross-border payments and reporting (CBPR+) by then. But migration starts with a readiness assessment. Consider the following to assess your readiness.

Technology Infrastructure

Technological transition to the standardized messaging format will neither be fast, nor cheap, especially if legacy systems use outdated messaging and data management mechanisms. Additionally, identifying systems (or parts of the system) that cannot be updated and deciding to replace them can add to the cost and effort of transition.

Costs

The cost of technology is only one part of the process. Updating internal processes and training experts to optimally utilize the structured data formats may consume significant time and money. Preparing a budget for the transitions, keeping stakeholders informed, service costs and mechanisms to prevent costs from rippling to the customer and marring their experience can be challenging.

Testing Mechanisms

Transitioning to the ISO standard won’t be complete without adequately testing the standardized payment messages. This includes using stubs and collaboratively involving third parties and other FIs to assess the accuracy of each character in the message. Further, there might be a large influx of data with the new standard. Therefore, augmenting verification techniques will be critical since a single misinterpreted character can cause a transaction to fail or, worse, make a successful transaction appear to have failed.

False Negatives

Since most banks and credit unions will sit only with the minimal necessary set of messages initially, they may still receive messages from external parties that are rich and fully aligned with the standard. Validating such messages without generating false negatives is another crucial aspect for the organization to prepare for the duration of the transition.

Navigating the ISO 20022 Transition

The clock is ticking, and a lot needs to be done to become compliant. Banks and credit unions need to act fast. Educating the team to conduct gap analysis and preparing an efficient transition strategy requires immense experience. Ensuring coordination among IT, operations, product planning, customer service, reporting, compliance teams, and stakeholders requires careful orchestration. This is where a team of experts with deep experience in the payments industry, technology modernization, and standardization can significantly add value to the transition process.

Opus Technologies facilitates FIs in conducting a comprehensive gap analysis, preparing a migration strategy, and executing a transition plan that optimizes costs and effort while minimizing downtime and process disruptions. With a detailed roadmap that includes specific timelines and milestones, our experts support you in system upgrades, data mapping, testing, and training. Speak to our experts to learn more.

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