Swift's messaging delays shouldn't stop bank upgrades
For the payments industry, the worldwide move to ISO 20022 is an enormous undertaking, with more than 70 countries, accounting for 80% of global transactions, planning to migrate to the new payments standard by 2025.
The recent announcement by Swift that the migration to ISO 20022 for correspondent banking is delayed by a year to 2022, and the fact that the U.S. Federal Reserve and CHIPS market infrastructure migrations are still under review, have sent signals that this is the time for payments players to hit the pause button on ISO 20022 preparations. This is a misplaced notion.
The announcement from Swift has undoubtedly upset global ISO 20022 migration plans. And, given the current COVID-19 health emergency and extraordinary business climate, it has left many financial institutions wondering what their next move should be.
Many financial institutions in the middle of their migration plans may feel stuck in limbo, especially as the European market infrastructures TARGET2 and EBA E1/S1 have stated that their plans to migrate in 2021 are still on track.
The primary cause of this financial institution uncertainty is concern about interoperability. Some financial institutions have been preparing for a full-throttle migration in 2021, planning to move their Swift messaging traffic onto ISO 20022 at the same time market infrastructures in Europe migrate to ISO 20022. Major investments have been made to take advantage of the benefits that ISO 20022 would bring for the resulting end-to-end data transmission.
The possibility that some customers and correspondent banks will continue to use legacy formats leaves both financial institutions that move to ISO 20022, and those that don’t, facing risks. The extended data in ISO 20022 will be lost or not transported in legacy messaging formats, raising questions about how adequate compliance checks can be performed. Simple legacy messages will not be allowed to be processed.
In addition, financial institutions that do move to ISO 20022 would look to provide a full ISO 20022 message back to the initiator financial institutions. This may cause issues when a correspondent bank receives an enriched message but has no way of passing the message to the ultimate beneficiary/originating financial institution because that institution can only accept legacy messages.
Financial institutions are looking for guidance to mitigate the risks of a disjointed global migration strategy. To protect themselves from these buffeting changes, forward-thinking financial institutions are staying the course with their migration plans while ensuring they can still handle legacy message formats. Adopting a flexible and agile payment solution will allow financial institutions to offer greater value to their customers by enabling the potential payment initiatives made possible by data-rich ISO 20022-based messages, while still being able to accommodate legacy formats as well as APIs, providing those who adopt them with competitive differentiation and operational flexibility.