The scramble to adopt ISO 20022 in international payments

Key Takeaways

• ISO 20022 take-up steady but far from globally widespread
• Adoption is strategic and requires infrastructure upgrade
• New formats bring richer data and need for automation

The payments industry is transforming! It is shifting to ISO 20022 – one of the most significant changes in the sector since online transactions became the norm.

ISO 20022 is an international standard for exchanging electronic messages between financial institutions designed to replace legacy messaging standards and capture more valuable data payment information.

As markets become more integrated and complex, adopting a new global framework requires rewiring the entire payments industry, including 11,000 banks, who must endure the cumbersome task of reviewing masses of data. The new standard’s benefits are plentiful, but require coordinated effort, planning, and infrastructural readiness to avoid losing data or disrupting banking services.

It is no surprise that Swift, the lynchpin of global payments, has pushed back ISO 20022 deadlines several times since 2020. As firms scramble to meet the 2025 deadline, let’s look at the benefits and barriers and how to achieve global adoption.

The ISO 20022 benefits

ISO 20022 adoption is expected to bolster the global payments system through:

• Fewer financial crimes: ISO 20022 is anticipated to lower the rate of financial crimes. Banks may experience a 25%-30% reduction in false positives in sanctions screening.
• Automated message sorting: ISO 20022 messages feature structured data elements and a rulebook, automating up to 84% of message sorting and identifying every investigation use case.
• Improved analytics: Enhanced analytics will assist corporate treasurers in making quick payments, particularly in large, complex businesses, even in challenging markets.
• Ethical use of payment data: ISO 20022 adoption will help financial institutions better understand their customers and use payments data ethically to grow their businesses.

Obstacles and delays

Adopting the new messaging format is about being prepared technologically, leaving behind inefficient manual interventions, and overcoming different speeds of take-up among counterparties and jurisdictions.

Progress has been patchy.

In recent years, many domestic instant payment platforms worldwide have tried to increase their reach and engage in cross-border payments. However, the biggest challenge for most is that they are solely built for domestic usage with limited interoperability or alignment with the standards of other markets.

Migration to the new ISO 20022 messaging and data format requires each party in the payment chain—from departments in financial institutions, their settlement payments channels, and counterparties—to be prepared. The sector is still struggling to unify all these channels effectively.

The lack of readiness became a challenge when migration to ISO 20022 was first proposed. Swift, the main financial messaging network globally, has postponed the deadlines multiple times after feedback from users.

When SWIFT mandated an ISO 20022 rollout for 2021, with richer data than its old MT standard, the industry started investing more heavily in its adoption. Despite this mandate, the roll-out plan was pushed out to 2022, and to the first quarter of 2023.

From March 20, 2023, ISO 20022 (MX) payments traffic started flowing through Swift, and with that the coexistence period for cross-border payment and reporting (CBPR+) began. During the coexistence period the previous MT messaging standard will be supported for backward compatibility purposes only until November 2025, at which date there will be a full industry migration to ISO 20022.

Harmonizing the rules

To overcome the data migration challenge and interoperability issue, technology providers can help build solutions to capture relevant data in an automated way. Achieving this will reduce friction as all entities would be following similar message usage guidelines and practices, thereby facilitating ISO 20022 migration.

Meanwhile, Swift is working with the global payments industry to define a set of harmonized usage rules for cross-border payment messaging called Cross-border Payment & Reporting Plus (CBPR+). These will define the key technological and regulatory requirements for cross-border payments and determine how to implement them.

According to experts, this initiative aims to smooth the rollout and implementation of ISO 20022 and ensure the preservation of data integrity for cross-border transactions.

Swift said earlier this year that the payments community continues to make steady progress with global ISO 20022 adoption and, with only 18 months to go until the end of coexistence with its hitherto standard, MT, the daily average number of CBPR+ messages exchanged now exceeds one million.

Considering that Swift handles more than 40 million messages daily, there is still some way to go.

Preparing for ISO 20022 adoption

While ISO 20022 has many advantages, achieving industry-wide adoption requires years of preparation. Not all banks have the infrastructure to support structured data and the pace of implementation varies across jurisdictions.

A Deutsche Bank report noted that to migrate to ISO 20022, financial institutions must upgrade their systems to ensure the end-to-end integrity of payment messages between jurisdictions.

As they develop tailored migration strategies and invest in technology to support the new data formats, they must also ensure their application of ISO 20022 aligns with anti-money laundering (AML), know-your-customer (KYC), and data protection regulations.

Once the ISO 20022 adoption process is complete, banks and financial institutions will gain access to a vast amount of data. That comes with great responsibility, and it is imperative they understand how to utilize the data effectively while ensuring customer privacy is not compromised or data misused.

Moving to ISO 20022 is not just a regulatory compliance step but a strategic shift toward a more integrated, efficient, and customer-centric payments ecosystem. No institution, organization, or country can achieve this alone. It is possible only if the entire industry collaborates, combining their strengths to make international transactions faster, clearer, more user-friendly, and affordable for everyone.