There is now some serious competitive pressure being placed on Banks to move to the new universal financial messaging standard ISO 20022.
The overall shift in the payment industry to instant payments is piling on the pressure, but it means that existing products and services could become inoperable if they don’t act.
In Europe, Chaps will be the first to migrate to the new messaging standard in June 2022, followed by Target2 in November. In Canada, the Lynx system will also migrate in November 2022, as will Swift correspondent banking, albeit with a coexistence period.
Fedwire and Chips in the US are expected to move over in 2023.
Recently the American Bankers Association announced it is supporting the Federal Reserve’s plan to migrate the Fedwire Funds Services to the ISO 20022 message standard in a single day – but says it has “serious concerns” about a lack of detail on testing strategy and requirements for the move.
Responding to the Fed’s call for comment, the ABA says it supports a big bang implementation strategy for the ISO 20022 migration in November 2023, suggesting one of two non-holiday weekends during the month.
The association also says it is “essential” to ensure the move happens on the same day as The Clearing House’s Chips service migrates to ISO 20022.
While agreeing to the timeline, the ABA says banks need a “detailed implementation plan as soon as possible” so that they can set up teams and allocate resources to begin preparing and testing.
The Fedwire migration is just one of several major projects facing US banks, which also have to contend with Swift’s ISO 20022 migration in November 2022 and the FedNow real-time payments system going live in 2023.
Poor Preparation
A recent Bottomline report, The Future of Competitive Advantage in Banking & Payments, shows, however, that most banks and financial institutions seem be leaving their preparations to the last minute.
Almost 60% of those surveyed had either not started planning, just started planning, or were still looking for information on how to move forward.
It is encouraging to see that 13% of banks & FIs have implemented ISO 20022 to date, 15% are mid-way through implementing & 13% have completed their plans and are about to start the implementation process.
This means 41% are at the right spot considering the ISO 20022 testing window opens in February 2022 and slots will be limited and on a first-come-first-served basis.
However, as for the other 59%+, they need to get their skates on. Consider that 25.5% have not even started, 23% have just started planning & 11% are still looking for information on how to move forward.
Underestimating Complexity
This shows that many banks may have underestimated the complexity of the migration.
The transition isn’t just a simple upgrade of process. Or it could simply be that their hands are tied by finite resources and competing priorities.
Existing infrastructure and legacy systems will struggle to deal with the speed of integration and transition required.
Additionally, as stated by SWIFT: “data richness isn’t the only thing that needs to be addressed; data collection is a key requirement via e-banking, treasury portals, ERP Machine-to-Machine connections, mobile apps, teller systems, ATMs and paper forms.”
Additionally, the systemically important payment systems of Target2, MEPS+, CHATS, CHAPS, RITS, BahnNet, Rentas and others also have deadlines for November 2022, as well as PhilPass in 2021 & Chips & Fed is 2024.
Essentially, the next four years until the 2025 will see the start of the co-existence period for SWIFT and the migration of all the remaining major markets with most reserve currencies (Euro, USD, GBP) onboard.
This shift will represent the ‘new norm’ for high-value payments supporting a predicted 80% of volume and 90% of the value of transactions by 2025.
As stated above, a lack of compliance to ISO 20022 deadlines will lead to a disruption in ‘business continuity’ which is a challenge for those that ranked it as only fourth equal in terms of their biggest focus currently in Insight number 1.
Furthermore, there is also a direct contradiction to responses in Insight 5 where 63.5% said RegTech will be more important over the next 12 months and Insight 6 where hitting compliance and regulatory deadlines was ranked sixth out of eight options as the top priority for their business in the next 12 months.
However, probably the strongest business case is that the sooner you implement ISO 20022, the sooner you can start reaping the benefits of high-levels of transparency, better customer service and of course -improved operational efficiency.
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