
March was supposed to be a major milestone for the ISO 20022 payment messaging standard. But it didn't happen and won't until at least June, the latest setback for a complex effort to improve the data that accompanies digital transactions.
The Federal Reserve's decision to move the
FedWire's not alone. International organizations have
"Everybody's been talking about it for the past three or four years," Shawn Main, chief architect at Vantage Bank, told American Banker.
A combination of crises such as the COVID-19 pandemic, complicated technology and unprepared bank IT departments have
"Anytime you change the dataset that is used for money transfers, it's going to be complex," Jessica Pinkston, a senior director at Cornerstone Advisors, told American Banker. "It's a big lift."
What is ISO 20022?
While the standard is more than 20 years old, as late as March 2024 more than a third of bankers said they would
Less than half, or 39%, of international payments were ISO 20022 compliant at the end of 2024, according to
ISO 20022 is an upgrade over the preexisting mix of standards that guide the information that is included with transfers, payments, clearing, settlement and investment transactions. The existing standards are not rules-based and can often differ by region or type of transaction, according to
By contrast, ISO 20022 mandates the use of specific fields with payments that include details such as the purpose, context, status, identity and roles of participants.
This mitigates ambiguity for risk management. For example, an address for a recipient's location at "124 Cuba Street" in Tampa would theoretically not be flagged for sanctions screening because an ISO 20022 compliant payment would include the entire address and additional context showing the payment does not involve Cuba. And for a real-time payment, this vetting can be done much faster and in a manner recognized by both sides of the payment.
KMPG said that for ISO 20022 any source that creates a payment — such as payroll programs, invoices, tax-related payments and dozens of other organizations — will have to capture, organize and communicate more data than in the past.
There has also been a learning curve for ISO 20022 in recent years, though Vantage Bank's Main said he's starting to notice some improvement. "Treasury reporting messages, for example, will change, and we are noticing some broader knowledge of what will need to occur," he said.
How banks can overcome the hurdles
ISO 20022's technology challenges are not new, but they are lingering due to the size of the upgrades involved.
"The financial services technology industry has underestimated the effort involved," Robin LoGiudice, a strategic advisor at Datos Insights, told American Banker.
Banks have
Vantage Bank, a $4 billion-asset bank based in San Antonio, has hired bank technology company Finzly to consolidate its payment processing and to achieve compliance with ISO 20022. Finzly is part of a market that includes dozens of bank technology companies that have developed or are selling technology that enables financial institutions to update their payment processing systems to accommodate ISO 20022.
The bank plans to use ISO 20022 standards to expand its real-time payments support to include more use cases — Vantage was part of the original FedNow pilot in 2023. It also hopes to offer
Vantage has begun testing ISO 20022 standards with its correspondent banking network, which supports the bank's cross-border payments and foreign exchange business.
"The single ISO 20222 compliance platform will keep payments information from getting lost," Main said.
Another institution, the $4 billion-asset Wings Credit Union based in Water Valley, Minnesota, recently deployed Finzly's platform and plans to support FedNow and the RTP network this year, among other digital payment improvements.
"The platform will provide us with workstream improvements and operational efficiencies," said Cha Thao-Vang, electronic payments manager at Wings Credit Union, in an email.
Wings is among the
"The platform is one hub for FedWire, [real-time payments] and ACH processing," Thao-Vang said in her email, adding the system will also enable Wings to more quickly adopt future payment projects that require or can benefit from the ISO 20022 standard.
Most smaller institutions depend on a vendor to support the migration to ISO 20022, according to LoGiudice, who said this could add time to the migration for some institutions. "Many of these vendors are servicing a lot of small institutions, and this is a more comprehensive change than they've done in the past."