A key payment standard keeps getting delayed. Here's why

Vantage Bank

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 ISO 20022 deadline for FedWire transfers from March to July 14 was attributed to industry feedback and readiness. The Fed included a June "go/no go" decision, so there may be another delay.

FedWire's not alone. International organizations have delayed the standard multiple times over the past few years with the latest SWIFT deadline for cross-border payments set for November.

 "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 hindered ISO 20022 migrations globally.

 "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?

ISO 20022 dates back to 2004 and is an attempt to expand and unify the data that is included with financial transactions. The standard is designed to make payments safer and more reliable as financial services move online, with international reach and supported by real-time payment processing.

While the standard is more than 20 years old, as late as March 2024 more than a third of bankers said they would not be ISO 20022 ready by the 2025 target for cross-border payments. 

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Less than half, or 39%, of international payments were ISO 20022 compliant at the end of 2024, according to SWIFT, which manages the messaging rails for international payments. SWIFT said 2024's volume was 6% higher than 2023.

 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 KPMG. This causes payments to be inefficient and creates interoperability challenges, potentially harming the expansion of real-time payments to include cross-border transfers, according to KPMG.

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 expressed concerns about the scale of ISO 20022, saying parts of the standard that suggest the use of business identification codes clashes with codes that U.S. businesses commonly use. The concerns also include burdens for smaller institutions that lack the resources that large banks can deploy to upgrade their payment messaging systems. 

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 embedded finance, which refers to connecting financial services to other products, such as mobile apps; and other digital payments. 

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 credit unions that are using real-time processing to compete with large banks and fintechs that are using the technology to lure consumers and business clients. 

"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."