After years of planning and delays, momentum is building for banks to adopt the
The cutover to the new standard is now slated for March 2025 — nearly five years after its original planned migration date — and most observers expect ISO 20022 to finally go live next year with broad support from large global banks and payments organizations including The European Central Bank and Belgium-based Swift, the Society for Worldwide Interbank Financial Telecommunication.
On the heels of adopting
"Banks are struggling with ISO 20022 to some extent, and one of the problems is that it's a pretty steep lift for their IT departments, and they're not going to see an immediate return on investment," said Rod Reef, a managing principal at Reef Karson Consulting.
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"Remittances were historically sent with different forms and structures, so a bank or a company might receive a $100,000 wire payment but they didn't know exactly what the funds applied to, so there could be multiple purchase orders in the same amount with no automated way of knowing how to match the payment to the invoice," Reef said.
ISO 20022 provides a structure for international payments so systems can automatically match payments with their specific invoice, eliminating the potential for confusion, mistakes and costly manual labor to sort out the purpose and details for each payment, according to Reef.
"Not only can anyone at the organization using ISO 20022 easily track payments, but a computer can go and find a payment easily because of the standardized messaging format that differentiates each payment," Reef said.
There's a fair amount of work involved in the ISO 20022 upgrade, but the irony is that it will probably cost banks more in the long run if they postpone it to the last minute or only do partial compliance.
At some banks, upgrading their systems for smoother remittance-processing has taken a back seat to other technology priorities, but Reef said postponing ISO 20022 adoption could be costly in years to come.
"U.S. banks that typically hand off their occasional international transactions and wire transfers — to one of the declining number of large U.S. correspondent banks or a larger money-center bank — are setting themselves up to lose business to those other banks," Reef said, noting that the rise of global commerce and escalating volume of cross-border remittances means banks of every size need a reliable approach to international payments.
Many banks are already well prepared for ISO 20022 migration, he said. The largest banks are building their own ISO 20022-compliant systems, and smaller banks will rely on core banking technology platform providers including FIS, Fiserv and Jack Henry & Associates to support the ISO 20022 standard.
"All of the new faster payment systems including RTP, FedNow and those in Europe and Asia have been built with ISO 20022 messaging, and banks or core processors already 'talk' in ISO 20022," Reef said, noting that adoption of ISO 20022 is a multiphase process for U.S. banks and banks around the world. Many European payment schemes have already converted to the new messaging standard and Swift has already partially converted to ISO 20022.
When the cutover to ISO 20022 occurs, smaller and midsize banks that face challenges being ready for the FedWire conversion to ISO 20022 or the final Swift conversion may need to temporarily or permanently rely on third parties to execute certain transactions, experts say.
"About half of the midsize banks we talk to are ready for ISO 20022," said Robert Turner, general manager of U.S. financial services for New York-based Kyndryl, an IT services firm that supports payments technology and provides ISO 20022 integration services for banks and corporations.
While complying with ISO 20022 is optional, banks that fail to fully adopt the standard by next year could eventually be exposed to a range of extra costs.
"We may eventually see regulators applying fines and fees to banks that don't follow ISO 20022 standards, but just in terms of general business practices, not complying is likely to create a negative experience for bank customers when most of the ecosystem is following the new standard," Turner said.
Some banks are handling their ISO 20022 work in-house, some are bringing in a third party to do it and some are opting to do just the minimum to make sure they're ready to accept ISO 200022 payments by March 2025, he said.
"Some banks are only doing the front-end work to accept ISO 20022 payments by next year, and they're not necessarily integrating it throughout all their systems due to the complexity of planning," Turner said.
In addition to upgrading internal systems to support ISO 20022 messaging for remittances, banks need to test their systems, often by hiring a third party, which can add to costs.
"There's a fair amount of work involved in the ISO 20022 upgrade, but the irony is that it will probably cost banks more in the long run if they postpone it to the last minute or only do partial compliance," Turner said.
Banks that have exerted the least effort so far typically are only adding the minimum required ISO 20022 fields to payment systems, or making changes to existing fields, according to a recent Deloitte report.
Banks in the middle of ISO 20022 preparation are aiming to support sending and receiving optional fields that improve transaction flows, while those that have fully integrated the standard into their processes are ready to support all types of payment-messaging, including status requests defining the ultimate debtor and creditor on any payment in real time, Deloitte said.
While most payment systems are aiming to go live with ISO 20022 in March of 2025, Swift is allowing payments sent under its older standard to coexist with the newer standard until November of 2025.
"To be in compliance, all banks are supposed to be able to receive ISO 20022 messages, but then they can convert the payment messages back to the old format to use them in their existing [older] systems. The downside is that because of the differences in the data fields, you can lose some information, which creates friction," Reef said.
When ISO 20022 is widely adopted by banks, financial institutions and their corporate customers can benefit from so-called straight-through payments processing, which will enhance overall business operations, Reef said.
While the exact cutover timeline to ISO 20022 may slide to the second half of 2025, Reef said that growing industry momentum is likely to push broad adoption by the end of next year and into 2026.
"The business benefits of using a universal format for sending and receiving global payments will become very clear to those who fully participate in ISO 20022," he said.
