May 2017

The 2017 SWIFT Standards Forum in London highlighted the critical need for financial standards. Most notably, however, one panel left us in no doubt as to the importance ISO 20022, in particular, and in harmonising migration approaches.

While ISO 20022 is familiar to anyone in payments, its importance is less understood. In fact, in an increasingly globalised world, ISO 20022 – and its ability to enable communication – plays a critical role.

Moreover, it would be a mistake to think that the way we migrate to ISO 20022 does not matter – it does. Harmonising our migration efforts is not just “ideal”, it is crucial. Such was the resonant message during the panel on ISO 20022 implementation methods at the 2017 SWIFT Standards Forum in London – featuring discussion between Deutsche Bank’s own Nigel Rundle, Head of Institutional Cash Management Sales and Services Israel and Nordics, and SWIFT’s Isabelle Bouille, Principal Standards Specialist, Market Practices; Tim Decker, Head of Electronic Payments, Cash Management and Payments, Global Transaction Banking at Lloyds, as well as PMPG representative for the UK; Steffen Faehrmann, Expert Target2 Functional and Application Management at Deutsche Bundesbank; and Bruno Kudermann, Senior Product Manager, SIX Interbank Clearing AG.

The ISO 20022 dictionary

So why is ISO 20022 so important? In order to operate, financial institutions exchange large amounts of information – both with their customers and among themselves. Of course, exchanging information only works if it can be understood. Yet many of the geographies and market infrastructures around the world currently use vastly different information formats to process payments. In other words, everyone is speaking different languages.

ISO 20022 is the dictionary. It essentially acts as a “recipe” for making financial messaging standards – providing a template for any information and data formats that could be communicated between parties (such as field lengths, codes, and character sets etc.). In doing so, not only does it develop structural financial messages, it also helps to unify existing standards.

A world of opportunity

Of course, the panel at the SWIFT forum were all well aware of ISO 20022’s standardising power. Yet they were keen to point to other benefits:

“Straight through processing is the number one benefit – not just in the inter-bank space, but also end-to-end for the automated reconciliation of payments by corporates,” said Rundle.

And it is not just banks that will feel the benefits. “It’s important, not just for global banks like Deutsche Bank, but also for our banking clients, and their corporate clients in turn,” he added. 

Another benefit of ISO 20022 is the fact it encourages high quality and high accuracy of data. “It provides increased accuracy of data and analytics, which will also considerably help anti money-laundering efforts,” Rundle continued.  

Furthermore, the fact that components and elements of ISO 20022 are reused across messages, means that institutions only need to map them into their internal data structures once. Consequently, it becomes much easier to introduce new messages, as well as to maintain and update standards.

Finally, despite the cost implications of migrating to ISO 20022 initially, it could help to reduce costs in the long term.

“There was a study in 2016 which suggested that corporates could save around CHF270 million per year through the harmonisation of payments standards in Switzerland,” said Kudermann, of SIX Interbank Clearing AG.

Communication in harmony

Crucially, however, Kudermann highlighted that the benefit emerged from “harmonisation”.

While the use of ISO 20022 is designed to help banks communicate, it only really works if banks and jurisdictions migrate to ISO 20022 in a way that is aligned and harmonised.

And, as the panel pointed out, there are currently many different approaches to migration.

“The Eurosystem has a ‘big bang’ approach,” explained Deutsche Bank’s Rundle. “This obviously has its own logic, but, of course, also comes with market and liquidity risk – particularly as Europe demands a multi-country, multi-institution migration.”

“By contrast, in the US, they are aiming for interoperability between the old and new formats,” he continued. “In Phase One of the migration, for instance, banks will still be able to send messages in the old format, which will then be migrated by the Federal Funds Services itself, and vice-versa. This will continue until a mandated ‘sunset date’ whereby all banks will begin to send ISO 20022 messages, with enhancements.”

Every bank, market infrastructure, and region operates differently. As such, while a “one size fits all” method arguably does not exist, it is crucial to align efforts.

“Each market will need their own specificities,” explained SWIFT’s Isabelle Bouille. “As such, we will never reach 100% harmonisation, but we can try to get as far as possible.”

Rundle used an analogy to explain the importance of doing so: “Many years ago I used to work in the TV business, and we would spend a lot of time and money converting formats from one country to another. That all seems very quaint today – in the age of YouTube, where we have digital content which can be uploaded onto a single platform anywhere, and watched in other countries. We want the payments system to be as simple and flat as that – to reflect the global economy.”

In determining how to do so, the panel was clear on the key need for communication.

“During our efforts to migrate to ISO 20022, we discovered that communication was really important,” said Deutsche Bundesbank’s Steffen Faehrmann. “We needed to make it clear to our community that we wanted to support their end-to-end needs in a global context.”

“Harmonisation relies on very open dialogue between banks and infrastructures, but also discussion between infrastructures themselves,” said Rundle. “We all want to be playing by the same rules.”

It is no surprise, therefore, that SWIFT has formed the high value payments systems (HVPS+) task force, a global market practice group of financial market infrastructures and banks – including Deutsche Bank.

Inspired by the need to enable communication and harmonisation, the task force is designed to address the evolving ISO 20022 standards requirements of HVPS providers.  

“We have launched HVPS+ with the aim of getting all the market infrastructures around the world together to align their efforts,” said SWIFT’s Bouille.

“The HVPS+ task force represents the perfect platform for us to get in contact with other market infrastructures, and also with banks,” added Faehrmann.

Certainly, in the battle to harmonise ISO 20022 migration efforts, cooperation is vital.

A harmonised future

Deutsche Bank has long-recognised the importance of ISO 20022. 

“ISO 20022’s deployment has been welcomed by companies operating internationally seeking more operational efficiency across their payment providers,” said Paula Roels, Deutsche Bank’s Head of Market Infrastructure and Industry Initiatives, Institutional Cash Management, Global Transaction Banking (speaking after the event). “It will not only play an instrumental role in our continued move to real-time but also form the basis towards fully digitalised end-to-end cross border payment processing.”

On the panel, Decker echoed Roels’ sentiments: “Among a series of rapid changes across the payments landscape – to payments infrastructure, and with the introduction of new technologies – we need to recognise the importance of standards. But we also need to ramp-up the speed at which we adopt them, and need to keep ‘banging the drum’ for simple standards that use the same definitions around the world.”

The case for the ISO 20022, and the harmonisation of its migration, are clear. What we need to do now is communicate and collaborate.

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