The Pathway to Global Real-Time Payments: What Will Be the Impact of SWIFT and ISO 20022?

The whole world is moving toward the ISO 20022 standard, and almost in unison. Globally, most major currencies are planning to shift to the new data-rich standard for either high-value payments or immediate payments (high value being global messaging via the SWIFT network or an RTGS scheme).

Understandably, banks have pushed back on the conflicting regional high-value scheme rollout timelines, and thankfully the regulators have listened and created a little more headspace for financial institutions to enable for ISO 20022 in their institutions. Headspace is essential to developing a strategy that capitalizes upon the data-rich ISO standard and brings new value to both banks and their customers.

Schemes in the U.S. and U.K. are now staggering their deadlines to allow banks to achieve compliance with a sense of calm, against deadlines from SWIFT, the European Central Bank (ECB) and Euro Banking Association (EBA) in November 2021.

SWIFT is one of the first movers for high-value transactions on ISO 20022, which impacts all pure correspondent banking worldwide. Along with SWIFT, European financial institutions must also contend with the first regional shifts from European Banking Authority (EURO1 and STEP1) and European Central Bank TARGET2.

FedWire and CHAPS in the U.S., and CHAPS in the U.K. will be among the quick followers. Other countries, such as Canada and Australia, have yet to announce a definitive deadline, but will not be far behind. This means that even if a bank doesn’t have to manage a domestic shift to ISO 20022, they still have to contend with the global shift and the impact on their pure correspondent banking business.

Reducing payments friction in corporate banking

While this might sound like a perfect storm for banks, it’s actually the perfect opportunity to modernize their payments infrastructure. Many instant payments schemes around the world have been ISO 20022-based from day one, and with financial institutions now making the move, it means that all payment types will finally be on the same rich data standard. This not only opens the door for consolidation of systems (and associated cost reduction), but also the creation of new services that bridge previously disparate payment systems. We’re truly on the cusp of frictionless payments – a term that is more frequently used when discussing consumer payment experiences, but would have a quantifiable impact if realized in the B2B or corporate banking space.

Once a financial institution undergoes the uplift to ISO 20022 for its high-value or pure correspondent banking payments, then the incremental uplift to real-time payments is less onerous than you might think. That’s because readying systems to manage and utilize exponentially bigger ISO 20022 data needs to be done only once. With a common standard, the services built to capitalize upon that rich data are interoperable across the payment schemes.

For an institution that is already real-time ready, investments can be leveraged to more efficiently enable for ISO 20022 in a high-value and correspondent business. One of the major differentiators in these approaches is that banks that start with instant payments are both ISO- and 24/7-enabled, whereas there typically isn’t the same 24/7 availability requirement for high-value payments on ISO. That means that for those institutions beginning with real-time gross settlement (RTGS), it’s worth bearing in mind the non-functional requirements (NFRs) of instant payments while modernizing. Instant payments volumes should also be anticipated to be greater than RTGS as a proportion of overall real-time payments business.

Moving from legacy formats to modern standards is not just a technology issue – education of people is critical too. If an institution’s ISO journey began with instant payments, then the importance of the context of payments and their lifecycle will be well understood. ISO messages contain all payment participant information, as with legacy formats where the parties appearing on a message evolve as that message passes through the correspondent banking chain. This evolution is to reflect the change in payee versus recipient as it passes through each link of that chain. It’s fundamental that operators understand how these payments move through the lifecycle of the transaction, to continue offering status updates to customers, whether automated or human. This understanding underpins other key initiatives in the transaction banking world, including Universal Confirmations and SWIFT gpi.

SWIFT gpi Instant is the first step toward the payments ubiquity outlined above. It will tie together high-value and instant payments schemes to enable global real-time payments alongside real-time transaction insight, but it will be reliant upon the ISO 20022 standard.

So how can banks begin their journey with ISO 20022?

Those institutions that evaluated the long-term impacts of the evolution of high-value payments are well underway with a strategic migration to ISO 20022, creating real-time native infrastructure in their banks. However, understanding how big an undertaking it is to completely transform payment engines, many banks have chosen to break that journey down into manageable steps. They are beginning with an enriched translation solution to bridge the old and new formats and systems for high-value payments within a single payments platform.

Despite the encroaching high-value payment deadlines, it’s not too late for those who started with a tactical approach. There are still options to build on tactical decisions, aimed at solving for the short term, and develop a future-proof strategy to manage the impact of ISO 20022 and capitalize on its rich data – something that will have ramifications for SWIFT and local RTGS schemes, as well as immediate payments.