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Learning a new language for the next generation of payments

Learning a new language for the next generation of payments

10 December 2021 | 6 min read

The global financial ecosystem is learning how to “speak” the emerging ISO 20022 standard that is quickly becoming the global lingua franca for payments messaging. But migration to ISO 20022 isn’t just another IT project – it’s a paradigm shift for the payments ecosystem. And everyone in the financial community will have to master this new business language as they prepare for fundamental changes in the global payments system.

Fast-tracking the transformation

ISO 20022 is already used by payment systems in over 70 countries. Some estimates predict that by 2025, 80% of global volumes and 87% of transaction values will be based on ISO 20022, making it the de facto standard for next generation payment schemes. However, some financial institutions are still figuring out exactly what ISO 20022 means for them and their clients, and the changes they need to focus on. And the clock is ticking.                                                     

To increase awareness and offer useful advice, Swift made ISO 20022 the subject of the first Swift Hong Kong Community Workshop in September. Speakers included representatives from HSBC as well as Swift, who outlined some ways to fast-track the adoption process and avoid potential pitfalls.

As Yvonne Yiu, the newly-elected Swift Board Member for Hong Kong and HSBC’s Head of Hong Kong and Interim Co-Head of ASP GLCM pointed out in her opening remarks, the ISO 20022 migration represents a huge opportunity to simplify, codify and streamline the way institutions operate.


Yvonne Yiu, HSBC
The enriched data set and pre-validation capabilities can bring great value in enhancing accuracy and transparency, and enabling cross-border payments to be executed quicker and more efficiently. That offers financial institutions an opportunity to enhance customer experience by reducing hiccups resulting from misdirections, delays and cancellations, as well as improving monitoring and sanction screening.
Yvonne Yiu Regional Co-Head of Global Payments Solutions, Asia Pacific, HSBC Hong Kong

A refined approach

November 2022 will be a critical milestone for the financial services community, and Swift has a Readiness Programme in place to help customers prepare for that deadline. In fact, the timeline has already started, with ISO 20022 becoming available for live usage on an opt-in basis in August 2022. That means banks can choose to use the live FINplus service to start exchanging ISO 20022 messages with their counterparts.

The next key date is November 2022, when the enhanced Swift platform goes live with ISO 20022 traffic. Payments-related messages may be received from the Swift platform as ISO 20022 messages; or multi-format messages containing both ISO 20022 and MT on the FINPlus channel. Reporting messages meanwhile, may be received as MTs over FIN or as ISO 20022 messages over FINPlus. Over a six-month period, Swift will manage the build-up of traffic by prioritising messages containing rich data and by controlling the volume.

The final step is to focus on promoting ISO 20022 adoption by all banks before 2025. In practice, that means that MT originated payments will remain on FIN until the end of November 2025. Further re-evaluations will be conducted, based on the overall progress of ISO 20022 migration among banks and feedback from the community, to determine if MT payments are eventually phased out in 2025.

By adopting a “ramping-up” approach, Swift aims to mitigate the inevitable risks and disruption that a “big bang” roll out could otherwise cause. More importantly, this strategy will help to ensure that there is no perceptible change for payment senders or receivers.

The HSBC experience

A large amount of ISO 20022 information is already available from Swift and other industry players. Nevertheless, when it comes to identifying areas to focus on, some banks find that the answers are sometimes less obvious.

At the Swift Hong Kong Community Workshop, HSBC speakers presented the bank’s perspective on its ISO 20022 journey. They outlined its approach and pinpointed a number of important focus areas for banks. At a minimum, that means being ready to receive ISO messages from the enhanced Swift platform from November 2022.

Other areas highlighted by HSBC for banks to be focusing on included:

  • Industry testing – Get ready to participate in industry testing as mandated by market infrastructures and Swift. If you use another bank for clearing, reach out to that bank. It would also be better to align with the local market timelines and adoption strategies.
  • Process and systems – Have processes and systems geared up to fulfil sanctions and AML controls based on new party fields in the chain.
  • Archive data – Ensure that you are able to archive the rich ISO payments data as per the regulations that apply in each particular jurisdiction.
  • Data availability – Create solutions to make enriched data available to customers.
  • Structured data – Prepare to provide structured name and address information for customers.
  • Training – Educate and raise awareness amongst internal staff about the new language.

HSBC has already learned some valuable lessons during the process of transforming its systems and processes to accommodate ISO 20022. Time is at the top of the list.  November 2022 is still nearly a year away, but it takes time to implement a strategic solution that meets all the necessary requirements. Starting early will pay major downstream dividends.

The bank also recommends engaging internal stakeholders from different areas and businesses which may be impacted by or may benefit from the enriched ISO data, and discussing the issue with vendors and IT partners as early as possible. It cautions against underestimating the importance of considering how to support customers, who may also need to migrate to ISO 20022.

Last but not least, institutions should not wait for all correspondent banks to implement ISO 20022, as this might be too late. Instead, they should plan to build on the enhanced Swift platform (with inflow translation) to remain flexible when it comes to their migration plans.

No time to lose

Industry players across the globe are getting ready to move to the new ISO 20022 messaging standard. The issue is particularly pressing for banks in Hong Kong, which saw over 54 million cross-border transactions processed last year. One thing is clear: taking a wait-and-see approach is not a viable option.

Swift has laid out a concrete development strategy to enable frictionless payments. And it aligns closely with the directions from international bodies, such as D20, FSB and the IMF, all of which have emphasised the need to enhance the efficiency of cross-border payments. Kevin Wong, Head North Asia Swift reiterated that the whole community is coming together for this transformation.

As Yvonne told the workshop audience, ensuring the adoption and readiness for ISO 20022 in the financial community is critical. “ISO 20022 will require significant work. It is important to get full visibility of the implementation timelines and requirements now, to prepare for the migration and achieve this vision,” she said.

Learn more about the resources and tools available to help in your ISO 20022 adoption journey.

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