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Many challenges have emerged and lessons have been learned since Swift implemented ISO 20022 payment standards in March last year, with some banks having already implemented the new standard and others just getting started.

The Bankers Association for Finance and Trade (BAFT), a global industry association for international transaction banking, has released a whitepaper, “ISO 20022 Migration: Lessons Learned”, highlighting some of the critical lessons its members have learned while implementing this ‘new language of payments’.

The paper is intended not as an advocacy for the standard nor a best practices guide but rather as a ‘what to look out for’ reference for banks that are beginning to implement the new standard within their organisation. 

The paper emphasises five main areas of lessons learned: 

  • High-level governance 
  • Data strategy and adoption 
  • Business phasing strategy 
  • Testing and validation strategy
  • ISO 20022 post-implementation and evolution

High-level governance

Firms implementing ISO 20022 must ensure they have certain high-level aspects, particularly strong governance, effective communication, and a degree of technological readiness. 

Regarding governance, one of the most crucial elements is strong executive sponsorship to align business lines with clear program outcomes focused on customer impact and compliance. Beyond this, communication must be clear and consistent, ensuring that internal stakeholders and customers remain informed about progress and necessary changes. 

Technologically, such a migration will require thorough end-to-end architectural reviews to identify and address any flagrant gaps so as to avoid costly delays during the implementation. Dedicated technical standards teams have proven helpful in translating standards into technical requirements and ensuring seamless upgrades. 

Given the nature of implementing an industry-wide standard, external engagement with other banks and industry bodies is crucial for gaining insights and ensuring the viability of the migration. 

This holistic approach to organisation planning, communication, and technology readiness, underpinned by external collaboration, has proven vital in successfully implementing ISO 20022 among BAFT members.

Data strategy and adoption

Key to the data strategy and adoption process is understanding the new structured data format, which is a significant shift from previous MT standards under ISO 15022, with the new format bringing additional data elements that enhance business analytics and payment screening. 

During the planning phase of the transition, banks have found it helpful to categorise these new data capabilities into those that benefit clients, like improved transaction details, and those that aid internal functions, such as enhanced analytics and processing efficiency.

Considering the higher granularity level required by ISO 20022, breaking data requirements into detailed models has proven effective during the design and execution phase, which often means updating legacy systems and client databases. 

For those beginning down the implementation path, knowing that the coexistence of old and new data formats during migration will add complexity and require banks to manage data repopulation and increase storage needs will be helpful.

Throughout the adoption and migration process, banks should maintain an adaptable and system-agnostic data model that can continue to feed all messaging systems independently of the specific messaging standard needed.

Business phasing strategy

The transition to ISO 20022 is a complex, multi-year endeavour that is expected to extend beyond 2025, therefore requiring a carefully structured business phasing strategy that encompasses a strategic approach to the introduction of new message types and standards. 

Banks have different options for processing rich data under ISO 20022, such as replacing their core payment systems entirely or maintaining legacy systems with an ISO wrapper. These approaches highlight the varied strategies institutions can adopt based on their current systems and the effort required for each.

A key component of the business phasing strategy involves maintaining continuous awareness and engagement at the senior executive level. This ensures a balanced investment in both the ISO requirements and other ongoing payment changes. 

Notably, the alignment of industry standards and responding to mandatory requirements from clearinghouses will drive the priority of adoption. This comprehensive strategy underscores the need for an active, involved approach, recognising the intricate challenges and opportunities presented by the transition.

Testing and validation strategy

When it comes to testing and validation, a successful strategy hinges on effective collaboration and communication with stakeholders to ensure alignment with the plan, scope, and ultimate execution of end-to-end testing scenarios. 

Employing methods like Orthogonal Array Testing (OATS) and automating test cases allows for thorough coverage of various configurations and payment scenarios, facilitating a more efficient and accurate validation process.

A critical aspect of this strategy is the emphasis on accuracy and resilience. By building resilience through continuous validation of newly introduced ISO functionalities and addressing potential “false fails” in validation, banks can maintain the integrity of existing payment functionalities while transitioning to new message formats. 

Moreover, client testing and real-life scenario simulations, including the participation of back-office teams and testing with diverse bank types, have proven to be effective in identifying and resolving practical issues early in the process.

Several banks that have successfully completed the transition have found dress rehearsals and penny tests to be highly effective. These rehearsals, carefully planned to represent a wide array of real production cases, ensure smooth go-live transitions. 

By simulating real transactions, financial institutions can preemptively identify and address potential issues, thereby mitigating the risk of disruptions during the actual transition. 

This will enhance the reliability of the ISO 20022 adoption process and ensure a smoother transition for all parties involved.

Post-implementation and evolution

The migration process, currently in the first of three planned phases, requires banks to adapt to MX messages across various categories by November 2025. 

This transition is crucial for banks to keep pace with global payment standards and to tackle any issues during the ongoing coexistence phase. However, the adoption of MX messages in the cross-border space has been slower than anticipated, indicating the need for more concerted efforts in the migration process.

A pivotal aspect of this transition is the shift from translation-based solutions to native ISO 20022 solutions. This shift is essential for banks to simplify internal complexities and achieve interoperability across the payments landscape. 

Phase 3 of the migration, which will focus on adopting structured data, underscores the need for banks to engage closely with corporate clients. These clients play a critical role as originators of enhanced data and are liable to face their own set of challenges, including extensive and costly system upgrades. 

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As the financial industry embarks on the complex journey of transitioning to ISO 20022, the insights and experiences shared by BAFT members and published in this whitepaper provide invaluable guidance. 

From high-level governance to the intricacies of data strategy, business phasing, and testing methodologies, this transition presents both challenges and opportunities for institutions worldwide. 

To gain a comprehensive understanding of these critical lessons and strategies for a successful ISO 20022 migration, download and explore the full whitepaper here. 

For a more interactive experience and deeper insights, BAFT will be holding a panel session where this whitepaper will be explored in greater detail at the BAFT International Trade and Payments Conference from 27-29 February. 

To see more information on the event, visit the website here.