It’s Time to Make the ISO 20022 Shift | Santander | FF Virtual Arena #327

It’s time to make the ISO 20022 shift.

The new global standard promises to unlock a new era for banking. It could be time to get on board.

In a brand new FF News Virtual Arena, Ali Paterson spoke to Greg Murray from Santander Bank in the U.S. to find out more. Promising greater data richness and improved transaction efficiency, Murray explains how banks like Santander are heavily investing in the transition to ISO 20022 to meet regulatory deadlines and adapt their systems.

It’s a topic on everyone’s lips and something we’ve covered in other videos on our website, including this video on getting ISO 20022 ready in Cambodia, and this article looking at the benefits of making that shift.

There is some concern for how smaller businesses will cope with the shift and to help with this Murray says the transition needs to be a collaborative one. Read on to find out more.

The ISO 20022 transition

The financial industry is undergoing a significant transformation with the adoption of ISO 20022, a new global standard for exchanging electronic messages between financial institutions. It will replace older messaging formats like SWIFT MT, offering a more flexible, efficient, and data-rich way to process transactions and communicate across the financial landscape. But what exactly is ISO 20022, and why does it matter?

In our interview, Greg Murray, Managing Director of Treasury Services Product Management at Santander Bank in the U.S., shared his insights into the new standard and its impact on the global financial system.

What is ISO 20022?

ISO 20022 is an international standard that provides a common language for financial messaging. Unlike its predecessors, it is not just a format but a comprehensive methodology that includes a data dictionary and a set of guidelines for message creation and use. It is designed to handle a wide range of financial transactions, including payments, securities, foreign exchange, and trade finance.

The standard was developed to address the limitations of older messaging formats like SWIFT MT, which have been in use since the 1970s, although as Murray points out SWIFT (the Society for Worldwide Interbank Financial Telecommunication) are very much championing this change. He points out that existing messaging systems are limited by their rigid structures and lack of support for the rich, structured data that modern financial transactions need.

Why ISO 20022 Matters

ISO 20022 is not just about replacing old standards; it’s about enabling a new way of handling financial data. The move towards ISO 20022 is driven by several key factors:

Rich Data Handling: ISO 20022 messages can carry much more detailed information than older formats. This means more data can be transmitted in a single message, reducing the need for multiple messages to complete a single transaction. For example, it allows for up to 140 characters of remittance information, compared to the 35 characters allowed in SWIFT MT messages.

Standardization Across Markets: Currently, different regions and banks often use different messaging formats, creating complexity and inefficiency in cross-border payments. ISO 20022 offers a unified standard that can be adopted globally, simplifying processes and reducing the risk of errors.

Enhanced Compliance and Transparency: The new standard supports better data granularity and quality, which is crucial for meeting regulatory requirements. As Murray points out, regulators around the world are increasingly demanding more detailed and accurate data, and ISO 20022 provides a way to meet these demands.

Future-Proofing Financial Systems: With the increasing digitization of financial services, there is a growing need for systems that can handle large volumes of complex data. ISO 20022 is designed to be flexible and extensible, making it easier to adapt to future technological advancements.

The Global Adoption of ISO 20022

The adoption of ISO 20022 is already underway globally, with many major financial institutions and market infrastructures moving towards the new standard. The transition is being spearheaded by SWIFT, which has set a roadmap for migrating its members to ISO 20022 by the end of 2025. This is the big deadline that most institutions are looking towards.

Murray noted that while the initial transition may pose challenges, the benefits far outweigh the difficulties. He emphasized that ISO 20022 is not just a compliance requirement but an opportunity for financial institutions to enhance their operations and offer better services to their customers.

For example, the European Central Bank (ECB) and the Eurosystem have already adopted ISO 20022 for their Target2 payments system, and other central banks around the world are following suit. In the U.S., the Federal Reserve has also announced plans to adopt the standard for its Fedwire Funds Service.

Challenges in the Transition to ISO 20022

Transitioning to ISO 20022 is not without its challenges. One of the major hurdles is the need for significant investment in upgrading legacy systems to support the new standard. Financial institutions must also train their staff to handle the new messaging format and develop new processes and procedures to accommodate it.

Murray highlights that a common concern among financial institutions is the complexity involved in migrating from legacy systems to ISO 20022-compliant platforms. This transition requires not only a technical overhaul but also a cultural shift towards embracing data-centric operations.

Additionally, there is the challenge of ensuring interoperability between different systems and markets. While ISO 20022 aims to standardize messaging across the financial world, there will still be a period where both old and new systems need to coexist, which could create temporary friction and inefficiencies.

A Banker’s Perspective on ISO 20022

Murray, speaking from a major institution’s point of view, is optimistic about the future of ISO 20022 and believes that its adoption will bring long-term benefits to the financial industry. He views it as a critical step towards a more connected and efficient global financial system. “This is not just another compliance exercise; it’s a chance to rethink how we handle data,” he said. He also pointed out that while there will be short-term challenges, the industry must focus on the bigger picture – the potential for innovation, improved customer experience, and streamlined operations.

ISO 20022 represents a significant evolution in the way financial data is exchanged and managed. It is not just a technical upgrade but a strategic opportunity for financial institutions to modernize their operations, enhance data quality, and better serve their customers. As our interviewee emphasized, the move to ISO 20022 is an essential step in future-proofing the financial system for the digital age.

While the road to full adoption may be complex, the potential benefits – from increased efficiency and reduced costs to better compliance and more innovation – make ISO 20022 a game-changer for the global financial industry.