2022 is a key year for the payments industry as the journey towards ISO 20022 reaches a major milestone in November: the go-live for cross-border payments and reporting (CBPR) and the start of a three-year coexistence period with the current MT format. With less than nine months to go on the countdown clock, it’s important for everyone in the community to look closely at what they need to do.

Of course, there are several communities already using ISO 20022. But, with the upcoming changes covering correspondent banking, the significance of the move to the new standard is much more far reaching. Correspondent banking largely relates to cross-border payments, but it also includes domestic payments between correspondents – or indirect participants – and their direct participants in the domestic high-value payment market infrastructures.

This effectively impacts over 11,000 global participants. In addition to this, the European high-value payment systems, which also have a large number of direct participants, will implement ISO 20022 at the same time as the correspondent banking industry. Most of those participants are also providing cross-border related products to their customers, further amplifying the significance of this implementation for the global payments industry.

The implementation journey

So, in terms of the build up to ISO 20022 implementation, what can we expect? By now many banks implementing ISO 20022 this year will have defined the changes needed in their back office, middleware, and message interfaces. Many will be working simply to ensure readiness for go-live, with full adoption during coexistence a longer-term goal. Whatever stage their entity is at though, testing and implementation planning will be front and centre in the minds of many.

Testing can often be challenging – particularly as we’re introducing a richer and more structured standard. Functional testing should be relatively straightforward, but business testing or user acceptance testing can throw up several unknowns: How many clients will utilise the rich and more structured information, such as the structured postal address? Can we predict and test those combinations? What will counterparts send to me? Were we thinking alike when we developed our software changes?

Nurturing new business processes

For me, this is a critical stage in the software development cycle. It’s not only about validating that the changes have met business requirements and are syntactically valid, but also validating the end-to-end business process by combining a variety of messages used in the process flow.

There are several approaches to replicate the business process during testing, with pros and cons across all. But, generally, the one dominant best practice is to access an integrated pre-production environment. Within this, coordinated testing with ‘buddies’ can be highly productive.

This is preconditioned on there being a network of counterparts – each on a similar development journey – that are testing in the same timeframe. Alternatively (or additionally), some scheme operators have automated tools that replicate the behaviours of a counterpart. These are comparable with the Test Sparring Partner deployed in the SWIFT FINplus pilot service environment. This testing environment, along with other resources, has been provided by SWIFT to support the community’s preparations.

Implementation planning is vital

Implementation checklists are often the unsung heroes when it comes to deployments, helping to smooth the final stages of the journey. Yet they’re also often overlooked after months and years of careful preparation. Implementation planning covers what needs to be done, by whom and by when, which, together with the analysis of interdependencies, is critical to success.

Of course, it’s not possible to put an exact time on all activities. Some will also occur after implementation. For example, following implementation there may be a need to identify a client payment using a particularly rich data element, to see if it has mapped as expected or to review the first pacs.004 Return Payment (which may occur some days after the implementation).

Taking a proactive approach

Equally, planning for the unthinkable as a cornerstone of risk management doesn’t have to imply pessimism, but a more proactive approach to what could occur and what plans are in place if it does. Identifying who the key contributors might be in such a scenario, rather than asking for all hands to put out a fire, is a sensible approach.

Even the best laid plans don’t always accommodate every possibility. But having a framework to ensure a quick response and contain situations means any issues that arise can be controlled. Implementation checklist dry runs can be a good way to ensure that activities haven’t been forgotten, and that everyone understands their role and tasks. It also allows the checklist to be improved on, providing additional activities or clarity.  

Looking ahead

So, what can we expect in the years to come? Certainly, ISO 20022 will become the dominant global financial standard across many payment products. It’s inevitable then that we’ll continue to see more domestic clearing settlement systems implementing ISO 20022.

Equally, those who have already implemented ISO 20022 will continue to maintain their usage of the standard and even upgrade to more recent message versions. As an industry, there will also be plenty of opportunities to leverage the rich structure that ISO 20022 provides.

  by Neil Buchan,
  Head of Standards Implementation, SWIFTBack