SWIFT Change to ISO 20022 Plan Reinforces Need for Payments Flexibility

Agility will be key to financial institutions' migration strategies

Following its March 2020 board meeting, SWIFT announced major changes to its ISO 20022 migration plan. The updates to its strategy for migrating to a single, standardized approach supporting all aspects of a financial interaction were twofold:

• First, for cross-border payments and cash reporting, the migration from the traditional MT format to ISO 20022-based messages has been delayed by one year, moving from November 2021 to November 2022
• Second, SWIFT plans to fundamentally change its role in cross-border payments. SWIFT will act as the transaction manager, not an intermediary secure messaging system. When the new migration period begins, SWIFT will accept enriched and structured cross-border payment data in its entirety and then distribute it to the appropriate parties in real time
  

The migration delay can give SWIFT more time to build out the infrastructure for its new, complex role. Rather than governing payment messages and securely transmitting them, SWIFT will now receive, store and distribute transaction data in real time and in multiple formats.

What Does It Mean?

Banks and credit unions should continue preparing for ISO 20022 migration because the SWIFT announcement affects only cross-border payments. Market infrastructure initiatives, such as TARGET2 and EURO1, are not affected by the announcement and will transition as planned.   

Work that's already been completed is not wasted. SWIFT's proposed method for cross-border transactions will be built on ISO 20022, so data remediation, channel improvements and back-office processing efforts are still necessary.

If anything, the change amplifies the need for flexibility and agility in modern payments systems. Full rollout won't conclude until late 2025, so financial institutions may need to juggle multiple message formats for some time. ISO 20022-compliant systems must be able to store and manage more data and be flexible enough to transact with endpoints in different phases of migration.

Specs for Success

While financial institutions should not halt their migration efforts, it is OK to briefly pause and confirm whether their migration strategies are on the right track.

Given the need for more agility to accommodate the SWIFT changes (and any future alterations), financial institutions may want to consider payment solutions that have flexible functionality, such as:

• The ability to translate between traditional message formats and data-rich ISO 20022-based messages
• A system native-built for ISO 20022, which can minimize disruption in comparison to retrofitted tools
• Intelligent processing across channels, payment types, different market infrastructures and communication capabilities
• The capacity to send extensive transaction and remittance data, at speed
• Streamlined workflow processing that reduces manual intervention and increases straight-through processing

Moving Forward

SWIFT's announcement introduces bigger changes than messaging format and data enrichment. If enacted, SWIFT's proposal could fundamentally transform how cross-border transactions are handled.

Technical, operational and business practices will all be affected. Until SWIFT issues more formal practice guidance, there may be more questions than answers, especially surrounding data privacy, security and consent.

For now, it's best to continue preparing for migration. By pursuing operational flexibility, financial institutions can position themselves for a successful transition and prepare their payments solutions for the future as standards continue to evolve.