Payment System Switchover: Corporates Must Take Their Heads Out of the Sand to Avoid a Crisis
Published: January 16, 2025
ISO 20022 will have a huge impact on the corporate community, yet it’s not being given sufficient attention. Here’s why.
From Australia to the US, payment system infrastructures worldwide are undergoing fundamental modernisation. More than 70 countries – including China, India and Japan – have already adopted ISO 20022, the new payment messaging format. Others, including the UK, are on the cusp of a switchover from legacy messaging to the new standard, which involves mandated new data elements.
Yet, many corporates are blissfully unaware that they need to either update their processes, or face delayed or even rejected payments. Our survey found that 52% of respondents had not made any preparation for moving to ISO 20022 despite looming deadlines.
Doing nothing is not an option. If companies don’t migrate within the time frame, they will face a greater proportion of failed payments or payments that must be re-sent. Delayed payments can have a significant impact on a company's cash flow, which may affect its ability to pay bills and suppliers. This, in turn, can lead to strained relationships with suppliers, time wasted in chasing late invoices, and financial penalties and interest charges.
Why are we in such a mess?
Communications from commercial banks, central banks, regulators and payment system operators have not hit the mark for several reasons. First, ISO 20022 is a technology change being implemented from above, with little or no engagement with the end-user community.
And while adding extra data into payment messages will enable better AML and sanctions screening, improve STP and enable banks to provide richer statement data to customers, the benefits for the end customer have not been well articulated, mainly because they differ between businesses. As a result, it has been difficult to find a ‘killer use case’ that makes everyone sit up and take notice, so starting off by trying to persuade corporates to change by explaining the potential benefits is perhaps the wrong approach.
Second, the language used by banks and the payments industry as a whole is technical. The term ISO 20022 is completely meaningless to entities outside the banking and payments industry. Hence, when businesses receive a notice saying, ‘ISO 20022 is coming’, they have no idea what that means and bin it.
Third, the multiple deadlines for the move to ISO 20022 have been pushed back several times – including SWIFT’s own timeline for turning off existing MT messages for cross-border payments, which has been delayed to November 2025. Many countries’ timelines to revamp their payment systems have also slipped. This has led to half-hearted communications from banks and lessened the sense of urgency among end users.
How we can fix it
Banks and regulators’ messaging to date has been too subtle and, frankly, isn’t working. We believe they can improve their messaging by:
Instilling urgency and clarity: Banks and regulators should put out a simple and direct communiqué: “The plumbing of payments is changing, and your payments are going to stop next November unless you adapt your systems.” That would grab the corporates’ attention because it makes clear that they need to take action within a specific time frame.
And once companies have understood the irrefutable reason for investing in change, they then have an opportunity to step back and think about how to leverage the change to benefit their business. For example, a merchant could likely uncover significant value in richer data, which would help automate more manual activities, such as reconciliation.
Describing ISO as a moving target: It’s important to clarify that the sweeping payment system renewals and technology change programmes happening around the world are likely to continue for at least three to four years. For example, the way ISO 20022 will be implemented in the UK’s high-value payment system, CHAPS, will evolve as the Bank of England’s (BoE) real-time gross settlement (RTGS) service is upgraded.
Therefore, giving the impression that the roll-out will be completed by a specific date is both misleading and confusing. Banks and regulators should explain that there will be a gradual unwrapping of the various features in ISO 20022, so while end users should take action relatively quickly, they must also plan for continual upgrades.
Honesty around internal challenges: Banks’ internal IT system changes have various deadlines associated with them, about which they are struggling to communicate to customers. The banks are also not talking to each other, each with the misconception that these are unique problems they are facing. The wider community of stakeholders would benefit from honest communication, rather than a pretence that everything is going well. As such, banks should be more open with their timelines and keep customers in the loop.
However, those involved in internal projects often don’t have the authority to speak openly about system changes or must go through multiple levels of internal approval. Gathering information and reporting the state of play within the banking industry could be a role for central banks, such as the BoE, the US Federal Reserve and the European Central Bank.
Addressing limited IT resources: There is much work to be done in advance of November 2025, including testing between the multiple parties involved in the transition. Even if the date shifts, that’s not a reason to sit back and wait.
Many businesses will kick off their ISO migration projects in January 2025. However, we are concerned about the finite number of IT professionals who understand this level of payments’ detail. Therefore, corporates should line up internal and external resources to successfully navigate this transition.
Engaging with intermediaries: Most businesses don’t have large IT teams, so they bring in external IT resources, such as consultants, value-added resellers, and corporate-to-bank integrators, including AccessPay, to assist with system changes.
The role of intermediaries is crucial, yet it hasn’t been highlighted. Therefore, banks and regulators should engage with the intermediary ecosystem. This will enable them to build capacity and allocate resource to help end customers manage the transition and the inevitable ongoing changes. Again, communication must be clear, so intermediaries and integrators can pick up the challenge and run with it.
Clearly, this lack of effective communication has created confusion and uncertainty for businesses that will be affected by the migration to ISO 20022.
This is a call to action to commercial banks, central banks, regulators and payment system operators. Their input is vital to help the whole ecosystem prepare for these seismic changes by providing clear and simple messaging.
Such guidance would help businesses better understand and prepare for the necessary changes. As our survey demonstrates, many businesses still have their heads in the sand and require greater assistance in adapting to the new language of payments.