As humans we are hard-wired to resist change, even if that change is for the better. So, while implementing ISO 20022 has been introduced to pave the way for more efficient integration, improved analytics and a more accurate compliance process, many finance professionals are still trying to wrap their head around how SWIFT’s update will affect current day-to-day processes.
In this blog, we will cover the more technical aspects of ISO 20022 to help finance professionals prepare for this change as well as how you can migrate to ISO 20022 in a cost-effective way. We’ll help explain how ISO 20022 provides a logical structure to support financial business processes, and how it’s represented syntactically in an XML format.
To note, when talking about implementing ISO 20022, there are many acronyms used interchangeably: ISO 20022, XML, MX, pain, pacs & camt. They all refer to the new message formats which are replacing legacy SWIFT ‘MT’ or Message Type formats.
We’ll then drill down a bit further and focus on bank-to-bank payments and statements for both corporates and non-bank financial institutions (NBFIs).
For corporates, the message formats – such as Standard 18 for BACS or MT101 for CHAPS/Faster Payment – are being replaced by the new pain.001 format (version 3). Pain.001 provides several advantages over MT101: bulk file support, potentially lower transaction fees (based on the bank), and a return message which indicates payment status at both file and transaction level. This last feature offers significant value as it serves as an early warning signal of successful or failed payments.
For companies making automated payments to their banks, they’ll need to use the pain.001 standard – version 3 specifically – which supports bulk files and single transactions. This could prove more cost-effective than using MT101 for most banks as there are no transaction fees associated with bulk files. Additionally, the XML format supports a file level and/or transaction level payment status reports that can act as early warning signals if something has gone wrong with a payment.
Financial institutions, such as banks or non-bank financial institutions (NBFIs), are transitioning to XML-based Pacs.008 and Pacs.009 for MT103 and MT202 payments respectively. These messages support bulk messaging and a payment status report with a Pacs.002 (or Pacs.004 if the payment has been settled).
At the same time, traditional statement formats such as MT940 are being replaced with Camt.053, while MT942 intraday statements are being replaced with Camt.052 formats – making it easier for organizations to reconcile their accounts and create a cash position for their finances.
Financial institutions have already begun the transition to the new ISO 20022 message standard, but they were originally scheduled to complete this process between November 2022 and 2025. However, due to an announcement by the Bank of England, banks must now complete their transition to the new format by June 2023.
For most corporates and NBFIs, it is best to confirm a timeline for these changes with their counterparty bank as soon as possible. Some banks may choose to run parallel processes that support both old and new formats until 2025. This deadline allows organisations enough time to make the necessary transitions in their infrastructure so that they can benefit from these modern standards.
The amount of time and cost required to implement the new standards varies greatly depending on the organisation and their current connections to their bank or banks.
As a hypothetical scenario, an in-house solution – commonly referred to as ‘DIY’ (when a team of in-house developers are required to build a bespoke solution) may require four or five staff members from IT and ERP teams. Alternatively, organisations can opt for a third-party service, but pricing and support requirements may need to be discussed with them first.
Read more about what we mean by a DIY connection here.
If you want to learn more about ISO 20022, we have a 20-minute walk-through with our payment and automation experts. Watch now.
If you have any further questions, you can speak directly with one of our experts today. Get in touch.
Anish Kapoor is the CEO of AccessPay. With a career spanning technology, finance and consultancy, Anish Kapoor’s journey to the helm of AccessPay has been diverse and dynamic. After completing his computer science and accounting degree, he trained as an accountant at Coopers and Lybrand (now part of PwC) before founding pioneering data centre operator TeleCity in the 90s, becoming one of the youngest FTSE 250 directors at 25 years old. He led TeleCity to a successful IPO and global expansion. After TeleCity, Anish pursued VC-backed ventures in voice and internet technologies, leading multiple SaaS businesses and raising over $150m through funding rounds and IPOs. Drawn to Manchester-based AccessPay’s potential, he initially served as an adviser before becoming CEO in 2014.
