Advancing technical innovation, such as instant payments, combined with increasing globalization have stepped up the pressure on legacy payment networks. Cross-border payments are now more important than ever, with businesses looking to expand to new markets and reach new customers. However, with new payment services, forms of currencies and enhanced technologies, existing payment systems have been pushed to their limits.
In 2020, the G20 acknowledged the need to enhance the speed and transparency of cross-border payments, while increasing access to these services and reducing their costs. One of the factors contributing to the current challenges of cross-border payments is the fragmentation of payment messaging standards. As part of its Roadmap for Enhancing Cross-border Payments, the G20 has identified that ISO 20022 offers the prospect of greater interoperability, with benefits for enhanced cross-border payments. So, what is the standard and how can it benefit financial stakeholders?
ISO 20022 - a worldwide migration.
ISO 20022 is a global and open financial messaging standard created for banks and financial institutions by the International Organization for Standardization (ISO). Before ISO 20022, the industry was fragmented, with many different overlapping standards, including ISO 15022, ISO 8583, Swift MTXXX and FIX. Launched in 2004 and updated regularly since then, ISO 20022 has been used within the Single Euro Payments Area (SEPA) over the past decade. From 2019 onwards, the standard has been designed to facilitate global adoption and foster cross-border and real-time settlements for instant payments.
This standard offers a common messaging language, improving the high-value payment process. It is based on a rich data structure, enabling complex payment processing and offering a data-driven model to improve fraud management and reduce risk. The protocol is fully compatible with security directives such as anti-money laundering and combating the financing of terrorism (AML/CFT).
Migrating to the protocol offers many benefits, including improving the customer experience and enhancing efficiency. Importantly, it enables instant payments and harmonizes payment systems through a universal messaging language. Due to these benefits, it is estimated that in 2025, 80% of global high-value payments will use this new protocol. Over 200 countries have already migrated to the latest protocol, and upcoming migrations in the UK (RTGS, May 2025) and the US (Fedwire, March 2025) will further standardize instant payments.
ISO 20022 is a frontrunner in the race to replace existing domestic systems and payment standards – leading to major changes for banks and financial institutions, financial market infrastructures, machines and ecosystems. Migration to the latest version of the protocol is essential to safeguarding your business.
What are the migration challenges?
To be part of this revolution, several steps need to be considered. The ISO 20022 repository holds around 775+ business components and more than 800+ message definitions. It covers different channels, modules and use cases. Identifying the best approach and the subset of messages required to meet your needs is the first barrier.
Another major challenge is data management. ISO 20022 comes with a rich data structure which has been designed to be used by Artificial Intelligence (AI) and Machine Learning (ML) to foster real-time risk analysis, speed up processing and improve analytics. But how can the benefits of a richer data structure be realized on a legacy system? A bank must choose which approach to take when migrating to the standard:
· Connect only.
With this approach, banks can leverage protocol translators to quickly connect to the system and interact with ISO 20022 actors. Also called ‘like-for-like’ by the Payment Market Practice Group (PMPG), it is the lowest cost option in the immediate phase and meets the minimum compliance requirements. It also limits the impact on the bank’s processing abilities, as the core is not changed and continues to rely on the former protocol.
While this may be cheaper at first, it may become more costly later on, as the bank cannot benefit from the latest ISO 20022 protocol enhancements. It also can lead to data truncation, introducing security weaknesses and complexifying the overall migration.
A compromise could be for banks to take a hybrid approach, where only a subset of the new protocol is fully implemented while the remaining part is managed by translators. However, handling a hybrid solution in a production environment may have negative effects and lead to service damage.
· A third-party aggregator.
A bank may decide to connect to a third-party aggregator to lessen the impact on its own system. This aggregator acts as intermediary and supports full ISO 20022 migration. This approach can facilitate a seamless adoption and enable new services, even when the bank system is difficult to upgrade or other blocking points arise. However, the cost of this option may be higher than the others, and therefore a cost/value assessment is required.
· Fully-fledged.
A bank may upgrade its IT and SI to benefit from the new protocol. This can be a more costly option, but will bring more value over time. It requires an in-depth refactoring of payment processing, but will utilize rich data to provide features such as real-time AI/ML-based risk analysis, frictionless authentication, Know Your Customer (KYC), regulatory screening, added overlay services, monitoring with enhanced live payment analytics and more.
It is worth noting that the size of the ISO 20022 protocol has increased significantly compared to the former messaging protocol. Therefore, IT infrastructure needs to be adjusted to cope with the necessary storage, data management and security requirements. Plus, it requires strong protocol expertise and knowledge of payment processing to ensure the sustainability of the system.
Upgrading existing solutions.
Actors who have already migrated to a previous version of ISO 20022 will need to upgrade to a more recent version of the protocol (from 2019 onwards) to realize key benefits. This update introduced the use of richer data, such as supplementary data, payment information, proxy, credit transfer transaction information and more. This feature enables cross-border transactions (CBPR+) and improves security and payment processes. As the standard is backward compatible, a practical approach would be to implement a co-existing solution with the aim to move towards a complete migration in the future.
Where do I start?
For most stakeholders, the migration journey is complex and requires a strategic analysis, an impact assessment, an implementation and validation phase, guided by a project governance framework. The rollout strategy can be managed in different ways:
· Single-step implementation: the entire system is changed at once, providing a complete and immediate migration.
· Multi-step implementation: the migration is divided into subsets, with different features deployed sequentially. This could be useful for large systems composed of many services.
· Partial implementation: the migration is deployed to a subset of use cases or traffic (for example, this could be organized by region or payment type). This is a cautious way to reduce risk and move slowly to an overall migration.
While complex, the benefits of becoming ISO native are worth the effort to prepare for the future. Bringing cross-border payments, improved fraud management, enhanced analytics, value-added services and many more advantages, banks must embrace the new payment paradigm to get ahead of competitors.
We are here to help. Fime offers reliable support to guide you through your migration journey. We can help you to analyze gaps, identify risks, opt for the best approach and validate your implementation. For networks which have already migrated, Fime provides efficient quality assurance tools and services, ensuring the functionality and sustainability of your system.
Reach out for more information and contact us at consulting@fime.com
