The ISO 20022 is the standard for electronic data interchange between financial institutions. This ISO 20022 migration is not only standardizing financial communication – it is also prompting financial firms to reimagine data's role in payment transactions. Since becoming the standard for cross-border payments and reporting in March 2023, ISO 20022 has set the stage for transforming how financial institutions handle, analyze, and leverage data for enhanced decision-making.

In the United States, CHIPS (Clearing House Interbank Payments System) achieved ISO 20022 compliance in April 2024 and the Federal Reserve is scheduled to migrate by March 10, 2025. These steps are critical for banks engaged with CHIPS and Fedwire, marking a shift to a more unified approach to messaging standards. On a global scale, the SWIFT network's mandate for ISO 20022 adoption by 2025 for all cross-border payments highlights a worldwide commitment to this new financial language, impacting both real-time and high-value/low-value payment systems.

Preparation levels among financial institutions vary. Community and regional banks are in the intermediate stages, while most global banks have completed implementations to comply with international mandates. Now, the focus is shifting from ISO 20022 migration to ISO 20022 optimization. Firms are learning from early implementation challenges in EMEA and APAC, preparing for structured address mandates, and maximizing benefits through enhanced data adoption.

These steps promise not just smoother operations and better customer service, but also new opportunities through data analytics. ISO 20022's structured data clears the way for faster, more precise customer interactions and more efficient internal processing, which can trim operational costs. This wealth of data also equips financial institutions to tap into advanced analytics, allowing them to tailor services and make decisions that boost customer experience and drive revenue. As firms move beyond the initial migration, embracing these opportunities is key to leveraging ISO 20022's full potential.

Overlooked Issues in Early Adoption

The journey towards ISO 20022 migration has surfaced several challenges, offering lessons for financial institutions (FIs) gearing up for future transitions:

  • Misuse of Free Text Fields Leading to Data Loss. Historically, FIs have used free text fields in many ways, such as including references for bespoke scenarios with agent banks. This practice has led to data being truncated in the transition to ISO 20022. FIs need to understand the new standard's field priorities and assess the impact of this truncation. Testing with agent banks to identify scenarios where key references might be lost is essential.
  • Improper Usage of Codewords. Legacy standards had designated codewords for certain message types, but inconsistent application has resulted in data truncation with ISO 20022. For example, the "BNF" codeword, while standard in message type MT 202, was also used in MT 103, leading to data loss. FIs should analyze the impact of codewords and thoroughly test for data loss before going live.
  • The Importance of Data Lineage. ISO 20022 migration has also highlighted the importance of data lineage within an FI's processing ecosystem. Many opted for a "like for like" approach, focusing on external data quality and adhering to market infrastructure translation rules. However, this has led to data quality issues due to multiple transformations (proprietary data model/MT/MX). Establishing clear data lineage can reduce these issues, ensuring data consistency and accuracy throughout the processing chain.

A New Approach for Structured Address Mandates

As the coexistence period nears its end, FIs are navigating the shift towards structured address mandates, a challenge compounded by the need for data cleansing due to unstructured addresses in existing customer databases. The Payments Market Practice Group (PMPG) has responded by introducing a hybrid postal address option across CBPR and HVPS guidelines, which is set to take effect in November 2025. This move requires FIs to reevaluate their strategies to accommodate both fully structured and hybrid addresses.

To meet these structured address mandates, FIs should begin with a thorough cleanup of reference data. This involves reaching out to clients to obtain fully structured addresses for originators, a process that requires clear communication and meticulous planning due to its time-intensive nature. Leveraging AI/ML technologies for reference data cleanup presents a viable alternative. These technologies can identify and correct country codes and town names within unstructured addresses, streamlining the transition to the hybrid option.

Implementation considerations are also crucial, including enhancements to channels and interfaces to support the structured address requirements. Payment initiation channels must be updated to require the inclusion of town names and country codes for all parties involved, with strict adherence to structured address fields for ultimate debtors/creditors. Furthermore, implementing validations against static ISO data ensures the accuracy of client-provided structured addresses.

Effective communication with all stakeholders (clients, corporates, and software providers) is essential for a successful migration to structured or hybrid addresses. Proactive engagement and education will facilitate this transition, ensuring all parties are prepared for the upcoming changes.

How to Maximize ISO 20022 Benefits

To harness the full potential of ISO 20022, financial institutions must delve deeper into the standard's capabilities, moving beyond mere format translation to embrace its rich data offerings. The following strategies will help maximize the benefits of ISO 20022 by focusing on enhanced data utilization and structured information adoption.

  • Transitioning Beyond "Like for Like". Maximizing the benefits of ISO 20022 requires FIs to move past the "like for like" approach, where legacy formats are merely translated into the new standard without fully utilizing its enhanced data capabilities. With the CBPR+ coexistence period ending in November 2025 and the retirement of MT messages, FIs must embrace the data features of ISO 20022 to fully benefit from the standard. Starting in 2025, market infrastructures such as the Bank of England will begin mandating the use of structured data, including purpose codes for CHAPS payments and the inclusion of Legal Entity Identifiers (LEIs) for transactions between financial institutions. The industry is also being guided towards the adoption of new code sets and structured elements for screening through guidelines that promote consistent usage.
  • Automating Payment Reconciliation with Structured Remittance. Structured remittance information within ISO 20022 can significantly automate the reconciliation process in B2B transactions, moving away from the labor-intensive task of manually matching payments to invoices. By adopting structured remittance – starting with basic data such as invoice number, date, and amount, and expanding to include more detailed information for various use cases – FIs can reduce manual errors and the costs associated with resource management. This level of automation is made possible by following remittance data tiers defined by ASC X9, which provide a framework for implementing structured remittance.
  • Smart Internal Routing Using Enhanced ISO 20022 Codes. The introduction of new ISO 20022 codes enables smarter internal routing of payments. FIs can utilize service-level codes to identify payments and direct them to the appropriate processing engine, thereby improving efficiency across different regions and payment types. Using mandated purpose codes for specific transactions will further enhance payment prioritization, reconciliation, and the development of payment products. This smarter routing is a direct result of the rich data environment fostered by ISO 20022.
  • Mitigating Fraud Risk with LEI. To mitigate fraud risks within real-time payment systems, the Bank of England has issued a mandate requiring LEIs for transactions between UK banks. While currently limited to the UK, this directive could set a precedent for other regions to follow. Precise party identification through LEIs, alongside BIC codes, is crucial for preventing fraudulent transactions. Adopting a hybrid approach to capturing and verifying LEIs in business processes not only broadens the scope of adoption but also facilitates easier integration. This strategy can decrease the number of transactions delayed in sanctions screening and help improve straight-through processing (STP) rates.

Addressing the specific challenges of ISO 20022 migration, such as system integration and data management, is key to unlocking the standard's value, throughout the migration and beyond. By addressing these issues, banks can take full advantage of ISO 20022's structured data, leading to more efficient transaction processing and reduced operational costs, improved product offerings and customer satisfaction. With these improvements, financial institutions not only meet the current demands for efficiency and precision but also lay a solid foundation for future innovation and sustained growth in the financial services industry.

About the Authors

Ganesh Guruvayur
Global Head – Payments, Wipro

Ganish is a senior industry leader with 28 years of experience designing innovative payment solutions. At Wipro, he plays a pivotal role in payments transformation for clients, which includes launching real-time payments, facilitating ISO 20022 adoption, consolidating payments systems and other themes.

Ashish Shreni
US Banking Practice Head, Wipro Consulting

Ashish leads Wipro’s Banking Consulting practice for the United States, where he is responsible for CXO advisory and relationships, data and analytics, digital strategy, and process and technology transformation. His expertise extends to risk management, partnership and alliance strategies, industry representation and managing industry relationships.

Mahesh Selvaraj
Payments Product & Technology Leader, Wipro Consulting

Mahesh is a seasoned payments professional with experience leading transformation programs within the payments landscape at top-tier banks. He specializes in transforming legacy payment processing applications to meet the evolving demands of the industry.