Tactical vs Strategic delivery? Which ISO 20022 method works for you?

ISO 20022 should be seen an opportunity for banks to transform, but not only in payments. With the drive towards digitalisation in the financial industry, importance is being placed on deeper, data-driven insight in banking. ISO 20022 facilitates this through richer data in payments messages, that can filter right throughout a bank’s technology stack.

Tactical approaches to delivering ISO 20022, with translation modules between old and new message formats to insulate existing applications from change, are an understandable short-term approach to achieve minimum compliance. But with SWIFT, CHAPS, and other key market infrastructures moving to ISO 20022, as well as the New Payments Architecture (NPA, covering Bacs and Faster Payments) in the near future, maybe this is the opportunity to deliver strategic change.

The key question all banks must be considering is: where should the balance be struck between minimum compliance and strategic, transformational change?

The balancing act

Minimum compliance means ensuring organisations can send and receive ISO 20022 payments from their gateways by the timelines set out by the relevant market infrastructures. Delivery risk is reduced but to achieve that it is likely that ‘out of the box’ ISO gateways will be required (and these are rarely simply ‘out of the box’). An organisation’s internal architecture would remain unchanged, resulting in the need for translation modules between the old and new message formats, potentially scattered across the technology stack, with the risk of data truncation. This also risks added complexity when updates are made to the ISO standards in the future, requiring changes to every translation module. These are just some of the impacts, and they will vary depending on the size/complexity of the organisation, the schemes used, and their role in the payments value chain (e.g. direct/indirect participant).

Strategic compliance would go beyond the minimum requirements and result in the organisation’s front-to-back internal plumbing being able to process the new ISO message formats. This is obviously not without risk. Far more upfront investment is required for a multi-year, cross-functional complex programme structure touching many platforms and core business processes, risking the ability to meet the compliance deadlines, and potentially impacting the BAU operations. Organisations often struggle with resource constraints and the prioritisation of workloads both of which may make end-to-end transformational change incredibly challenging.

It is clear that minimum compliance to ISO 20022 will not bring about the widespread benefits achievable for an organisation, the wider financial industry, or customers. Conversely, a strategic implementation may risk the ability for organisations to be compliant on time and ready by the industry deadlines. Both approaches present challenges. Ultimately, organisations need to ensure they comply whilst sliding the scale as far as possible towards strategic, future-thinking implementations.

What does a good ISO approach look like?

Based on what we have seen in the industry where these programmes are underway, we list four pillars for what an ISO 20022 implementation should include in order to ensure the implementation in your organisation is successful.

Understand the (interim) milestones

The overall industry milestones for ISO 20022 are well known, but it is important to consider not just the market infrastructures used directly by your organisation, but also by your correspondent banks. Opening an early dialogue with the other banks, and ideally, developing an interlocked plan, is critical to success. Additionally, it is important to understand the industry testing timelines and what is required to be in place for those phases.

Single initiative

Most banks participate in multiple schemes and geographies. It is advisable to run your ISO programmes under one common umbrella, driving consistency in approach and accounting for the longevity of the programme. Ensure a C-Suite executive sponsor is in place, accountable for driving the most out of ISO 20022 strategically. For UK-centric banks, consider whether the emerging NPA work should also be aligned with the ISO migrations.

Gap analysis and prioritisation

Banks must understand where the impacts are in the end-to-end flow of payments data, but not limit this analysis only to the payments systems. Then careful prioritisation is required to leverage the most benefit out of the ISO implementation, while protecting the delivery timelines. For example, maximising strategic change in the payments estate, to realise benefits such as straight-through-processing (STP), might be prioritised over reporting changes which improve the customer experience.

Communication & Engagement

ISO 20022 will have wider implications in a bank than just on payments systems. A business case should be produced that articulates long-term organisational benefits, e.g. client benefits, operational benefits, and competitive benefits. Stakeholders, from across business and technology, need to be made aware of the impacts on their business areas and, through inclusion in governance forums, kept up to date on their involvement. A communication strategy must be in place for customers/clients to ensure that they understand the impact and benefits to them, and the changes they will be required to make. Finally, a plan must be in place for the upskilling of your staff to become familiar with the ISO 20022 payment message syntax and semantics.

Conclusion

Minimum compliance will be the right answer for some organisations. But it is essential those organisations approach it with “eyes wide open” to consider the tech debt and re-work that may be required at a later date, and the potential missed opportunities or impact to customers. Those who are able to implement a future-proofed and scalable architecture will be well placed to reap the efficiency gains as well as deliver new products and services as each scheme becomes ISO 20022 enabled.

Ultimately, organisations that can use ISO 20022 as a transformation opportunity both inside and outside of payments will be the ones who come out the other side in the best position. If you’d like to talk this through with us, please contact our Payments ISO 20022 Lead at [email protected].