How African banks can make a smooth transition to ISO 20022

What will the transition to the new mandatory financial standard for payments mean for banks and their operations? Stone X and African Banker held a workshop to outline solutions.

An online workshop held in late March, The Impact of ISO 2022 on African Banking, ran through the changes that will come about with the switch to ISO 20022, the new global standard for payments in November and the impact this will have on the operations of banks – as well as the solutions available to help them make the transition.

The workshop was organised by Stone X. Stone X is an institutional-grade financial services network that connects companies, organisations, traders and investors to the global markets ecosystem while African Banker is the only specialised publication on African finance serving the continent.

Opening the workshop, Beatrice Pechtl, Head of Correspondent Banking at Stone X Technology Services in charge of Europe, Middle East and Africa, stressed that it was essential to fully understand the changes that are expected to take place and the challenges that will come with it.

Above all, she highlighted the importance for partner institutions to be ready for the new regime when the switch comes about. The workshop had been organised precisely to help prepare them for the change by conveying the key information.

David Unsdorfer, Senior Vice President at Stone X for Europe, Middle East and Africa and the Asia Pacific, reiterated that ISO 20022 will replace the current financial standards for payments and cash management, including ISO 15022, in November 2022.

He said that while there was a lot of information on ISO 20022 out there, it might be quite hard to make sense of it all. “The purpose of this webinar is to cut through the noise and simply explain what is ISO 20022, what are the key dates for the SWIFT migration, how it will affect your institution and what you need to do by when.”

What is ISO 20022?

He explained that ISO 20022 is a new, open and freely available standard that is meant to replace and unify the multiplicity of existing and disparately used standards all over the world today. “It’s basically a common language for payments and cash management which will enable faster and more efficient payment processing.”

The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which handles global inter-bank transactions, has asked financial institutions to switch to the new standard by the end of this year. ISO 20022 is not strictly new – it has already been adopted by some institutions and jurisdictions, while others are in the process of switching to it.

The new standard, the workshop heard, will bring a range of business benefits including improved support for processes such as payment status enquiries, automation and straight-through processing while lowering operational costs, improving transparency and boosting data enrichment.

Banks need to prepare now

The change will, however, come with inherent operational risks and could have some adverse impact if companies do not plan for it, warned Unsdorfer.

ISO 20022 goes live in November. To use the new standard, institutions need to have the latest version of SWIFT alliance installed. Companies that do not have their own infrastructure will need to confirm that their service bureau has the latest version installed. 

Unsdorfer said that between November 2022 and November 2025, SWIFT will support both FIN and ISO 20022 messages, but after this period messages coming through the old system will be rejected.

“Some of you might take away from this that the migration deadline is 2025, but that is not quite right. There is an important distinction between sending messages and receiving messages,” he explained.

“For sending messages, you have until 2025 to switch to ISO 20022 because you are in control of the messages you send, but you are not in control of messages your counter parties send to you. As from 2022, any of your counterparties could send you an ISO 20022 message. So the key date when you have to have a solution in place is November 2022.”

Data coming from SWIFT suggests that as many as 50% of payments processes may be undertaken on ISO 20022 right from the go-live date. Institutions therefore need to be ready to process ISO 20022 messages from November 20022.

Transition solutions

To continue running in a “straight-through-process”, banks will need to ensure their Core Banking Systems can fully support the new ISO 20002 standard. While most Core Banking Systems can support ISO messages, many require customers to upgrade to an updated version as a pre-requisite.

Such upgrades often require executive approvals and a lot of forward planning, due to the inherent risks of operational disruptions, so unless a bank already has active plans to upgrade prior to November 2022, it is likely the bank will need to consider a temporary or tactical solution in order to meet the deadline.

For institutions requiring such a service, StoneX Technological Services has developed a tactical solution that can help banks fully support the new ISO20022 standard, without having to make any changes to their back-office environment, while they seek a more permanent solution.

The Stone X Messaging Hub (MH) is a proprietary software that has been developed by the firm to enable financial institutions to continue to send and receive SWIFT messages after November 2022, without any disruption to their operations and is suitable for both short term and long terms usage.

The system resolves translation challenges that will arise from the switch to ISO 20022 and has the flexibility to handle message variations. It offers automated real time alerts, accommodates run time mapping capabilities and provides support for the so-called “travel rule”. It has extensive message processing capabilities, delivers user-friendly and standard presentation of payments irrespective of format and includes fully-integrated GPI support.

A technical demonstration by Chandu Venugopal, Global Product Head for the Stone X Messaging Hub, highlighted the strengths of the product. Venugopal pointed out that the software has multi-format support, an innovative dashboard and the ability to decode messages to determine their type and purpose and translate into a readable format for the user. 

He said the user will have access to detailed information on the types of transactions which can be viewed at all times. The system also supports all kinds of format conversions and has elaborate tools to support and facilitate any transactions that the user would need to undertake.

The system, he said, had been built from the ground up with customer needs in mind and has solutions for all challenges that have been anticipated to arise with the changeover to ISO 20022 in November 2022.

In response to a question from the audience, Unsdorfer explained that while there wasn’t a single common position on ISO 20022 from all central banks, many were recommending a unified national approach to adoption and encouraged banks to contact their local regulator, adding that many of them have already confirmed their intention to use ISO20022 as the underlying standard for future versions of their national financial infrastructure.

Responding to another question, Unsdorfer explained that while SWIFT is offering an “in-flow translation service” for its members, MH offers a more comprehensive solution that includes a range of extensive benefits. He also pointed out that while SWIFT’s translation service will come to an end in 2025, MH could be used in perpetuity.

As the ISO 2022 switch-over deadline looms ever closer, perhaps the majority of African banks will be relieved that StoneX’s MH software will be available and ready to tide them over the difficult transition to the new system.