ISO20022

They say the great thing about standards is that there are so many to choose from. No doubt the irony is not lost on anyone in the treasury after their own company has implemented electronic payment formats. Most likely, it leads to painful memories of the implementation project and the maintenance of different payment formats based on the payment types and the regions to be covered. As if this were not enough, many financial institutions are even using their own standards internally and/or with their customers. 

The ISO 20022 standard aims at providing a remedy with respect to this sensitive overhead driver for many treasury organizations. The migration phase to the new standard begins in November 2022; for SWIFT customers, the messaging interface must be adapted well before November. Until November 2025, old message types of the MT class will continue to coexist; by then, customers should have tested the new standard and migrated. 

The new standard is designed to provide a common methodology for describing business processes and a common business language that can be represented in different syntaxes (such as XML) and standards, and will facilitate implementations for application programming interfaces (APIs). ISO 20022 is assisted in this by a central "wiki" that contains a data dictionary and a catalog of messages and is accessible to all. The use of this universal messaging standard, designed to be versatile and maintained by a broad community, is interesting from a business point of view, as synergies and migration options from older formats are to be ensured. This way, providing products and services related to payments is expected to become more efficient. The ISO 20022 dictionary, similarly to a classical dictionary, lists the name of a component, its structure (with references to subcomponents that can be described elsewhere in the dictionary), and, most importantly, its meaning and its use or interpretation. On this basis, ISO 20022 is aimed at standardizing individual components of the messages for the entire data exchange in the financial industry. So any message that mentions "creditor agent," for instance, would be clear about what is meant and what is expected in terms of descriptive data about the creditor agent. More simply put, this means that the information in each ISO 20022 payment will appear in the same place in a specific format, while the new standard also permits more information to be added to this structured format, for example information relevant to cash flow forecasting. 

The syntax is the format in which the information in a message is structured. Unless the reader understands a particular syntax, there is no way to understand the content of the message. People often confuse the difference between a standard and a syntax. The standard outlines the agreement on what information is being expressed, while the syntax is the format or "language" used to express that information. Now, unless two people are both using and understanding the same language, it would be difficult for them to have a conversation. The same applies to syntax. Globalization and the ever-increasing need for end-to-end processing are raising the requirements. ISO20022 is expected to be the answer to this problem.

Yes and no. On a positive note, the improved quality and enhanced information content offers treasurers a wide range of options for improving and automating payment transaction processes and the processes based on them (e.g., cash flow forecasting). Additionally, the enhanced information content in payment files can be used to improve controls against fraud, as, for example, business addresses no longer need to be abbreviated and can be more accurately matched against ERP and TMS master data. But as is often the case, these advantages are coupled with increasing complexity when implementing the new standard. As a result, data structures will have to be rebuilt and it will be essential to check whether the existing ERP and TMS in a company can supply or process the required information using the ISO20022 structure intended for this purpose. This can involve massive efforts in the analysis and conversion options, depending on the complexity of the existing payment and system landscape. Even supposedly banal information such as the structuring of address data can cause an ERP to fail, leaving the hoped-for potential untapped. Since no care should be left out when it comes to analyzing and testing the new payment files, a changeover sometimes requires a great deal of effort. So the fact remains that a significant investment is required before the benefits are felt.

Source: KPMG Corporate Treasury News, Edition 123, July 2022
Authors:
Börries Többens, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Julian Fisahn, Manager, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG