ISO 20022

ISO 20022 migration: why one size doesn’t fit all

Over the next three years, some of the world’s major clearing houses, as well as SWIFT, are moving to a new messaging standard for payments: ISO 20022. The staggered approach to migration, however, should not represent an onerous process for European corporates. Insights speaks to Roland Nehl, Programme Manager, about the options available to corporates when migrating to ISO 20022.

Roland, what are the key dates that European corporates need to remember regarding the move to ISO 20022?

Many of the world’s payment market infrastructure (PMI) providers are currently undergoing widespread transformations – of which only one is the ISO 20022 migration. This means it is easy to become lost in the detail.

The first deadline European corporates should remember is November 2022, which represents the “big bang” moment for the ISO 20022 migration. This is the target date for Europe’s largest high-value clearing systems, including TARGET2 (Eurosystem), to migrate to the ISO 20022 messaging standard. The Eurosystem has proposed that TARGET2 and TARGET2-Securities (T2S) are consolidated and replaced in this timeframe with a new real-time gross settlement (RTGS) system that uses ISO 20022 messages. Meanwhile, SWIFT, the global payments network, will now begin its migration by year-end 2022.

Selected clearing systems and their journey towards ISO 20022

Clearing System Transition description Timing
TARGET2 High-value payments in EUR, access to central bank money; big bang approach November 2022
EURO1 High-value payments in EUR; big bang approach November 2022
SWIFT CBPR+ “Cross-Border Payments and Reporting Plus” in any currency via the correspondent bank network Year-end 2022 until 2025
CHAPS GBP high-value wholesale payments as well as time-critical, lower-value payments Spring 2022; like-for-like approach
H1 2023; full ISO 20022
CHATS RTGS system in Hong Kong October 2023 (tentative)
CHIPS, Fedwire USD clearings Expected 2023

In addition, there are jurisdiction-specific deadlines to consider. For Germany-based corporates, the German Banking Industry Committee’s communications protocol, known as “DFÜ-Abkommen”, will not support the ISO 20022 messaging format for payment initiation before November 2022. “DFÜ-Abkommen” will also continue to support the domestic payment initiation protocol (DTAZV), as well as MT94x formats (digital statement of account), until 2025.

Do these staggered timeframes represent a challenge for corporate payments?

In theory, these varying deadlines will create a patchwork of available standards, which will coexist for a considerable time. The repercussions could well be severe and, from an operational standpoint, the payment space could find that data truncation becomes a real issue.

The reason why this issue arises is quite simple: the typical, incumbent messaging standard, MT940, allows remittance information to contain 35 characters in each of its four fields; while for ISO, this can rise to 9,000 characters. In turn, for instances where a non-ISO-ready beneficiary receives payment information in the ISO format, there’s a chance that the payment information will be abridged or incomplete. In general, ISO 20022 data elements contain richer data, which cannot be presented in the old messaging standard.

For Germany-based corporates, assessing the business value that access to the full dataset creates will be an important first step. Businesses that identify advantages may opt to be early adopters of the CAMT format – but others can wait until 2025 before it becomes imperative to do so.

How do you think corporates should approach the migration to ISO 20022?

It’s understandable that some corporates are reticent to begin potentially complex ISO 20022 migration journeys at a time when they face many other pressing issues. This is why banking partners, like Commerzbank, consider the challenges our clients face today on selecting the right ISO 20022 approach.

While we encourage corporates to explore the operational advantages that ISO 20022 could yield, our message to our corporate clients is clear: there are alternatives to a full ISO 20022 migration from the onset. And it’s our view that, in the current environment, it is prudent that corporates explore all their options – and choose the right ISO 20022 migration for their needs. In practice, this means that corporates could consider making only the necessary infrastructure changes in order to receive data-rich ISO 20022 payments.

Migrating to ISO 20022 for initiating payments can, depending on the jurisdiction, come much later: for instance, DTAZV is currently scheduled to remain operational among the German community until 2025. A deferred migration for initiating payments is, therefore, the second option to be considered.

So, will the ISO 20022 migration look the same for all corporates?

I believe it’s important to remember that ISO 20022 migration is far from a one-size-fits-all exercise. After all, the messaging standard is best imagined as an encyclopaedia – containing all the necessary information a corporate could need in order to transmit data-rich payments. But not every article contained within each encyclopaedic volume will be relevant to every reader. Similarly, not all ISO 20022 data fields will be necessary for every corporate.

With this in mind, corporates can adopt only the relevant fields, rather than every single one. Understanding which fields are relevant will be best achieved through broad consultation with your primary banking partner, business partners (and, finally, technology vendors) before the treasury or payment experts implement the necessary changes within their enterprise resource planning (ERP) systems.

In the box below, we have suggested what our most common data fields would likely be for the typical corporate.

Most relevant data fields

Field name ISO 20022 (MX format) ISO 15022 (MT format)
Remittance Information Data can be presented in an XML structure, if preferable.

In the MX world, the character limit is much longer – up to 9,000 characters without XML tags.

“Related remittance information” is the term used to describe remittance information when presented as a reference.
In the MT world, the data length is limited to four fields, each consisting of 35 characters.
Ultimate Creditor /
Ultimate Debtor
Information about the so-called parties This is not available as a dedicated field in the MT world
Address Data Can be presented as rich, granular data and in an XML structure for all parties involved, e.g. debtor, creditor and all types of agents. Flexibility to fill the relevant fields; compared to MX, those fields are unstructured.
Legal Entity Identifier (LEI) Involved parties and agents can be identified via their respective LEI. This is a unique global identifier for legal entities participating in financial transactions. There is no equivalent in the MT world.
End2End ID (Identifier) A dedicated field that cannot be altered by any parties in the transaction chain. There is no equivalent in the MT world.
Category Purpose /
Purpose Code
Indicates the “purpose” of the transaction. There is no equivalent in the MT world.

Do you believe there may be exceptions to this approach?

Some corporates may feel comfortable opting for a “big bang” migration and we would, of course, welcome this. Indeed, in their evaluation phase, some may realise that there are greater cost or efficiency advantages to be reaped by doing so – in which case migrating to ISO 20022 for both initiating and receiving payments (with full integration with back-office processes) would be preferable. The alternative is to make provisions in order to receive CAMT (digital account statement MX equivalent to MT940x) data and then, at a later stage, to begin sending payments with rich data. As mentioned, this approach can only be used until 2025.

How can Commerzbank help corporate clients through the ISO 20022 migration?

We at Commerzbank are with our clients at every step of this journey. We invite our clients to lean on us for our knowledge no matter where they are in their respective migration – whether they are still determining which approach is right for them or already in the midst of the implementation process.