Cash & Liquidity ManagementPaymentsISO 20022: The corporate journey must start now

ISO 20022: The corporate journey must start now

With the migration to ISO 20022 looming, now is the time for corporates to take action, says Deutsche Bank’s Christian Westerhaus.

ISO 20022: the corporate journey
Christian Westerhaus, Head of Cash Products, Cash Management, Corporate Bank at Deutsche Bank

The eurozone’s November 2021 migration to ISO 20022, the new global standard for payments messaging, will help meet the ever-increasing demand for speed, richer data and automation – all while simplifying compliance checks and due diligence. As this watershed moment for the payments industry draws near, stakeholders will need to consolidate their efforts to ensure they can unlock the full array of benefits available.

While banks will likely be most affected by the change, the impact on a corporate’s payment chains and operational workflows will also be significant, and they would be well-advised to begin their preparations now. Put simply, the migration to ISO 20022 is not just another banking project, but one that the whole industry would be wise to engage in.

Making the switch

The migration to ISO 20022 is not mandated end-to-end. Older messaging formats will continue to be supported – meaning that many corporates could maintain their current set-up for the initiation of payments.

So why shouldn’t they stick with what they know? The advent of the new standardised formats and processes will allow corporates to flexibly integrate vendors into their own structures, as well as implement end-to-end automation across their banking ecosystem. Post-migration, if a corporate were only to facilitate simple standardised payment flows these benefits – and the wider benefits of an industry-wide implementation – would be lost.

Not to be ignored

While it is clear that corporates should consider making the switch – and particularly large organisations with in-house bank or payment factory set-ups – those that don’t will nevertheless be significantly impacted by the migration. For example, while SWIFT will continue to support old FIN MT 101/940/942 messages in customer-to-bank communication, the use of ISO 20022 messages in the interbank space will have an effect on corporates’ end-to-end flows.

What’s more, the quality and quantity of information sent via ISO 20022 messages is far greater when compared to older formats. Whether or not a corporate is actively sending this additional information, they will almost certainly be receiving it. This means that information – including structured remittance data, details of ultimate parties and end-to-end references or unique end-to-end transaction references – will need to be inputted into the legacy account statements. It’s a task that could impact the auto-reconciliation rate and potentially introduce exception handling.

The type of data that corporates will have to provide is also changing. Each and every cross-border payment initiated by a bank through ISO 20022 will require the party information to be provided in a structured format with the requisite additional information. While data for the debtor is provided by the corporate customer’s bank, the extra data for the creditor and ultimate parties can only be provided by the originating party.

To meet these mandated requirements, corporates will have to update and improve their enterprise resource planning (ERP) or treasury management system (TMS), improve their own static data, and ensure that they have sufficient counterparty data.

Take action now

In order to fully understand how their payment and account information processes might be affected, corporates will need to engage in industry discussions and start a dialogue with their banking partners and ERP/TMS providers. So, whether a large corporate looking to support ISO 20022 end-to-end or a smaller one simply looking to ensure they can provide the necessary party and remittance information to their banks, preparations should start now.

Christian Westerhaus is Head of Cash Products, Cash Management, Corporate Bank at Deutsche Bank

Whitepapers & Resources

Transaction Banking Survey 2019

Transaction Banking Survey 2019

TIS Sanction Screening Survey Report

Payments TIS Sanction Screening Survey Report

Enhancing your strategic position: Digitalization in Treasury

Payments Enhancing your strategic position: Digitalization in Treasury

Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation