ISO 20022 – a project perspective
31 Mar 2023
By Rik Kernaghan
Monday 20 March marked the dawn of a new era for payments globally with the introduction of the ISO 20022 messaging standard for domestic and cross-border payments both here in Aotearoa New Zealand and worldwide. ISO 20022 is a complex, multi-year programme that brought a core group of dedicated representatives from across the industry together to deliver a once-in-a-generation change. This article provides additional insights to the launch announced last week on the Payments NZ website.
Payments NZ, in conjunction with the Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) and Swift, have supported the 13 financial institution members of Payments NZ’s High Value Clearing System (HVCS) for the past three years in the development and delivery of support for ISO 20022 payments in Aotearoa.
The ISO 20022 messaging standard provides a rich, structured, global language for financial communications that increases the clarity and capacity of payment instructions. It enables greater efficiency in payments processing by removing friction within compliance functions such as know-your-customer, sanctions screening, and anti-money laundering and counter-terrorism financing checks. The language removes constraints imposed by the existing MT messaging standard by enabling more information to accompany a payment, such as remittance information that enables more efficient customer reconciliation processes.
The scale of this change is unprecedented. The launch of ISO 20022 within Aotearoa’s HVCS coincides with the global introduction of ISO 20022 messaging for cross-border payments by over 11,000 Swift members in 200 countries and territories. The new ISO 20022 language is being introduced in several phases, and Monday 20 March 2023 marked the start of the coexistence phase, where all financial institutions on Swift’s network have developed the capability to listen for and process ISO 20022 payments, though not everyone has developed the capability to speak (send ISO 20022 payments).
The coexistence phase will end in November 2025, and during this phase financial institutions within Aotearoa and around the globe will learn to speak the language fluently resulting in a migration of payments volumes to ISO 20022. In November 2025 the MT standard will be retired, and ISO 20022 will be the single common language used for HVCS payments and cross-border payments on the Swift network.
Supporting two different messaging standards concurrently adds complexity and there has been considerable investment by all parties involved to ensure the two standards are interoperable. To further complicate things, there are several variations or ‘dialects’ of the ISO 20022 language. These are:
- Cross Border and Reporting Plus (CBPR+) is the dialect used for cross-border payments as they travel between countries.
- Payments NZ’s HVCS dialect is closely aligned to CBPR+ though extended to deliver local market requirements such as those required to support Same-day Cleared Payments.
- Payment market infrastructures in other regions such as Australia and Canada have their own dialects too.
The introduction of ISO 20022 to Aotearoa’s HVCS forms only one part of the modernisation puzzle for the whole payments system. Three years ago, the RBNZ replaced the heart of the domestic payments system through an upgrade to their Real Time Gross Settlement (RTGS) system used for interbank settlement. For the HVCS, ISO 20022 delivers new upgraded arteries that interconnect the financial institutions, and the new payments language can transport the oxygen of rich information around the patient with much greater efficiency. As the volume of financial lifeblood transitions to the new arteries during the coexistence period, the efficiency of the liver and kidney compliance functions will be enhanced.
The RTGS heart will receive another upgrade next year, and work begins to deliver new veins which extend the reach of ISO 20022 to bank customers for payment initiation and enhanced statements formats. Looking further ahead in terms of further innovation using ISO 20022, one of its key features is support for extended character sets, which can be enabled to deliver the ability to exchange information using Te Reo Māori, for example. Alongside this, work is progressing to modernise Aotearoa’s payments system and we have many payments modernisation activities in place. Projects such as 365-day payments and our ongoing investigations into real-time payments will all help to deliver the payments future Aotearoa wants and needs.
For ISO 20022 delivery teams, this really is the end of the beginning. There is a tremendous amount of work ahead for delivery during the co-existence phase and beyond. The introduction of the ISO 20022 language to domestic and cross-border payments is a hugely significant milestone, and it is appropriate that we reflect on and celebrate what has been achieved over the past three years.
Aotearoa’s delivery teams have juggled this project in parallel with other significant change projects for the payments system, and changes to processes and compliance. It is a testament to the dedication and skill of the payments community both here in Aotearoa and across the globe that a change of this scale has been delivered so smoothly in a challenging economic period and in parallel to a global pandemic, without the heart of the system missing a beat.