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Financial Lingua Franca in Payments: ISO 20022

valantic and the ISO 20022 Migration

What is ISO 20022?

The ISO 20022 standard is a modern, XML-based standard for exchanging financial transaction data of different business segments in banking institutions. The standard has already been developed at the beginning of the 21st century and has first found practical application in the processing of investment fund shares (SWIFTNet Funds) in 2003. The ISO standards are characterised by granular data structures transmitting business information in great detail. The standard for payment transactions primarily refers to the processes in the Payment Initiation section (pain messages between customer and bank) as well as in Payments Clearing & Settlement (pacs messages between banks).

Bild einer Zeitschrift, valantic Whitepaper "Financial Lingua Franca in Payments: ISO 20022"
Financial Lingua Franca in Payments: ISO 20022

In our free position paper you will learn how a globally recognised standard can raise your customers’ payment transactions on a significantly more automated, secure and efficient level.

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Why is ISO 20022 Necessary?

Digitalization is promoted in many industries – always leading to the same result: processes become easier and more automated. In addition, there is the pressure from regulatory requirements as well as an increasing cost pressure due to decreasing margins and the markets’ globalisation. Thus, a further digitalization of the processes is required aiming to achieve a proper end-to-end processing within the process chain. The simplification of the upstream processes in payments leads to a simplification of downstream steps.

Challenges for the Migration

Data enrichment for all participants

The full potential of the advantages of the new standards can only be realised if all stakeholders within the processes can make full use of them. The “conversion solutions” for legacy formats, i.e. necessary repeated translations between old and new and vice versa, are often hailed as a means to an end but are explicitly omitted. Data quality would dilute and the error rate would rather increase than decrease.

Good user experience for increasingly complex data structures and processes

However, the high level of data granularity presupposes significantly increased requirements for the processing and the systems used. This not only affects data validation and control of the required workflows but also data presentation and data enrichment for the user and the customer.

Intelligent process monitoring and controlling

The processes have to be monitored and controlled. The former process management has often been left to the professional user, whereas ISO-based processes require the compliance with the rulebooks which go far beyond the filling of the ISO instruments and prescribe the applicable process steps.

Provision of real-time capable gateways

In addition, the existing bank systems are often older and not designed for real-time data exchange gateways. For an end-to-end digitalization, high-performance applications and a central gateway architecture, e.g. via APIs and the provision of microservices, are crucial.


Clearing houses and SWIFT define in their own rulebooks how transactions have to be exchanged, e.g. in which order which versions of the individual ISO instruments are to be used or they provide information on the field assignment. The rulebooks also describe a possible aggregation of several messages to so-called “bulks”. Usually, the rulebooks are updated every year and the banks are obligated to implement the changes.

2021 and 2022 – Year of Changes

The realisation of ISO 20022 has not taken place as self-regulating process within the banking and financial industry. There has always been a regulator setting the decisive impulses. This is also proved by the comprehensive SEPA introduction in 2014 which has not been launched widely until the European Commission made a specification. In 2012, the large-value payment system Target2 of the European Central Bank and one year later, in November 2022, also SWIFT for payments (message categories 1, 2 and 9) will be converted to the instruments under ISO 20022. Target2 migrates to ISO 20022 with a big bang, whereas SWIFT provides a migration phase of three years within which legacy formats can still be used.

Migration process ISO 20022 valantic

Additionally, SWIFT provides a migration service between ISO and the earlier MT formats. However, the banks bare sole responsibility for the conversion results. An argument for not overstraining the fee-based service by SWIFT. The banking industry expects major banks and banks acting as intermediaries to process all SWIFT-based payment processes according to ISO 20022 already as of 2021. It is also possible that banks already refuse to accept MT messages or charge fees for the acceptance during the transition phase.

Standards of the Future

Currently, the actual exploitation of the opportunities ISO 20022 might bring, is still limited. However, future chances regarding interoperability, real-time processing and error prevention as well as better services for lower costs, are significantly greater. The global guidelines in the financial industry are setting limits, whereas the usage of IBAN is already an obligation in SEPA environments, it cannot be presupposed in international payment transactions. Then again it can be assumed that e.g. the usage of unstructured data which is intended in the ISO rulebook will over time give way for equivalent structured data (example: reference in bank transfers). In a timely manner, this might be pushed by regulations from institutions, such as the European Central Bank, the Euro Banking Association or SWIFT. The process coverage with ISO standards will broaden significantly and lead to an even increased efficiency of the processes.

Quick Wins

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Your Contact

Picture of Dirk Vesper, Product Manager at valantic Financial Services Automation

Dirk Vesper

Vice President, Product Manager
valantic FSA