Are financial institutions truly giving ISO 20022 the attention and importance it deserves?

No matter where you are in the world, if you work within the financial services sector, you will be aware of the ongoing changes to the Real-Time Gross Settlement (RTGS) payments system and the adoption of the new ISO 20022 messaging standard. These initiatives aim to revolutionise payment infrastructures, enhance data exchange, and streamline cross-border transactions for the benefit of all.

However, the challenge banks face in implementing these new ways of working should not be understated. The evolution of RTGS and the introduction of ISO 20022 is fraught with complexities and challenges. RTGS systems, which facilitate the instantaneous, irrevocable transfer of funds between banks, without the lag of netting or batching, are the backbone of high-value, time-critical payments. ISO 20022, a comprehensive new financial messaging standard, offers a rich, structured, and interpretable language for electronic data interchange between global financial institutions. Together, they herald a new era of financial communication, one that is more fluid, transparent, and secure. But amidst the daily hustle and bustle of the banking environment, a pertinent question arises: Are financial institutions truly giving RTGS and ISO 20022 the attention, importance and resources they deserve?

As we edge closer to 2025, the deadline for RTGS overhaul and full ISO 20022 compliance, the readiness of banks to embrace this change comes under scrutiny. The journey ahead is convoluted, requiring not just technological overhaul but also a cultural shift within institutions. Banks must juggle the intricacies of legacy systems, regulatory requirements, and the need for staff retraining, all while maintaining an uninterrupted, secure and resilient service for their customers.

 The extent of preparedness among banks varies widely. Some financial institutions have proactively embraced these changes, investing heavily in infrastructure, training and new technologies to ensure a seamless transition and personalised product offering for their customers. Others in the market are lagging. Some are treating this evolution as an enforced exercise in compliance and making minimal adaptations to their ways of working. According to a report by Celent, 38% of financial institutions have raised concerns about their ability to meet the impending 2025 deadline. The disparity in readiness not only underscores the uneven pace of technological adoption across the sector, but also highlights not all banks are recognising the value the new systems can deliver their organisation.

Seizing the chance to evolve and grow:

Numerous banks are embracing this change as an opportunity for innovation and improvement. They are investing heavily in their transformation journeys, aiming not only to meet regulatory requirements by the specified deadline, but to maximise the benefits of the new standards to enhance their operations.

According to McKinsey, “To thrive, banks need to reinvent themselves…those running the old playbook, will not survive; the new winners will operate like tech companies”, who are known for their ability to quickly adapt to changes, innovate rapidly, and deliver customer-centric solutions. Many forward-thinking banks are now adopting this mindset, developing cutting-edge technology stacks, and fostering agile operating models. In doing so, banks are positioning themselves to satisfy changing consumer desires, and keep pace with fintechs and neobanks whose personalised experiences are attracting evermore customers. 

Resistance to change:

Some banks however are not recognising the enormous value the revised RTGS system and ISO 20022 can bring to their organisations. Those that are treating this change as a compliance task risk missing out on significant opportunities. The new standards offer banks enhanced data richness, cheaper and faster transaction processing, improved risk management, future scalability and value-added services to customers.

Banks that fail to leverage these capabilities may find themselves at a competitive disadvantage. They could struggle to keep up with ever-increasing customer expectations for fast, seamless, and transparent payment services. Considering the number of active online banking users worldwide will reach one billion in 2024, this could lead to a loss of market share to more innovative competitors that will only compound as time goes by.

The question of resource – doing more with less:

For those that recognise the opportunity at hand, and are willing to commit to organisational-wide change, a lack of resource may still pose a challenge in banks’ ability to meet the 2025 deadline. McKinsey suggests banks spend around 70% of their IT budget on run-the-bank activities – that is a huge proportion of money allocated to merely “keeping the lights on”. So, how can a transformation requiring a substantial overhaul of existing infrastructure and investment in new technology be achievable without an inordinate strain on budgets and resource?

This is where the role of Quality Engineering (QE) becomes paramount. Through rigorous validation of systems and processes, QE can help banks ensure systems are robust, secure, and capable of handling the volume of real time payments and the nuanced messaging structures inherent in ISO 20022.

What’s more, by identifying potential issues early in the development cycle, QE can help mitigate risks before they escalate into more significant problems that require more time and money to resolve. By embedding a proactive approach to risk management banks can ensure this transformation does not disrupt the institution's day-to-day operations or compromise customer trust. And, once implemented, QE can be utilised to maintain necessary testing practices, many of which can be automated to preserve time and resource – effectively allowing them to “do more with less” and ensure their budgets go farther.

 Risks of a poor quality implementation:

The consequences of approaching this transition without a thorough “belt and braces” mindset carries significant repercussions. Financial institutions that fail to successfully adopt ISO 20022 risk isolation from the global financial landscape. This could result in slower transaction times, increased costs, and diminished competitive edge, particularly in cross-border transactions where efficiency and reliability are paramount. Similarly, those that miss the 2025 deadline will also incur significant fines, both at an operational and personal level.

Conclusion:

The evolution of RTGS and the adoption of ISO 20022 marks a critical juncture for the future of financial transactions. As the 2025 deadline looms, the time is ripe for banks to evaluate their commitment to and progress on their journey thus far. While some institutions are proactively harnessing this opportunity to drive innovation, enhance efficiency, lower costs and bolster customer satisfaction, others remain ensnared by the complexities of legacy systems, resource constraints, and lack of strategic foresight.

It is imperative that banks view this change as an enabler of organisational growth and competitiveness, and not as an imposed regulatory mandate. Banks that see this transition as an opportunity to innovate and enhance their service offerings will likely emerge as leaders in the new era of global finance. Conversely, those that delay or underestimate the complexity of this transformation may fall behind, risk significant financial penalties and potential exclusion from the payments ecosystem. While banking hasn’t changed at its core, how the industry caters to customers has, and traditional banks must adapt to compete with new greenfield players like fintechs and neobanks who are unencumbered by legacy systems.

In conclusion, RTGS and ISO 20022 are indeed receiving significant attention from the banking sector, albeit with varying degrees of urgency and commitment. However, the key to the success of this transformative journey hinges on the correct application of Quality Engineering. The stakes are high, but QE stands as a safeguard to ensure banks’ push for modernisation is seamless and does not compromise BAU or the security of financial transactions. Upholding quality will also help banks mitigate risk and safeguard resource, whilst ensuring technical and regulatory requirements are met. 

Ultimately, the successful adoption of these standards will not only enhance the resilience and competitiveness of individual institutions but will also strengthen interconnected global financial infrastructure, assuring its readiness for the challenges and opportunities of the future.