A major deadline for ISO 20022 adoption is approaching: Swift, the European Central Banks’ real-time payment system, will require the new messaging protocol for payments starting November. This marks an important moment for all financial institutions, especially midsized banks. While they often offer a diverse range of products that align with ISO 20022 standards, they may lack the resources to fully capitalize on its capabilities.
A report from Javelin Strategy & Research, Looking Past Deadlines: The ISO 20022 Opportunity, looks at the benefits and challenges these banks face as the deadline nears.
“There will probably be plenty of financial institutions that look at it and say, ‘Oh, it’s not something that applies to us,’” said James Wester, Co-Head of Payments at Javelin and one of the authors of the report. “But that just means that further down the line, they or one of their partners is going to have to bear higher costs.”
The Challenge for Midsized Banks
The evolution of payments is increasingly being driven by ISO 20022, designed to improve interoperability across the payment ecosystem by promoting a common language. This new standard replaces outdated data formats with a structured XML-based system, with the goal of supporting more efficient and transparent payments for retail, commercial, and trade use cases worldwide.
Midsized banks face some of the most critical decisions in this transition. Larger banks, which rely heavily on high-value transactions such as cross-border, real-time, and corporate payments, are the most affected by the new standard—but they also have the resources to adapt. Smaller institutions, on the other hand, are less concerned with data standards since they often rely on third-party vendors to manage their technological operations.
Midsized banks, however, are in a unique position. They may not have the technical resources needed to fully support their financial institution’s evolution alongside payment innovations, yet they offer a wide range of products. Processes like payment modernization and digital transformation are crucial—not only for operational efficiency, but also for meeting customer expectations.
“The midsized bank is in this quandary, where they’re large enough to need to look at things like payment modernization,” said Wester. “They probably have some of their own in-house systems, but they are not large enough to necessarily have the resources to fully exploit all of these things that are happening.”
These banks will likely start seeing a demand from commercial and business clients for additional data that was previously unavailable to them.
“Will there be a huge hue and cry from customers saying, ‘I demand this’?” said Wester. “Not necessarily, but companies sending commercial payments are going to rely on data coming from a payment from their financial institution. They will absolutely say, yeah, we need that information. And if you don’t have it, we will find another financial institution that can provide it.”
The Developing Use Cases
One factor that has hindered the migration of global banks to ISO 20022 is that use cases built on the standard are only just beginning to develop. This is especially true for mid-market banks, where new applications provided by their technology vendors have yet to mature. However, the potential for products using the global data standard for payments is significant and will drive the complete rewiring and transformation of the global payments market.
To take one prominent example, real-time payments have quickly transitioned from a product used for high-priority payments to a standard required by consumers worldwide. However, real-time payments have also introduced challenges in terms of errors and exceptions. As payments move faster, issues across payment networks move faster, too. The introduction of ISO 20022 should result in more error-free transactions with better remittance details. Financial institutions will find this not only beneficial to their operations but also advantageous to businesses and other customers, who will experience fewer issues and delays.
These benefits can be rather hidden to financial institutions, particularly before they’ve adopted the ISO 20022 standard. That is one of the reasons Wester mentioned that, during conversations with financial institutions about this topic, he realized it’s not something that’s top of mind for them. For institutions that choose not to adopt ISO 20022, or delay its implementation, the drawbacks will also be subtle but very real.
“You’ll end up having to either have some type of integration layer, or the entire process will be less efficient than it is for your competitors,” said Wester. “Especially in payments, less efficiency means greater cost.”
Now Is the Time
ISO 20022 migration presents an opportunity for banks to embark on a wider effort in payment modernization. Mid-market banks can leverage this transition not just to upgrade their legacy systems, but also to strengthen their competitive position in the rapidly evolving payment ecosystem. By adopting ISO 20022, these banks can explore modern technologies such as cloud-based systems that support real-time payments, open banking, and advanced data analytics—capabilities that are quickly becoming essential for staying competitive.
For these reasons and more, now is the time for banks and other financial institutions to begin their journey into ISO 20022. Midsized banks not tied to a single turnkey provider may have disparate systems in need of updates or integration. Addressing these challenges can serve as an important added benefit of migrating to ISO 20022.
“If you’re not taking the time now to start upgrading your systems, you’re going to be so far behind,” said Wester. “This is as an opportunity to address some of the technical debt that built up over the last few decades. Take the opportunity to say, ‘Now is the time.’”
