SWIFT and ISO 20022: The future of cross-border payments

SWIFT and ISO 20022: The future of cross-border payments

You communicate with someone by using a language, just like I am using English to explain to you what ISO 20022 and SWIFT is. ISO 20022 is a format that banks and computer systems use to talk to each other.

After numerous delays, SWIFT (Society for Worldwide Interbank Financial Telecommunication) will begin the migration of its systems onto the new ISO 20022 standard on 20 March 2023.

This new format is a game-changer because it makes it easier for banks and companies to talk to each other, which means it's easier and faster to make payments. If we all know the exact rules then we can all play together faster and better. That's what this new ISO standard brings to payments.

This will change how banks communicate globally, standardising how payment messages are sent worldwide.

Before ISO 20022, financial institutions used many legacy formats:

  1. SWIFT MT message: The Society for Worldwide Interbank Financial Telecommunication (SWIFT) developed a set of standardized message types known as MT messages, which were widely used for cross-border payments and other financial transactions.
  2. EDIFACT messages: The United Nations developed a standard known as Electronic Data Interchange for Administration, Commerce, and Transport (EDIFACT), which was used for exchanging data between different companies and industries, including banking.
  3. Proprietary message formats: Many banks and financial institutions developed their own formats to process payments and other financial transactions. This lack of standardization reduced interoperability between different systems, which could make it more difficult to process transactions quickly and accurately.

It is clear we needed a unified format that brings more transparency, holds more data and improves bank connectivity across the financial system.

In this piece, I will explore everything a payment leader needs to know about ISO 20022, the challenges, and also the opportunities that it will bring for cross-border payments.

What is ISO 20022?

ISO 20022 was first introduced in 2004 by the International Organization for Standardization (ISO), an independent organization that develops international standards for a wide range of industries, including banking and finance.

It is now adopted by more than 70 countries across their payment systems. This format brings consistency across payment schemes, open banking interfaces, APIs and much more. The benefits will enable better payment data analysis, improve security, and make sending money faster and cheaper.

When will the migration to ISO 20022 happen?

Last year, SWIFT enabled ISO 20022 for cross-border payments on an "opt-in basis". In March 2023, financial institutions sending messages through SWIFT need to update their systems so they can translate payment messages into the right standard. Although some bank won't meet the deadline.

Issues arise from banks using MT format messages, which result in data being truncated. This increases reconciliation issues and creates a poor customer experience when payment origin information is lost, as it leads to delays in cross-border payments or requires manual checks.

SWIFT aims to decommission MT messages for cross-border payments and reporting by 2025.

During this period, financial institutions will have to either support ISO 20022 or convert files to MT until it gets decommissioned.

Why are MT payment messages being decommissioned?

SWIFT introduced MT messages in a world without the internet, online payments and the complexity of how payments are done today.

Payment institutions require all payment instructions to be screened against sanctions lists that require the payment message to include enough data to perform AML checks. Including more data in the payment instruction gives valuable data on who the payments are being sent between and for what purpose.

Where has ISO 20022 been adopted so far?

The adoption of ISO 20022 has been growing steadily over the past few years, with many banks, financial institutions, and market infrastructures around the world migrating to the new standard.

The biggest example include SEPA Credit Transfers and Direct Debits in Europe. The upcoming FedNow Scheme in the US will support ISO 20022 bringing real-time payments and helping businesses avoid payment operations with ACH.

The upgrade to the ISO 20022 also coincides with a key event that will affect European Banks. The Monetary Authority Eurosystem is replacing its existing TARGET2 real-time gross settlement system (RTGS) with a new RTGS called T2, which will use the new ISO standard and make European payments more secure and efficient.

Cross-border payments and the benefits of ISO 20022

Once a friend Venmo-ed another friend and wrote "Cuba" in the reference. The transaction got flagged.

Let's say you are living on Cuba Avenue, New Mexico and you submit a payment, it will need to go through manual processing which delays the delivery. The reason is that the word "Cuba" is included in the unstructured field in the MT message. As it is illegal to send money between the US and Cuba, the bank's sanction screening process flags the transaction.

Alternatively if the transaction was processed in a ISO 20022 format, it will require populating the information for both the payer and the payee in the specific data fields, reducing manual checks and better anti-financial crime processes.


SWIFT migration towards ISO 20022 will be a long journey.

However as financial institutions and banks adopt the new standard, we will see the benefits in a network-effect manner. When this happens we will see a safer and faster way of sending cross-border payments.

If you're using a corporate account that is using MT files or any of the bank standards, but you'd prefer to use an API to perform payment instructions from your bank reach out to us at Payable.