The history of cross-border payments began with… cooperation with the media. From the 1970s until the beginning of digital banking, banks used long-distance telegraphs from the Reuters news agency for cross-border transfers. This solution has been adopted by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to settle payment orders on correspondent accounts of individual institutions.

In the times of fledgling digitalization, data used to identify the transfer was sent by telex, in the then accepted text format MT, which was organized like a telex form. One field represented one piece of information and was expressed with a number instead of a word. For example, 13C is a time stamp and 26T is a transaction type. One transfer required a total of several dozen “fields to be filled”, i.e., transfer information to be provided. As a result, the received message could be deciphered into all languages.

Goodbye SWIFT MT, welcome SWIFT MX

The main MT message format used for interbank clearing by SWIFT has not changed since the 1970s, however, the tools used to process it did as the message was expanded over time. One of such improvements was the introduction of an additional SWIFT code to identify the financial institution in the international banking pool. That’s how the bank’s ‘address’ was born, the BIC (Bank Identifier Code), which is the ID of the financial institution in the SWIFT system.

Over time, several fully digital standards for transferring transactions have emerged besides SWIFT: TARGET2, SEPA Credit Transfer, or TIPS. However, all of them have a smaller range than those based on the MT SWIFT message. Although banks today have the technical capacity to send large volumes of transactions instantaneously, one of the bottlenecks that prevents this is the legacy MT message type.

No wonder the banking world has decided to introduce a new and more universal language for international transactions. From November 2022, a new format for cross-border transfers enters into force, MX. It is the successor of the MT format, but adapted to the capabilities and expectations of Data-Driven Banking. Based on the XML structure, the MX messaging type enables easy data exchange in a common, flexible standard.

MT/MX conversion: the quest for context

By creating a common “language” and model for payment data, ISO 20022 significantly improves the transparency and efficiency of transactions. In addition, richer and structured data will open up new possibilities for personalization and improvement of the bank’s customer experience. However, the introduction of a new communication standard is fraught with considerable difficulties.

First of all, there is no common dictionary” that would allow direct translation between different message formats. While the conversion from “new” to “old” format (MX to MT) is relatively simpler, from “old” to “new” (MT to MX) it requires advanced knowledge of the relationships between individual message elements.

The “new” message (MX) has a multi-level, organized structure, which allows easily and unambiguously to aggregate its elements and assign them correctly to the “old” MT format. On the other hand, the data clusters in the “old” MT format do not always have clear rules for interpreting (“unpacking”). Meanwhile, the system that converts the message must “know” how to break down each incoming information into single components, and then properly recreate it in the default format so as not to lose any information and certainly not to generate an error.

Example:

Bank (BIC: EXABNL2U) from Utrecht, The Netherlands, received a transfer order from his client ACME NV (Amstel 344, Amsterdam) to transfer 12,500USD on October 29, 2019 from the account no. 8754219990.

In the “new” MX message (see below left), each value is contained in a separate element that has a unique label to identify and interpret its value. In the “old” MT format (right), the same values are much more difficult to interpret.

These translational difficulties are best seen in two elements:

1. Amount, currency, and date of the transaction:

The illegibility of the MT message is obvious. Two-way translation can only be done with clear conversion rules.

2. The address of the ordering party:

In the MT message, all customer data – the ordering party is under a single label (50F:) with the account number, whereas the address is divided into consecutive lines (1/, 2/, 3/) with no differentiation into the name of the city, street or country.

If the address is typical and the elements are not too long, the address will read as shown in the illustration (1/company name, 2/street and number, 3/country/city). However, if the company name is longer than 33 characters, then line 2/will not contain the street and number, but will continue the name of the company. On the other hand, if the address also includes the name of the state/province, address line 3 will not hold all the information, and perhaps an extra line 4 will be added.

As you can see, assembling the address in line 50F: is simple in the case of the MX message, but the reverse conversion requires knowledge of the context. For example, knowing that there are four lines and a European country (BIC address!), we can expect a “classic” address and a long customer name (lines 1 and 2). However, if the address is US-based, the last line must be interpreted as a country/state/city.

These examples show that the translation of MT/MX messages can be really complicated in some cases. It is like looking for an address in a foreign city. As long as the street names and numbering are standard, you will easily reach your destination. However, with a non-standard address, it is easy to get lost. Without a thorough understanding of the anatomy and context of the message, i.e., different naming and numbering methods, the banking system can also get lost in MT/MX translation.

When preparing to launch an ISO 20022 SWIFT MT to MX converter, it will be difficult for a  developer to know how to relate the old and the new message formats for a glitch-free exchange. In-depth knowledge of the banking process and its intricacies is the area of expertise of the banking system analyst. Their domain knowledge allows scrupulously analyzing the scope of tasks ahead and preparing implementation guidelines for developers. My colleagues discuss the benefits of working with banking IT analysts in this article.

MT/MX converter: more than a temporary solution?

When the changes required in the new communication standard have been mapped, it is time to select the strategy for their implementation. The bank can add a ready-med ISO 20022-compliant interface to its core system, or develop its own solution. There is also a third approach: a SWIFT MT/MX format message converter. Some organizations choose it as a temporary solution because of limited time or budget. On the other hand, some choose a solution that solves the immediate problem, and at the same time is future-proof and meets the goals of their long-term development strategy. 

Translators supporting data validation, enhancement, and conversion between different standards or formats are already becoming available. One of them is the native SWIFT MT/MX converter. This solution will certainly be used by large international organizations. However, its complexity, as well as the costs of implementation and maintenance, do not make it a good fit for every organization. Organizations that need an optimized MT/MX converter can use the independent MT/MX broker that is a business application integrated with the core system. A good example of such a solution is our proprietary system, Payres.

MT/MX converter: light solution, great possibilities

As a SWIFT MT/MX message translator, Payres enables the settlement of SWIFT XML ISO 20022-compliant international payments. As a “lightweight” MT/MX message broker, Payres eliminates the need to modernize core systems and maintain the efficiency and flexibility of the banking architecture. The solution is cost-effective and does not require a complicated implementation process. Payres works in Real-Time Transform (RTT) flow, and the support of the Drools rules engine minimizes the inevitable delay resulting from the serial position of the translator in the payment message path.

Payres wsupports back office applications that do not support the new format, or do so only partially. Our message broker automates transaction processing between back office applications and external networks.

However, unlike “classic” MT/MX converters, Payres processes data in real-time, automatically leveraging the data flowing between the bank’s core system and the integrated applications. Payres is suitable even for organizations that plan to ultimately implement MX messaging in the core system itself! When it is no longer needed as a MT/MX converter, it can support real-time data activation in line with Data-Driven Banking.

Breakthrough changes go well with long-term perspective

The temporary converter is a perfect solution to maintain communication in the global banking world after the launch of the “new” communication standard in November 2022. However, banks that make do with a temporary MT/MX translator and neglect to thoroughly modernize their IT architecture will have to make extra effort to catch up, as explained by the experts interviewed by the Red Compass consulting company. With the “banking Esperanto” of ISO 20022 at your disposal, you not only gain a universal language in which to communicate, but also new business opportunities. To use them, choose a Data-Driven Banking-ready solution that will generate added value, both now and in the future. Need support in migrating to ISO 20022? We look forward to hearing from you! We are a team of professionals with experience in advanced payment processing projects, e.g. card payment messages for international clients. Learn more about our proprietary MT/MX converter here.

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Clearing House Automated Payment System (CHAPS) is the fastest payment model in the UK and one of the first European instant payment systems. In the coming months, the system will face a revolution: switching to ISO 20022, the new global standard for payment messages.

The decision to join this global messaging standard was made back in June 2018 by the Bank of England, Pay.UK and Payment Systems Regulator. In late 2020, the formal preparations were completed, and financial institutions operating in the UK officially launched their ISO20022 implementation programs.

However, this is a complex project, executed under  pressure with limited time. The scope of the implementation  is huge and requires in-depth testing. However, in the future financial institutions that implement ISO 20022 in CHAPS will be able to obtain more detailed and better-structured reference information. Additionally, the new messaging standard will reduce manual interventions, which means potentially fewer delays for the customer. 

The ISO 20022 clock is ticking

To meet the implementation challenges on time, financial organisations will need to introduce massive changes in all bank architecture systems, processes, and technologies. The sheer scale of the work required for ISO 20022 takes an average of two years to implement. In addition, it is a very sensitive area of the bank’s operations. A single failed transaction worth several million pounds, for example, a major order from a business partner, or a real estate transaction, can have serious business consequences. Those banks that  start transforming their infrastructure last will have to face an enormous challenge, when the schedule is tight. However, this is only the first step. If banks are late in this respect, the delay will also affect the next steps.

A buffer that acts like a time shield

Since the Bank of England will enforce messages in the new format in June 2022, systems that haven’t been migrated will not be able to receive the new CHAPS messages. Is it possible to secure failure-free information exchange if the systems in your bank are not ready yet? In the event of a project delay, is it possible to provide access to both message formats?

Until all systems in your bank are tested and ready to receive messages in the new format, an independent temporal buffer, Payres, can help. Installing this system at the interface between incoming messages and banking applications allows “translating” incoming messages in real-time, both ways.

Payres transforms incoming messages from the new format to the old one, so that systems that are not ready by June 2022 can easily receive messages in the new format. Next, Payres transforms back the information generated by non-updated systems in the old format to the new one, and sends it back, ensuring continuity of data exchange.

Our solution can be adapted to the ISO readiness level of specific applications in the banking ecosystem. In this way, those institutions that do not manage to complete the implementation of ISO 20022-compliant solutions will not only be able to use the new format, but also leverage the new communication standard to their advantage as additional information becomes available. Payres can be a kind of “time stretcher” for banks to work on adapting their systems even if the work schedule goes beyond June 2022.

Payres supports and boosts your ISO 20022 migration

Buying time for the analytical and development phases is one thing, but what about the testing phase? With ISO 20022 implementation in CHAPS, the amount and quality of tests to be performed is greater than in any regulatory projects in the last 10 years, including SEPA. It would take a long time to create such test cases manually, but with Payres the process can be significantly accelerated and streamlined. During the translation from the old to the new format, Payres collects messages that can be reused in automatic ISO 20022 readiness tests of individual applications, after anonymization. 

Payres also supports the various stages of implementation of the new message format in individual business applications. Each format of the messages, new or old, can be redirected between systems using business rules in Payres. This is how you can decide which system receives which format.

In the next phase of ISO 20022 implementation, when messages will be enhanced with additional information, Payres will be able to use the new content to create added value. With properly designed business rules, Payres can capture additional information contained in messages and launch the desired actions in external systems. This way, the bank may activate additional processes, doing one more step on their data-driven concept implementation path, even before the competition!

Support your corporate clients and create added value

The implementation of the new CHAPS Direct standard applies not only to banks but also to their corporate clients. The largest manufacturers or service providers automatically process and book tens of thousands (or more) of large-format transactions per month. Of course, corporate accounting and billing solutions need to adapt to the new exchange format. 

As an experienced partner advisor, your bank can offer additional migration time to your corporate clients. If a number of them require additional support in translating messages into the new format between their ledger systems and your bank’s core system, this can also be handled with Payres. If single cases require support in this respect, your bank can create a consulting service with added value. Referencing them to companies that handle the mitigation of adverse consequences of implementation delays, that can minimize the impact of changes related to the implementation of ISO 20022.

Payres safeguards your transition to ISO 20022

As Payres accompanies the process of implementing the next stages of ISO, it can be used as a shield to support and leverage new data in real-time, while gaining time to complete the implementation and testing in the banking architecture. Payres shields you against the deadline, and at the same time allows you to use the new information immediately when and where the bank is ready for it, in the form in which it can be used. 

What’s more, Payres is a future-proof solution that secures not only the first but also the subsequent stages of ISO 20022 implementation, when the use of additional information comes into play. Just add new business rules that will activate new data exchange processes. Systems, messages, and even individual information in the message can be modeled with business rules. Payres can handle any business scenario. It also works well in medium and smaller banks, because it does not require complicated, long-term, and costly implementation.

The implementation of ISO20020 is a complex project, executed under time pressure. If you need qualified human resources or would like to take advantage of our consulting support, please do not hesitate to contact me.

Author:
Jacek Nowak, CEO at CCA Europe

For over 16 years, CCA Europe has been providing specialized software for the financial sector in Poland and globally. As a team of over 30 experienced specialists, they have carried out comprehensive core banking system development projects, payments, card transactions, internet, and mobile applications, as well as automation and tests.  The company specializes in card and payment systems. The company has successfully collaborated with major banks, including Credit Agricole, ING, or Vietin Bank in several countries.

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The introduction of the international ISO 20022 Financial Services standard for payments messaging has brought about significant changes in the banking sector also in the UK. The recently introduced New Payments Architecture (NPA) will not only make it easier for many companies and clients in the UK to control their transactions, but will also open many innovational products and services following ISO 20022 migration.

In early July, Pay.UK released the first set of technical materials for organizations heading for ISO 20022 adoption and facing challenges in transitioning to the Next Generation Standard for UK retail payments. For banks and financial institutions, this is the last call to start working on ISO 20022 changes in their IT architecture.

Requirements are complex, as expected

The ISO 20022 standard is an increasingly used format for payment messages. Based on the XML structure, it is already used by payment systems in over 70 countries. The upcoming ISO 20022 migration will have a huge and profound impact on the data carrying capability of payment systems, fundamentally changing the way payments are made and financial information is transferred.

The documentation published by Pay.UK is the first set of industry standardization materials, containing a list of technically difficult changes, as expected. Although preliminary, it is an important step on the way to standardize high-value payments data. Based on the published market infrastructure guidelines, banks that are not direct participants of CHAPS can begin conducting initial impact assessments of the scheduled changes in internal processes and day-to-day operations. Following the adoption of ISO 20022, Pay.UK will require the same changes from its partners as required for financial institutions who are members of the CHAPS system, although in this case the ISO 20022 migration-related deadline is not June 2022, but March 2023. All in the hopes that the end customer avoids any negative impact of the changes in cross-border payments.

Pivotal changes require a proper approach

The scope of changes that banks will need to introduce to legacy systems to avoid negative impacts on customers, operations and market infrastructures is huge. In fact, ISO 20022 migration is broader than any regulatory project in the last 10 years, including SEPA. Therefore, preparation for migration to ISO 20022 will require an experienced IT team, including analysts with in-depth domain knowledge, as explained by my colleagues in this article.

There is some skepticism in the UK as to what opportunities the NPA will eventually bring to financial market infrastructures. Recently, a key stakeholder group raised concerns about the costs, timing, and difficulties of migrating the financial market infrastructures to ISO 20022. In February 2021, the payment systems regulator issued a consultation paper, seeking the views of the banking industry on the best approach to reduce the risks related to NPA implementation.

There are several ways to upgrade the banking IT architecture to accommodate the ISO 20022 standard in financial messaging. A ready-made solution can be deployed as soon as the software vendor launches it, or banks can develop their own solutions in-house. There is also a third option: a financial messaging standards converter as a cost-optimized solution for straight through processing, with more long-term benefits, and our proprietary system, Payres, can be used as one.

ISO 20022 message standard converter that acts as a time shield

Payres supports back office applications that do not support the “common language” of ISO 20022, fully or partially. Our payments messaging broker also allows automated processing of cross border payments exchanged between back office applications and external networks.

Our application not only “translates” messages, but also enables automated exchange of structured data between the bank’s core system and other systems in line with the new messaging standard.

Apart from the financial messaging standard processing, Payres can be used for advanced reporting purposes or trigger a variety of business rules that take effect in external systems. As a result, information that so far has only been processed in a two-dimensional way is leveraged in a number of dimensions and creates competitive advantage for your bank.

Need a budget cushion? Say no more!

It may take some time for the NPA to be thoroughly implemented, and for the benefits of ISO 20022 to be full appreciated. It is possible that all necessary changes required by end of 20022 will not fit into an annual budget or any single financing period. However, with Payres, you can distribute project costs over several such periods, even over several years. If you need support in preparing your legacy systems for the upcoming changes in payment processing, feel free to get in touch!

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