The International Organization for Standardization (ISO) 20022 message format is the new global standard in cross-border payments. It is important for financial institutions and businesses to make implementation of ISO 20022 into their systems a top priority.

In this article, you will learn what ISO 20022 is and how it impacts German businesses. We also provide an overview of the format’s benefits and challenges, as well as tips for your business’s transition.

What’s in this article?

• What is ISO 20022?
  
• Why does ISO 20022 matter to German businesses?
  
• The ISO 20022 transition schedule
  
• The advantages of ISO 20022 for German businesses
  
• Challenges for businesses when switching to ISO 20022
  
• How businesses can prepare for the ISO 20022 transition
  

What is ISO 20022?

ISO 20022 is an international standard for electronic communication in the financial sector. The message format from the ISO is also known as the Universal Financial Industry Message Scheme (UNIFI). ISO 20022 defines a uniform format for messages for financial transactions, such as payments or securities settlements. It is particularly important for messages that banks receive for cross-border transactions.

ISO 20022 is used in payment transactions primarily because it clearly defines the structure and content of financial messages and encodes these messages in extensible markup language (XML). XML is a platform-independent, adaptable format that allows businesses and organizations to define the data structures that meet the specific requirements of different financial transactions. In other words, this message format can be easily processed by different systems and applications, enabling error-free communication between financial institutions and businesses.

Why does ISO 20022 matter to German businesses?

ISO 20022 is becoming the global standard for payment transactions. More and more banks and financial institutions around the world are using it. Particularly in Europe, ISO 20022 has been in use since the introduction of the Single Euro Payments Area (SEPA).

However, many businesses still use older message type (MT) formats. These less flexible formats offer a limited structure for data transfer. They don’t contain fixed data fields or clear specifications for the content or the order of information. This makes it almost impossible to read or analyse older MT formats using AI and other automation techniques.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has decided to phase out the older MT formats in favour of the more modern ISO 20022 standard. As an international standards organisation, SWIFT manages the technological development of the financial sector and ensures all organisations switch to a common solution. The transition to ISO 20022 aims to achieve detailed, standardised, and structured data transmission that improves automation, interoperability, and transparency in finance.

Initially, the changeover only applies to banks, but businesses will also be affected in the future. Once the ISO 20022 format has been widely adopted, banks will charge processing fees to businesses using other formats. After the older MT formats are completely shut down, businesses without ISO 20022 will no longer be able to conduct financial transactions.

Businesses that haven’t yet completed the transition to ISO 20022 should become familiar with the requirements and technical changes early on to avoid any complications in payment transactions. Stripe Payments can help process payments based on the ISO 20022 standard. Using Payments, businesses can accept payments worldwide and offer their customers locally preferred payment methods while complying with regulatory requirements. This improves the efficiency and automation of national and international payment transactions.

The ISO 20022 transition schedule

According to SWIFT, financial institutions have until November 2025 to migrate to ISO 20022 for cross-border interbank payments.

The conversion will initially only affect MTs for payment instructions that enable end-to-end interoperability between financial institutions and payment infrastructures. For example, the message types MT102 and MT201 will be removed from SWIFT’s Financial Information Network (FIN) service on 22 November 2025. Other MTs can initially be used beyond the deadline. However, extended technical validations will apply, and using them will incur additional fees.

The timeline for the further transition away from MT formats in SWIFT processes depends on a universal case manager product that will be introduced by the organisation. It is intended to replace all previous MT formats and make standardised ISO 20022 messages available via an application programming interface (API) or a user interface. SWIFT plans to make the new system available to a small group of users in 2025 and then to everyone in 2026. Currently, the idea is to discontinue using the old MT formats for the exceptions and investments processes in November 2026.

According to SWIFT, banks can require their corporate customers to be ISO 20022 compliant starting in 2025. Individual financial institutions can stop supporting individual MT formats for businesses at their discretion. However, businesses are not legally obliged to switch to ISO 20022, as the ISO, SWIFT, and other messaging networks do not have the relevant legal authority. Accordingly, the use of ISO 20022 is essentially voluntary for businesses.

However, the format will likely become the standard because of its many advantages over the older MT formats. Therefore, transition is strongly recommended. Businesses that do not rely on ISO 20022 will only be able to conduct financial transactions via established messaging networks to a limited extent in the future and – eventually – not at all.

The advantages of ISO 20022 for German businesses

The transition to the ISO 20022 format involves considerable time, resources, and costs for German businesses. However, there are several advantages. Here is an overview of the key benefits:

Standardisation

Standardising processes is a continuous challenge for businesses, especially when it comes to making data more uniform across different regional offices. One key benefit of ISO 20022 is improved interoperability: the new standard improves cross-border payments and minimises data loss. With ISO 20022, transactions with countries outside of Europe work just as easily and smoothly as transactions within Germany.

Standardising the message format also involves expanding the message character set. Compared to older MT formats, the longer character set offers more space for non-Latin alphabets, such as Chinese, Russian, and Greek.

Transparency

The ISO 20022 format improves the transparency and traceability of payments by enabling the more precise, structured transmission of transaction data. Businesses can reconcile payments in near real time, allowing them to better monitor cash flow. The increased transparency also allows for more accurate forecasts and more informed business decisions.

Increased efficiency

ISO 20022 enables improved automation and faster payment processing and reconciliation through more detailed payment data. This increases accounting efficiency and saves time. In addition, it will relieve the burden on information technology (IT) departments. Before ISO 20022, they were often busy resolving inconsistencies caused by different formats and infrastructures.

Long-term cost savings

Businesses can save money in the long term because ISO 20022 can increase efficiency and reduce susceptibility to errors. Above all, the ability to replace labour-intensive manual processes with automation can significantly reduce operating costs. However, it should be noted that the transition to ISO 20022 initially involves expense.

Compliance

The ISO 20022 XML format can easily be integrated into almost any payment system and market infrastructure worldwide. This makes it easier to comply with regulatory requirements. In addition, structured data transmission means better analysis options and a higher level of security. Therefore, the transition to ISO 20022 can help simplify fraud prevention for businesses.

Banks can also benefit with compliance. Given the rapidly changing risks in the financial sector, regulatory reporting requirements also change frequently. ISO 20022 makes it easier for banks to meet these requirements. Compliance departments benefit from well-structured data because they can quickly and easily get an overview of transactions.

Challenges for businesses when switching to ISO 20022

The transition to ISO 20022 presents German businesses with several challenges:

• High initial investment: Businesses must adapt their existing payment systems and IT infrastructures to the ISO 20022 standard. The transition to the new format usually requires high investment in software and hardware, as well as the expense of employee training.

• Lack of expertise: For many German businesses, ISO 20022 is a complex standard that is relatively new and challenging when it comes to content and technology. To understand and use the format effectively, specific expertise is required. This can be learned in training courses offered by IT and finance departments, among other ways.

• Integration into existing processes: The transition to ISO 20022 requires strict integration into the business’s internal processes – especially accounting and cash management. This integration can be complex and time-consuming.

• Difficult transition phase: During the transition from old formats to ISO 20022, businesses must manage a transition phase. Since both old and new formats can be used, the probability of errors and misunderstandings is high. Businesses must prepare to avoid these risks or handle them effectively.

• Coordination with third parties: Since ISO 20022 is being standardised globally, businesses must ensure their external partners have switched to the new standard. A lack of synchronisation with third parties could lead to complications with payment transactions.

How businesses can prepare for the ISO 20022 transition

The transition to the ISO 20022 format requires thorough planning and implementation in stages. Businesses in Germany should take the following steps:

Analyse current processes and systems

First, businesses should analyse their existing payment, reporting, and communication systems. It is important to find out which areas will be affected by the change. This includes identifying current MT formats and their ISO 20022 equivalents.

Develop a migration strategy

Businesses must then develop a migration strategy. This should include developing a clear timeline, choosing between a gradual or complete transition, and allocating responsibilities.

Adapt IT infrastructure

Businesses must update or replace their systems to support ISO 20022. They must ensure compatibility with banks and business partners. This includes, among other things, implementing suitable interfaces for message exchanges.

Train employees

Employees should be prepared for the new messaging formats through targeted training – especially in the areas of finance, IT, and compliance. Businesses should discuss the advantages of the new format to clarify the significance of the change and the impact on existing processes.

Test and transition

A comprehensive testing phase is important before the final switchover. Businesses should set up a testing environment to review the new message formats, conduct end-to-end tests with banks and partners, and resolve potential errors at an early stage. Productive use should only take place after a successful test phase.

Go live and fine tune

Even after going live, continuous monitoring is important to make sure the system is optimally functional.