After years of discussion about the new messaging protocol, ISO 20022 is now an inevitability. Though there are substantial benefits to adopting the protocol, many financial institutions—especially in the mid-market tier—are still unprepared to meet compliance by the March 10 deadline.

In a recent Payments Journal podcast, Mihail Duta, Director of Solution Consulting and Transaction Banking at Finastra, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the obstacles to ISO 20022 adoption, the advantages the protocol provides, and the opportunities it uncovers for mid-market financial institutions.

The shift to ISO 20022 will be like learning a new language for many banks and credit unions. Some institutions may attempt to bridge the transition from the FAIM format by building translators, but there are challenges with that solution moving forward. Many translators have limitations that could lead to data truncation, and incomplete or inaccurate data could potentially cause payment processing failures. 

Another issue for these banks will be ensuring that all their interfaces and solutions beyond payments processing are ISO 20022 compliant. Across-the-board standardization will be especially critical when sending cross-border payments.

U.S. instant payment rails FedNow and RTP were built on the standard, and SWIFT cross-border payments will move to ISO 20022 in November 2025. This means the institutions that aren’t fully leveraging the protocol will be at a competitive disadvantage.

“ISO 20022 is no longer a nice-to-have,” Duta said. “It’s the only way you’re going to be able to process Fedwire transactions come March 10, so you must be compliant.”

As Duta pointed out, standardization facilitates seamless communication and interoperability between banks and across borders, with valid message instances to ensure compliance with the standard.

Though the looming deadline may be top of mind for many institutions, supporting the standard goes beyond mere compliance. The new protocol offers substantial benefits that mid-tier financial institutions can leverage to enhance their services and identify new revenue streams.

“Given the richness of data that comes with the ISO 20022 format, more fields are available to transactions, compared to what we have today” Duta said. “We’re moving from three lines of address to 24 lines of address, to give just one example.

“Structured data can be fed into AI capabilities or machine learning, improving the detection of complex anti-money laundering scenarios, but also improving operational efficiency with higher STP rates,” he said.

The data from ISO 20022 transactions can also drive significant improvements in fraud management. Enhanced data quality and consistency allow for more sophisticated fraud detection algorithms, potentially reducing fraud losses.

The ISO 20022 standard also improves payments processing by minimizing manual interventions and associated costs. Taken together, the protocol’s benefits create a faster, more efficient, robust payments engine, offering a powerful competitive differentiator.

“We’re still talking about how we meet compliance but lost in that discussion is the idea that this impacts everybody,” Wester said. “That’s one of the things about the payment space—we are all interconnected. Mid-market institutions are going to need to maintain or gain integration with the global banks and payment networks. For mid-market financial institutions, this is about new products and services being offered to customers and it’s about being competitive and remaining competitive.”

The adoption of ISO 20022 can mean much more than efficiency gains. Supporting the protocol can be the first step toward creating a fully modernized payments ecosystem. An institution that supports the standard will be prepared to meet customer demands for instant and cross-border payments using a single system.

“Especially when you’re talking about commercial or corporate clients for financial institutions, it’s amazing how quickly they can go from a nice-to-have to a must-have,” Wester said. “Now they will expect this product or service from their financial institution, to help with reconciliation, to help with operational efficiency, or to help with fraud detection. All those things are why this discussion is so imperative right now.”

Customer expectations will continue to shift as the use cases for ISO 20022 are developed, and the full capabilities of the messaging standard begin to come into focus.

“The reality is that the expectation and the ask from your customers is going to evolve now that ISO 20022 is available to them and it’s becoming popular,” Duta said. “You’re going to see your customers asking a mid-market bank if they can send an ISO-formatted file with the expectation that the bank will take the file and process it through ACH. This is another element to think about that may not come to mind right away, but there are other implications to the ISO format beyond what’s directly in front of us.”

These implications will impact the entirety of an institution’s ecosystem because platforms like RTP and FedNow interact with systems outside of a bank’s payments solution. It means ISO 20022 adoption will affect everything from a bank’s fraud solution to its core solution.

For example, when a bank posts a transaction to their core system, they will receive additional data that provides clearer insights into the purpose of the payment—something that wasn’t always evident in the previous format. Beyond improving operational efficiencies, this data offers valuable details, such as purpose codes, and can pay dividends in the long run.

“This is a part of a larger evolution of payments that we’ve seen over the last decade or so of digital transformation leading to payment modernization,” Wester said. “As I’m fond of saying, it doesn’t stop here. We know that payments is going to move. We know that it can continue to evolve. How are we going to use AI for next-generation solutions for fraud mitigation? What new payment rails are going to be coming in?”

The first and foremost concern for many mid-market financial institutions may be compliance, but ISO 20022 support is a must-have for banks and credit unions who are looking to stay competitive. It means the March compliance date is just the beginning of the road.

“Financial institutions should remain engaged with the way that these use cases and applications are developing and evolving,” Wester said. “It may sound strange to say, ‘Stay engaged with a data standard,’ but we are just beginning to see the ways in which ISO 20022 is going to be used, the ways it’s going to be implemented, and the ways it’s going to be integrated into other products and services. Stay engaged with the way this is evolving, because I think this is going to be a part of a bigger evolution.”

Because of the complexities of ISO 20022 compliance, many mid-market financial institutions will be searching for solutions to help them both reach compliance and take advantage of the protocol’s opportunities. Solutions like Finastra’s Payments To Go can offer access to multiple rails by proxy—in a platform that is ISO 20022-native. Payments To Go is built on Microsoft Azure technology, allowing it to fully leverage the benefits of these advanced technologies. The key advantage of Payments To Go lies in its support for ISO 20022, which enhances interoperability. Combined with open APIs, this has simplified pre-integration with the fintech ecosystem, enabling the delivery of comprehensive solutions that include compliance, AML, and fraud services.

“It’s a lot easier to adopt ISO when you have an application that’s ISO native, as opposed to an application that basically has to make significant changes to be ISO compliant,” Duta said. “There is a difference between an ISO 20022 native application and an ISO 20022 compliant application. Behind the scenes, to take advantage of the richness of this data, you need an ISO-native application.”