ISO 20022 is an open, international standard for financial messages between financial institutions, financial market infrastructures and companies. ISO 20022 payment messages contain richer, better-structured data than legacy messages. Adopting the standard can improve compliance processes and help protect against fraud. All financial institutions will be required to comply with ISO 20022 for cross-border payments by November 2025. But why should companies be concerned, and what do they need to consider when deciding whether to migrate? Corporates risk becoming silent victims of ISO 20022 migration if they fail to seize the opportunities it presents. Here’s why.

Making the transition will involve work

While legacy MT940 statements will not be discontinued for now, banks will be obliged to adopt newer formats like Camt.053.  Continuing to use outdated formats may become increasingly expensive, and whether it will be possible to do so over the long term is unclear. And is it in your organization’s best interests to cling to outdated formats?

Transitioning to Camt.053 will involve some work. For example, it will require companies to reconfigure their ERP, TMS and reconciliation tools to ensure they can interpret the new messaging format. Most ERPs and TMSs are equipped to deal with Camt.053, but companies will need to define how they process the data. For instance:

  • how should the ERP match bank transactions with accounting entries, like invoices, to post a new entry into the General Ledger?
  • how should the TMS reconcile cash forecasts with actual cash flows?
  • which cash flows should be tracked to enhance working capital reporting?

The answers to these questions are not pre-set by software vendors – they need to be determined by the treasury team.

Banks may not be willing to put up with old formats forever

Banks are investing in automation to process ISO 20022-compliant payment formats efficiently, but how long will they tolerate receiving incomplete or incorrect payment files from companies? Will they maintain extensive back-office teams to correct or enrich your files – and if they do, at what cost?

If migrating to ISO 20022 isn’t a priority for your organization today, consider:

  • the number and cost of rejected payments each month
  • the number and cost to your company of payments your banks have to manually correct.

Tracking these metrics can help you identify the tipping point at which it becomes vital to take action.

Migrating is a potentially lengthy process

If you’re considering migrating, it’s important to bear in mind that implementing changes takes time. Procurement teams are often extremely busy already, and onboarding suppliers can be a complex process. Addressing issues with missing payment data (such as address, invoice number, etc.) may require an agile, iterative approach involving several updates of supplier records.

You may also need to develop your ERP to prepare ISO 20022-compliant XML payment files. Limited consultant availability – especially during SAP’s S/4HANA migrations – could cause delays. Securing budget approvals and allocating resources to the migration might also conflict with other projects your company is undertaking.

The benefits of migrating

Is it worth it? We believe migrating represents a great opportunity for you to:

  • automate and enhance your reconciliation processes
  • improve your reporting on collections, payments and cash forecasts
  • optimize your working capital management
  • clean up your third-party database (clients & suppliers, for instance).

It may sound like a lot of work, but choosing not to transition would mean forfeiting opportunities to improve or develop capabilities such as direct cash flow forecasting, working capital analysis and / or cash conversion cycle monitoring.

What’s more, if you don’t transition you may face some difficult questions from your team about why reconciliation is still manual and not consistent with the objective to speed up the closing activities.

If you adopt the right approach, migrating could add considerable value for your company, and even turn compliance into a source of return on investment.

ISO 20022 migration – Redbridge is here to help

The choice is yours: will migration be a burden or an opportunity? If you’re looking for a trusted advisor to guide you through what the transition would involve, please get in touch.

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