The adoption of ISO 20022 is well underway, especially within central banks and larger institutions. This International Organization for Standardization (ISO) format for electronic payment data interchange between FIs is heralded as the solution to boost efficiency, cut costs, and enhance transparency between organizations.

In a recent PaymentsJournal podcast, Laura Sullivan, Senior Product Manager at Form3, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, discussed how the implementation of ISO 20022 is affecting SWIFT, the benefits and barriers to adoption, and the state of organizational infrastructures that could inhibit the ISO standards from fully benefiting the organization.

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How ISO 20022 Is Affecting SWIFT

In March, SWIFT began the migration of its cross-border payments functionality onto ISO 20022. Under the auspices of ISO 20022, financial institutions will be able to modify the payment messages they send and receive through SWIFT from the message type (MT), which is a legacy format, to the new message type XML (MX) format. This new format not only holds more data but also is expected to increase interoperability between financial institutions.

Many instant payment schemes have already adopted the ISO 20022 standard, including real-time payments. Wire payment networks such as Fedwire, SWIFT, and Lynx have announced their plans to adopt these standards fully by the end of 2025.

Newer schemes have an easier time adopting ISO standards, according to Sullivan. However, when it comes to Fedwire and SWIFT, converting from an already existing format can prove more challenging.

She recounted what she learned at a recent conference and how banks that had been sending ISO messages enabled their core processing systems to send additional address information, which led to additional exceptions on the receiving banks’ sanction systems.

“A payment might have been flowing through for years successfully. Now, it suddenly had another line of address which had something that would trigger sanctions review,” Sullivan said. “So that was really interesting.”

The Benefits and Challenges of Embracing ISO 20022

One of the many improvements to ISO 20022 will include having structured addresses to improve the sanctions scanning scenario. With this improvement,