The different ISO 20022 implementation challenges facing small and large banks

Financial services organisations across the world are currently gearing up to meet the mandated 2025 deadline for the adoption of ISO 20022. This transition heralds a significant overhaul of the current system. At its heart ISO 20022 aims to unify payment data language and structure worldwide and significantly boost the efficiency, interoperability and security of cross border payments.

Nonetheless, transitioning to the new ISO 20022 standard is not a simple task. What’s more, the migration poses differing challenges for small and large banks, each grappling with obstacles unique to their operational scales and capacities.

Challenges Faced by Small Banks: Limited Financial & Human Resource

Small banks face a steep climb in migrating to ISO 20022, primarily due to their limited resources. Financial constraints are a significant challenge; according to McKinsey, banks spend approximately 70% of their IT budget simply maintaining existing systems, often referred to as "run-the-bank" activities. This leaves a disproportionately smaller slice of the budget for large scale transformative projects like ISO 20022, which requires comprehensive system upgrades and extensive staff training.

Considering the budgetary constraints faced by small banks, a steadfast approach to quality is crucial, not only to ensure the effectiveness of the upgrades but also to optimise the allocation of resources. By integrating quality considerations into planning and implementation phases, small banks can minimise future disruptions or the need for costly revisions, thereby safeguarding budgets and maintaining day to day operations.

Smaller Operational Teams

The human resources available to small banks are typically fewer than those at their larger counterparts. Smaller institutions often employ smaller teams that may lack the capacity to manage large-scale transformations of this size. The need for expertise specific to ISO 20022 standards adds another layer of complexity, necessitating additional expenditure on training or hiring new personnel, which further strains limited budgets and could be difficult considering the current technology skills gap.

Dependency on Larger Institutions

Many small banks rely on larger institutions for certain key services, including transaction processing and compliance management. If larger organisations are slow to adopt ISO 20022, it can directly impact the banks that depend on them. This reliance can delay the entire migration process for small banks, affecting their operational efficiency and ability to conduct business smoothly in a changing regulatory environment.

Challenges Faced by Large Banks: Complex System Integration

Large banks typically have complex, multi-layered legacy systems spread across various global operations, making the integration of ISO 20022 a daunting task. The challenge lies in ensuring that all systems across different regions and departments are upgraded and harmonised to support the new messaging standard. This requires coordinated, comprehensive planning and significant investments in technology infrastructure, which can be time-consuming and costly. However, if quality is prioritised throughout this process, banks can ensure that these upgrades not only meet but exceed performance expectations and deliver a futureproof foundation for the evolution of this messaging system. This proactive approach also helps reduce the potential for future system failures or the need for additional costly adjustments after initial deployment meaning banks have better control of time and budgetary resource.

Extensive Change Management

Another significant challenge for large banks is the effective management of the change process. With vast numbers of employees spread across different regions, comprehensive and well-structured training programmes and workflow updates are essential to cater for such large-scale transformations to minimise operational disruptions and ensure everyone adjusts to the new processes and systems efficiently.

Regulatory Compliance on a Global Scale

Large banks operate across multiple jurisdictions, each with its own distinct regulatory environment. This diversity requires extensive foresight and meticulous planning to ensure successful compliance with ISO 20022. Moreover, the implementation of robust continuous monitoring systems is crucial to prevent any regulatory breaches that could lead to significant penalties for both individuals and the organisation as a whole. Such attention to detail is necessary to maintain compliance and uphold the integrity of the bank's operations in all regions where it conducts business. The challenge of adhering to diverse regulations on an international scale is a burden primarily borne by larger banks—a complexity that smaller banks may not have to contend with during their ISO 20022 implementation. 

Common Challenges Across Bank Sizes

Despite their differences in scale and resource, both small and large banks face a series of common challenges in migrating to ISO 20022. The technical and logistical difficulties of implementing such a complex transformation requires meticulous planning and execution. It is therefore crucial that all stakeholders, from executive to junior staff, fully understand and embrace these changes, requiring clear communication and extensive training at all levels.

 However, the data we have so far suggests progress has been slow, with only 18% of messages having migrated to the new standard, according to ey.com. This slow pace of adoption suggests the industry may be encountering difficulties in transitioning and emphasises the need for increased efforts across the board. Without significant advancements, banks of all sizes risk facing financial penalties or exclusion from the global payments system.

What’s more, a survey by Celent has revealed a concerning trend: almost a third of banks (28%) are unsure if they will meet the 2025 deadline. This statistic underscores the urgent need for banks to accelerate their transition efforts, however they must do so without compromising on quality. By leveraging Quality Engineering principles into their migration process, banks can mitigate risks associated with this critical transformation and facilitate a smoother adoption of ISO 20022 whilst limiting costly organisational disruptions. Such measures not only satisfy regulators but also ensure banks fully realise the benefits of a more standardised and efficient payments system. The journey ahead is complex, but with the right approach, all banks are capable of leveraging the benefits of ISO 20022 and establishing a solid foundation for the future evolution of cross border payments.

Contact Us

If you have any questions surrounding the ISO 20022 migration, or to discuss specific requirements regarding your transformation, please reach out to our team here or via email. We have unique experience working at the core of the RTGS renewal programme, and with other financial institutions, and are ready to support banks through this pivotal transition, and beyond.