March 2023 will mark the start of a new era of data messaging between banks. From November 2025, banks will only send cross-border messages in the new XML-based “MX”-format. Post the migration, the ISO 20022 standard will have emerged as the common language for exchanging electronic messages, allowing banks and their clients to exchange rich, structured data. All banks and clearing and settlement systems will have shifted to the new standard. This shift will offer major benefits. The migration may also require efforts to adjust in-house operations. Key elements are unique transaction identifiers and structured client address data. Key benefits for corporates are efficient reconciliation, enhanced invoice information at scale, and fewer manual processes to reduce DSO and improve working capital.

Richard Fiedler works at Rabobank’s ISO standards desk. We interviewed Richard to gain insight into the status of awareness among corporates and their TMS-suppliers. All parties acknowledge the crucial role of perfect messaging interfaces. Any failure would lead to failed payments. The risk of failing payments has made both corporates, their treasurers, and their TMS system suppliers very reluctant. It is important to note that MX-message between banks will become mandatory for banks, but not for corporates, who can continue to send messages in the existing MT-format to banks. That has raised the question of why corporates should invest in the migration.

Richard told us that several large TMS suppliers have become more active in preparing their software and in talking to their clients about the pending migration. These investments will be substantial. Corporations are expected to share costs via migration programs. At this stage, the benefits of migrating to MX-format messaging are unclear. Major industry participants must be able to justify the migration. What are the benefits for treasurers, their banks, and the system suppliers? Trust in the current MT-format is high. Payments are done without hiccups, and message formats allow for payment reconciliation, accounting, and auditing purposes. Richard pointed out that the MX-format will be more robust, offer a higher level of message standardization, and better validation of payment flows. Corporates and their system suppliers will have to put in an effort thought to reap the benefits. Richard notices that several major TMS-suppliers are already offering basic capabilities (pain.001).

Corporate treasurers receive most information from their consultants and TMS-suppliers. The FD (Het Financieele Dagblad) is the general source of information on the subject. Banks are requested to offer support when treasurers and system consultants prepare migration efforts. Often, a bank’s transaction banker and the implementation manager will act.

For now, most treasurers will most likely stay on MT-format. The advantages of the MX-format are unclear and must be clarified to all players to highlight the benefits of the new format. Richard expects corporates to benefit from two innovations: “Track & Trace”, the ability to follow a payment as it is processed via correspondent banks to the treasurer’s debtor, and “Structured Data”, the ability to deploy more, and more accurate data in a company’s Treasury, but also other departments.

If Richard were a corporate treasurer, he would take a four-step approach to prepare for the inevitable ISO 20022 migration:

1. Collect relevant information from SWIFT, consultants, system suppliers or banks
2. Develop a generic understanding of MX-format’s advantages
3. Develop a strategy for a beneficial company-specific roll-out
4. Prepare for the technical migration and the deployment of structured data

Richard expects treasurers to demand technological perfection from its TMS-suppliers and banks before taking any next step forward. Treasurers will want to know if their banks can process MT-format messages effortlessly and if their TMS-system is in perfect synchronization with the banks’ systems. Until then, corporate treasurers will most likely continue to work in MT-format.

Treasurers will demand key TMS functionality, payment processing, and dashboard functionality to work well. If executed properly by the TMS-supplier, a treasurer can migrate effortlessly. A treasurer could then focus on the innovative advantages offered by the new MX-format: Payment traceability and the deployment of rich and structured data.

Richards expects the global corporate Treasury community to change from a non-committal attitude to full attention once an influential regulator starts demanding companies, banks, and financial authorities to report transactions that include full sets of structured data about the transaction, the payment, banks involved, and both the debtor and the creditor. Enforcing such data sets, and ultimately blocking payments would change the attitude towards the ISO 20022 completely.

Up till now, no TMS-supplier has shown more proactive behaviour than others. This raises the question if competitors observe competitive advantages or regulatory disadvantages that could either give room to win market share via superior services, or be blocked out of the TMS market altogether.

Strikingly, Richard pointed out that XML-messaging as such is nothing new to the banking industry because it has been in use in the SEPA domain ever since 2009. Deployment of ISO 20022 messaging has been done before. There is no reason to believe that it can’t be done again, even if the challenge is enormous. After all, thousands of banks and their corporate clients will have to migrate.