EP997: Why banks cannot afford to rely on ISO 20022 translation tools

Nick Fernando, Co-founder & Director, Aqua Global Solutions

The Swift ISO 20022 deadline of 22 November 2025 is now past history. Isn’t it? Well, it appears not, with many banks continuing to rely on translation tools to bridge legacy systems. Yet stopgap measures come at a cost. Nick Fernando, Co-founder and Director at Aqua Global Solutions, warns that translation tools won’t cut it in the long run. Banks that are ISO 20022 native stand to gain far more than compliance – from faster straight-through processing to fewer manual errors and richer data insights.

Transcript

SPEAKER_01 0:00

I'm Robin Hamler of IBS Intelligence. You're listening to the IBSI Views podcast. With me today, Nick Fernando, co-founder and director at Aqua Global Solutions. Our topic, the SWIFT ISO 2022 deadline. So it's all over bar the shouting. It's all done and dusted. Or is it? I think perhaps it probably isn't. Nick, what's your opinion?

SPEAKER_00 0:25

I would say bizarrely, we've been, through our product sets, been maintaining the SWIFT standards for a number of clients around the globe for very, very many years. It was incredibly quiet. So we had very little dropout in terms of problems that were coming through. And that doesn't necessarily mean that everybody has adopted the full standards. I think it was testimony to the fact that everybody took this transition very, very seriously. So if we want to have a quick overview of what ITO 2022 is really about, I mean it was created as a standard in 2004, so it's been around for over 20 years. And SWIFT was given the uh job of being the registration authority to literally control those standards. SWIFT, as part of the Single European Payment Area Scheme in January 2008, introduced the standard into, if you like, the Swift network. And it really wasn't until March 2023 that Swift announced that it was going to deprecate the existing FIN format messages and replace them lock, stock, and barrel, with the MX equivalents. So this meant that the entire marketplace had to get very, very serious about what it was doing. Now, the months leading up to the transition period hitting, if you looked at the statistics that were being produced by Swift, it was fairly obvious that a large proportion of the market was not producing the MX messages. So what this really leads us to believe is that a lot of clients relied on things like translation tools to actually prepare themselves and make sure that their institutions were, if you like, ready for that end of coexistence. And I think there could be lots of reasons as to why those institutions chose translation rather than a full native generation of MX messages.

SPEAKER_01 2:34

One word springs to mind, cost.

SPEAKER_00 2:37

Yes, I would say cost certainly for some of well, certainly some of our customers was an issue. I think if you think about a broad cross-section of customers, they're either going to have their own internal systems, but the vast majority of them will have core systems that are supplied and maintained by third-party providers. If you have a very, very, very, very popular uh core system and that core system vendor is very proactive and can provide you with the upgrades, most core system upgrades are not measured in days or weeks, they're measured in months. And something like this particular change can be you know involve months and months of testing. So even if a third-party vendor was geared up towards providing the upgrades, one of the biggest problems was actually getting consultants in who could actually help a bank install those changes and start testing. So that's one you know reason why people might not have adopted a full native approach and went for translation. We also had instances where one of our customers identified that they wanted to rip and replace their existing messaging solution. Rather than making a decision early, they made a decision within a couple of months of coexistence ending, which meant that they had no window of opportunity to adopt the new system. Um, it would have been too risky. There would just be no time to test every facet of what they wanted to do. And obviously, things like translation tools, you know, give an institution a safety net. So they work, but they are very, very, very short-term measures. And really, all you're doing by adopting a translation is kicking the can around down the road a few yards. And um, as Swift have already announced, that things like the uh uh granular addresses are going to be mandated in in the next um year or so. So almost immediately you can't use a translation tool if you want to um format those messages in an adequate way.

SPEAKER_01 4:59

So is it going to be bonanza time for the consultants then?

SPEAKER_00 5:03

To certainly stay it it it possibly will be. Why is the standard there? The standard is there because the industry that's complaining about it wanted it. Now, if we kind of read between the lines of that one, it's the big players, it's the really big institutions that have the economies of scale that are doing a lot of things manually. To them, if they had far greater, far greater uh sets of information that can come through on messages, their levels of automation, the amount of manual processing that they do is you know greatly, greatly affected. And I I would say it is bonanza time for consultants, but I think the way that the uh community should look at it is it allows people to do things in a much more effective way. They have far richer information which allows them to do more automation, so things like AML, sanctions checking, etc., can be more precise. Um, exceptions and investigations will take less manual effort at organizations. So I would say you need to invest a fair bit of cash now to be compliant, but the long-term scenario is year on year, you should be saving money because you'll have the benefits of the automation.

SPEAKER_01 6:27

Well, I was gonna say there's more to this than compliance because you have faster straight-through processing, fewer manual errors, richer data insights, all of which actually could make you money as opposed to just complying with rules.

SPEAKER_00 6:44

Yeah, I I would totally agree with that. So the thing is, is um if you look at all of the initiatives, some of which you've you've you've mentioned around the globe, they're all adopting uh this particular standard, you know, and it's rapidly become the lingua franca of payments exchange worldwide. So if you have one set of information that that you can generate that can be consumed by lots of different schemes with very little modification, that's going to drive down costs, it's going to improve efficiencies. So I think that you know, in general, there are massive benefits to be had. And although the banks will be paying the bill for adopting them, I think as the years roll by they they will be getting the benefit of far reduced costs.

SPEAKER_01 7:35

Well, the bottom line is the clock is ticking on translation tools for those people who are still using translation tools. And from what you've been saying, it seems that a significant proportion of institutions are still using translation tools, they won't be able to for much longer. The time is now to get this sorted out.

SPEAKER_00 7:56

Absolutely. And I think with that, if you are going to modernize um your infrastructure, if you are going to look for solution providers, if you don't want to do this in-house, and I think most people will be looking for solution providers because the economies' scales mean it's going to be a lot cheaper for them long term. I think the service that they'll be offering to their customers, the amount of uh exceptions process processing that they're going to have to deal with is going to drop dramatically. It's a win-win for everybody, really.

SPEAKER_01 8:31

And if we look at it from the other side of the coin, institutions that do not do this will not stay in business because they will not be able to compete.

SPEAKER_00 8:42

I would say that's probably um correct. Um I was talking to one of our customers that's adopted the ISO automation, and he was saying that their plans are to you know scale up their business. So the revenues that they're going to be generating will double and triple in the in the um next couple of years. And the cost to them is practically zero because they've got the automation tools there that do all the heavy lifting, do all of the compliance checks. So it allows people to scale up um you know very, very effectively. If you don't invest in the automation and you're doing everything manually, and let's face it, these ISO matches are horrendous things to read if you're a human. They're wonderful things to consume if you're uh you know a machine, because they're they're they're designed to be consumed by a machine. If you don't automate, then the cost of your processing is going to be very, very, very expensive. And if that filters down to your customer base, then as with most um uh industries, if if you become a slightly uncompetitive or don't offer um the services that other people do, your business will dwindle. And you you may may well wither and die as part of that.

SPEAKER_01 9:59

A stark warning from Nick Fernando, co founder and director at Aqua Global Solutions. Thank you very much.

SPEAKER_00 10:07

Thank you very much, Robin.