Navigating real-world challenges with ISO 20022

In the previous blog, we touched on the importance of ISO 20022, why it matters and what’s driving global adoption. But understanding its value is only the first step. The real challenge lies in how to actually get there.

For many financial institutions, this isn’t just a routine system upgrade. It’s a foundational shift in how financial messages are structured, interpreted, and acted on. ISO 20022 offers a more detailed and consistent way of exchanging payment data, from opening doors for improved reconciliation to fraud prevention due to standardised messaging and information exchange. However, making it work across the tangled web of legacy systems, regional variations, and resource constraints is no small task.

Let’s take a closer look at some of the roadblocks financial institutions are facing and why this migration needs more than just good intentions.

Challenges of migration

A large number of banks are still running infrastructures that were developed decades ago. These systems were never meant to handle the volume, complexity, or structure of ISO 20022 messages. Unlike older SWIFT MT formats, which were limited in the amount and type of data they could carry, ISO 20022 introduces far richer, structured information. That’s great for downstream processes, but it’s not always easy to plug into existing setups.

According to a 2024 McKinsey report, many incumbent financial institutions continue to operate on legacy core banking systems that are not only costly to maintain but also hinder adaptability. These outdated systems often consume up to 70% of IT capacity just for maintenance, leaving limited resources for strategic initiatives.

To avoid full rip-and-replace scenarios, banks often turn to middleware or message converters. But these quick fixes come with their own issues: integration delays, performance bottlenecks, and increased maintenance. This is especially true during the coexistence phase when institutions need to support both MT and MX messages in parallel.

The expertise gap, it’s more than just a training issue

Getting ISO 20022 right requires more than updating a few lines of code. It demands a deep understanding of how structured data should be used, and how it will flow through everything from compliance checks to liquidity management systems.

As highlighted in a recent WSJ–Deloitte article, one of the less visible, but increasingly critical challenges of adopting new payment standards like ISO 20022 is workforce readiness. Teams with long-standing expertise in formats such as ISO 8583 or SWIFT MT often find that those skill sets don’t translate directly.

The transition requires a different level of familiarity with structured data, validation logic, and messaging flows, particularly in areas like fraud monitoring, customer operations, and risk oversight. Without focused training, even small missteps in interpretation or implementation can carry operational and regulatory consequences.

Even where banks invest in training or hire third-party support, the learning curve can be steep, and internalising best practices takes time, something many institutions don’t have in abundance.

Variations in implementation

Although ISO 20022 is described as a universal standard, its real-world application tells a different story. Central banks and payment infrastructures around the world have introduced their own interpretations to meet local regulatory or operational needs. The result is a fragmented landscape that complicates efforts to streamline financial messaging.

Deutsche Bank has noted that while SWIFT’s CBPR+ guidelines were developed to bring consistency to cross-border payments, regional systems like Europe’s TARGET2 and Singapore’s FAST have implemented customised versions of the standard. This divergence means banks operating internationally must adapt to multiple formats, often relying on mapping layers or translation tools to keep systems aligned.

Visa has also flagged this issue, highlighting that inconsistent adoption creates barriers to interoperability. In practice, financial institutions are required to build separate integration points for each market infrastructure they connect to. These connections are costly to maintain and carry a higher risk of miscommunication, especially when messages need to be translated between differing versions of ISO 20022.

Without greater alignment, the burden of managing these inconsistencies falls on the banks, adding technical debt, slowing progress, and diluting many of the intended benefits of a common standard.

Operational risks and the cost of getting it wrong

A key concern for many financial institutions is the potential fallout from errors during the migration process.

If an ISO 20022 message is structured incorrectly, it may be rejected outright, leading to delayed settlements, compliance issues, or even reputational damage. In high-value payments, particularly in correspondent banking, such setbacks can ripple quickly through the value chain. SWIFT itself has warned that, incorrectly formatted messages could lead to payment delays, misreporting, and regulatory non-compliance. This is especially risky in real-time environments, where every second matters and there’s little room to intervene once a transaction is in motion.

Adding to the challenge, many banks must manage this transition while continuing to process payments as usual, making testing, validation, and fallback planning critical.

Resource constraints

Like most major transformation projects, ISO 20022 comes with costs, technical, operational, and human. But it’s landing at a time when many banks are already dealing with tight budgets and competing digital priorities.

In a study by Accenture, it states that with many institutions juggling ongoing regulatory requirements, customer experience enhancements, and cybersecurity improvements, ISO 20022 can easily fall into the category of “important but delayed.”

This leads some institutions to take a “minimal compliance” approach, just enough to stay connected. But this short-term thinking can create problems later, especially when additional capabilities (like enriched analytics or real-time fraud checks) become essential. Retrofitting systems down the line tends to cost more and deliver less.

What’s next?

Meeting the ISO 20022 deadline is one thing, making the most of it - is another.

The standard opens up opportunities for improved automation, better customer experiences, and greater transparency. But to get there, banks need more than format conversion. They need infrastructure that supports smarter data handling, reduced operational friction, and long-term adaptability.

In our next post, we’ll explore how financial institutions can pick the right vendor for the migration. The path usually requires more than trained in-house team, yet not all of the technology partners who boast “ISO-ready” are able to satisfy the necessary requirements. We’ll look at vendor limitations and what differentiators the financial institutions should look at when searching for a right migration partner.

Learn more about ISO 20022 migration challenges and how to overcome those in our comprehensive Guide “Your ISO 20022 Migration 101: Steps and Strategies for banks”.