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Update on the payment operations migration to XML (2022-2025)
Executive Education / 21 February 2022
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Lecturer
Axel Jäger ist seit 1995 Zahlungsverkehr- und Cash Management Spezialist, sowie Dozent im Zertifikatsstudiengang Certified Payment Professional.

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After all the hard work involved in the last wave of migrations affecting payment operations and cash management, time is (once again) pressing! Banks in particular must now ensure that their IT environments are prepared for the impending “big bang” so they will be able to continue to represent all payment operations after November 2022. The upcoming changes primarily affect interbank clearing via TARGET2 and messages on cross-border payment operations exchanged via SWIFT.

For payment operations, the TARGET2/T2S consolidation project takes top priority

 In an article on (non-cash) payment systems and TARGET2/T2S consolidation, Deutsche Bundesbank writes:

“With regard to the German market, the project affects around 1,200 institutions. The changes associated with the consolidation should not be underestimated. They include (amongst others):

  • the introduction of ISO 20022-compliant messages across the board, instead of the MT messages currently used in TARGET2;
  • the establishment of a network-agnostic connection to TARGET Services via Eurosystem-licensed network service providers and the associated switch from Y-shape to V-shape;
  • fundamental change in the account structure due to the separation of traditional high-value payments from central bank operations and the associated splitting of TARGET2 into the central liquidity management component and the RTGS settlement service.

In addition to the modifications in terms of connecting to TARGET Services, the consolidation will also have a considerable impact on institutions’ internal processes.”

If individual financial institutions fail to complete the migration in good time, this could impact:

  1. their participation in high-value payments using central bank money,
  2. their ability to meet the minimum reserve requirement, and
  3. their participation in the settlement of monetary policy operations.

Implications for bank customers

The situation is rather less critical in the SWIFT environment. In this case, the service provider (SWIFT) will probably make a conversion solution available for a transitional period. In other words, if a financial institution continues to use MT messaging for an interim period, SWIFT will “translate” these messages into an ISO 20022-compliant format. But even institutions intending to use MT messaging for the time being should ensure that they are ready for the impending ISO 20022 transition!

And what does all this mean for bank customers? As already discussed in our blog post on The next wave – migrations affecting payment operations and cash management, (corporate) customers will also need to make adjustments. As things stand, it appears that they will have to migrate from the German DTAZV cross-border payments standard to ISO 20022 between now and 2025. In the case of TARGET2 payments – colloquially known as express payments –, the German Banking Industry Committee (Deutsche Kreditwirtschaft or DK) sent out the right signals several years ago by phasing out the DTE (data carrier urgent payment) system. This is one area where customers will not need to take action.

To paraphrase Steve Jobs: “Just one more thing…”

The popular electronic bank statement in SWIFT MT940 format will also be retired over the next few years. At the time of writing, it appears that it is due to be replaced by the equivalent ISO 20022 XML formats (camt) in November 2025. This change will affect all customers who are actively involved in “electronic banking”, so it would be sensible not to delay format migration until the very last minute. Adjustments will undoubtedly have to be made to financial accounting and treasury systems, and these will require in-depth testing.

In short: Payment operations have become a top priority for the banking and retail industries. Consequently, companies in the industrial and financial sectors must regularly update their knowledge to take account of the latest developments and future trends.

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