The Clearing House Likens ISO 20022 Implementation Delay to ‘Global Choreography’

A delay, but no setback.

Richard Dzina, senior vice president of product development for CHIPS at The Clearing House, told PYMNTS the recent rescheduling by the largest private sector clearing and settlement system to the new ISO 20022 standard is simply a nod to what he said is a “global choreography” taking place between far-flung payments networks. And once the standard is fully adopted, he said, international payments made in U.S. dollars will be more efficient and transparent.

As had been reported, CHIPS has pushed off the implementation to April 2024 from November 2023. Dzina said the new timeline would ensure the CHIPS migration takes place after other banks have completed their conversions in other jurisdictions.

“There are benefits and challenge to being one of the last market infrastructures” to make the migration, said Dzina. Among the benefits: observing what happens with other ISO 20022 conversions, including TARGET2 and SWIFT in March of this year and CHAPS in June 2023.

A bit of background is in order: CHIPS is the private sector compliment to the Fedwire Fund service that is offered by the Federal Reserve Bank, that has also has a liquidity savings mechanism attached to it.

And as Dzina further explained, CHIPS settles $1.8 trillion (95% of which is the USD part of a transaction that begins or ends in a country outside the U.S.) across 600,00 transfers on a daily basis.

“CHIPS is an anchor element of the nation’s financial system,” he said.

The ISO 2022 Advantages

The messaging formats, he said, “offer tremendous value to financial institutions and end users in enhancing efficiency in straight-through processing, in offering end users enriched data content that will be very valuable with respect to their internal processing.” The standardized messaging, he said, also will be valuable for compliance and sanctions screening.

By way of illustration, he offered up the example of a global enterprise that currently has a large volume of cross-border transfers that, collectively, traverse a number of currencies, spanning the dollar, the euro, the yen. On each “leg” of the journey, each of those regional systems has legacy message formats that need to be “translated” across the financial system to process those high-value payments. The ISO standard, he said, eliminates the need for translation and cuts down on the number of intermediaries that have to “touch” the transaction prior to final settlement.

“This will bring tremendous efficiency into the process,” he said, “and will cut down on risk.”

But before the benefits can be realized, the global banks must have committed their resources to the ISO implementations tied to the euro and then to sterling currencies — and then, ultimately, to dollar transactions. The banks themselves are grappling with resource constraints, and so “we cannot get a lot of ‘attention’ on the CHIPS dollar migrations,” Dzina explained, “until the other migrations are in the rearview mirror, so to speak, from these banks.” To that end, he said, it was in the best interests for the CHIPS migration to be pushed back as other jurisdiction experienced delays (SWIFT, for example, pushed back its implementation to this year).

“We effectively are reestablishing a one-year testing window in the bank test environment to ensure participant readiness,” he told PYMNTS. Once the CHIPS participants are indeed ready to participate, they must submit a formal attestation from both a product representative and a technology representative that they are indeed prepared.

Looking ahead, he said that “the migration to ISO is an important strategic and policy interest supporting the dollar as a global reserve and settlement currency.” And over time, he said, the embrace of the ISO payment messaging format will help promote cross-border and cross-currency efficiencies. And CHIPS, he added, is working to extend its operating hours to an eventual 24/7 status.

He cautioned against complacency after ISO 20022 implementation is achieved.

“We should not delude ourselves into thinking that once all these infrastructures migrate … that the ISO ‘narrative’ has been accomplished and we can check it off,” he said. “The innovation that collectively the industry is likely to experience around a common message suite is likely to be very powerful and lead us to advantages that we can’t even realize on this side of the migration.”