Blog Post
Reconciling ISO 20022 Payments: Challenges and Solutions
The global banking industry has undergone its most significant linguistic shift in decades: the migration from SWIFT MT (text-based) messages to ISO 20022 MX (XML-based) messages. While this new standard promises richer data and better compliance, it has created a massive headache for back-office reconciliation teams. The "Coexistence Period" revealed that legacy systems struggle to ingest the complex, hierarchical data of an MX file. This guide explores the specific challenges of reconciling ISO 20022 payments and how to solve them.
The Core Challenge: Information Overload
An old SWIFT MT103 message was limited in size and structure. The new ISO 20022 (e.g., pacs.008) message can carry vastly more data, including ultimate debtor details, purpose codes, and structured remittance info.
The Truncation Problem: When a bank receives a rich MX message but processes it through a legacy Core Banking System designed for MT, data gets chopped off. The Core system might only store the first 35 characters of a name. When the reconciliation team tries to match this truncated record against the original payment instruction, the match fails.
Structured vs. Unstructured Data
In the old world, "Field 70" was a free-text dumping ground for invoice numbers. In ISO 20022, this data is structured into specific XML tags.
- Challenge: Traditional text-matching algorithms look for keywords in a single string. They don't know how to navigate an XML tree to find the `Strd` (Structured) tag nested inside `RmtInf` (Remittance Information).
- Opportunity: Once your software can parse these tags, reconciliation becomes 100% accurate because you are matching "Invoice Number" to "Invoice Number," not just guessing based on text similarity.
How Automated Reconciliation Solves This
To survive the ISO 20022 era, banks need reconciliation engines that are "XML-Native."
1. Native MX Parsing
Tools like Reconwizz do not try to convert MX messages back to MT (a process called "translation," which causes data loss). Instead, they ingest the full XML file natively. This ensures that every piece of data—from the 'Ultimate Creditor' to the 'Purpose Code'—is available for matching rules.
2. Intelligent Mapping
The system can be configured to understand that a payment reference might exist in the `EndToEndId` tag in the payment file but in the `Narrative` field in the ledger. By mapping these distinct fields intelligently, you can reduce breakage in Nostro accounts significantly.
3. Hybrid Matching (The Coexistence Fix)
During transition, you will receive both MT and MX messages. A modern platform handles both simultaneously, normalizing them into a single internal format so your operations team doesn't have to switch between screens.
Conclusion: Embrace the Data
ISO 20022 is not just a compliance burden; it is a data goldmine. By upgrading your reconciliation infrastructure to handle rich data, you don't just solve the matching problem—you gain insights into who is paying you and why. This better data leads to faster investigations and happier corporate clients.
For a broader look at how this impacts international settlements, read our guide on Nostro/Vostro Solutions.