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By Robert Turner, Senior Vice President and General Manager of U.S. Financial Services at Kyndryl
The way that U.S. financial institutions process payments has changed dramatically over the last few years. These changes have been in response to customer demands for better onboarding and service experiences, hyper-personalized products, and competitive pricing and offers.
Real-time payment capabilities are in particularly high demand. But according to the 2024 Kyndryl Readiness Report, just 5% of financial leaders are confident in their organization’s ability to handle real-time payments today, and only 20% are optimistic about their ability to do so within the next two years.
That’s problematic because the deadline for implementing the new International Organization for Standardization (ISO) directive on interbank communication is July 2025.
The ISO 20022 mandate includes Fedwire payments — the electronic funds transfer system operated by the Federal Reserve — and many U.S. banks are not ready. The goal of the regulation is to encourage the use of a common messaging platform for real-time and other types of payments, foreign exchange and other financial services transactions.
Systems that are compliant with ISO 20022 will be able to transmit richer and more structured data — allowing banks to improve back-office operations, protect themselves better from fraud, and reduce reconciliation challenges such as timing differences, errors and omissions, unrecorded transactions and manual processing issues. While larger banks have made considerable progress in preparing for the transition, smaller regional banks and credit unions haven’t kept pace.
Financial institutions of all sizes must modernize their IT estates to ensure a smooth transition to the new standard and avoid disrupting critical payment services. Some banks may opt for surface-level adjustments to meet the compliance deadline, while others will use the need for compliance as a catalyst for overall systems modernization. The latter approach could give forward-thinking institutions competitive advantages, including the ability to offer the innovative services their customers demand, and to respond to and recover from evolving cyber threats.
How modern a bank’s current IT systems are will determine the complexity and cost of migration to ISO 20022. And the fact that many institutions across the industry have been slow to modernize outdated systems could inhibit access to new opportunities. However, the investments will be worth it for institutions ready to compete in a more efficient and innovative global financial services ecosystem.
Learn more about Kyndryl’s Banking and Financial Markets services.
