Building a safety net for banks: the role of testing in the ISO 20022 shift
As the global banking sector is undergoing a significant digitalization, the digital transformation market within it is projected to reach $419.45 billion by 2034. What was once an industry built on paper documents has now turned into a complex web of digital infrastructure and real-time processing.
At the center of this change is ISO 20022 — an internationally recognized financial messaging standard that can become the universal language of payments. It unlocks new opportunities for automation, innovation, and cross-border connectivity.
Transition to this standard is a radical overhaul of how banks handle and exchange payment information. This transformation requires meticulous planning, implementation, and quality assurance support.
Lack of testing can expose institutions to operational risk, data loss, and regulatory non-compliance, undermining the objectives of ISO 20022.
Today, let’s delve into the essence of this vital standard, analyze probable challenges, and pinpoint the most essential QA activities helping banks ensure quality migration to ISO 20022.
The next generation of financial messaging
With the ongoing evolution of the global financial ecosystem, the regulations underpinning it must also advance it. For years, banks have relied on SWIFT MT messages for cross-border payments and communications, but they no longer can handle complex information required for modern financial operations, which decreases their productivity.
That’s why a new international standard for electronic data interchange emerged. With ISO 20022, financial bodies and their clients can interact more effectively, reducing the chance for errors and accelerating transaction speed.
Reliance on this standard allows banks to transfer richer, more detailed data that can include reference numbers, compliance details, and transaction intent, contributing to better decision-making. For instance, if cross-border transactions provide recipient details and payment instructions, their tracking and confirmation become simpler.
This standard also provides possibilities for incorporating compliance requirements into financial transactions, helping banks maintain financial security, prevent fraud, and prevent legal exposure.
For example, with ISO 20022, global money transfers from Australia to Canada can be processed in compliance with both countries’ AML regulations through a streamlined, automated process.
Moreover, banks can trim down operational expenses, as the standard’s automation reduces the need for manual handling and speeds up remittances. For instance, a customer can see their money arrive almost immediately, as ISO 20022 streamlines much of the verification and settlement work.
It’s planned that by the end of this year, this standard will become an obligatory global norm for all SWIFT cross-border payments, allowing for streamlined international transaction handling and a more structured data exchange across jurisdictions.
Common roadblocks within the ISO 20022 journey to be aware of
The transition to ISO 20022 marks one of the most significant transformations in the BFSI industry in recent decades. While its benefits are substantial, during migration, organizations may grapple with several challenges:
- Cybersecurity risks
Detailed payment data often contains confidential elements, underscoring the growing need for enhanced data privacy safeguards. Increased data management must also adhere to legal frameworks, such as GDPR or AML.
However, beyond these risks, proactive spotting of any probable vulnerabilities should remain key for banks. For instance, with the help of thorough security testing, a financial institution identified flaws in digital software that allowed brute-force retrieval of API access tokens and enabled denial-of-service exploits via manipulated HTTP requests.
- Issues with legacy software
Many banks still depend on outdated systems that don’t seamlessly support a modern standard, often requiring middleware or costly system adjustments to keep pace.
- Lack of seasoned experts
This intricate transformation process requires professional talent. Nurturing them can be time-consuming and costly, which is a serious problem, especially if the deadlines are tight.
- Geographical factor
While the standard aims to create a unified approach to financial messaging, different countries and financial institutions may adapt it to suit their local regulations or technical constraints, causing fragmentation and interoperability issues.
Considering these challenges and the fact that banks upgrade or redesign their systems to comply with new requirements, QA becomes a pivotal factor in validating message formats, ensuring data accuracy, and safeguarding against various issues.
Comprehensive QA support for banking software in the new realm
Let’s analyze what software testing activities can help financial organizations across the globe ensure alignment with the new standard, mitigate business risks, and deliver robust financial services regardless of the changing circumstances.
Modern payment messages are packed with personal, transactional, and regulatory information, increasing the role of security testing for shielding critical data from unauthorized access, preventing legal repercussions, and strengthening end-user loyalty.
QA engineers can run comprehensive penetration testing and vulnerability scanning to identify weaknesses in how messages are stored, processed, or transmitted, as well as prevent potential disruptions or data breaches that can be exploited by malicious intruders. This approach can enable early identification of problems jeopardizing confidential payment information or interfering with essential banking functions.
- Performance testing
Over two years, nine top UK banks experienced 33 days of IT disruptions, preventing access to funds for millions of people, the Treasury Committee states. Meanwhile, The Times reports that digital banking problems have doubled in four years. Such outages underscore the need for performance testing, especially as financial institutions shift to a newer standard involving larger, more complex messages and real-time payment processing.
To address these challenges, banks can bring in QA engineers to carry out various forms of performance testing, such as load, stress, spike, or benchmark verifications. They help evaluate how systems cope with normal traffic, react to unexpected surges, withstand extreme load conditions, and work in comparison to pre-migration indicators when transitioning to a new standard.
- Functional testing
As organizations move away from legacy messaging formats, functional testing serves as a key validation activity, confirming that new message types are technically sound, aligned with business rules, compatible with previous systems, and integrated smoothly throughout the entire payment process.
By creating positive and negative test scenarios as well as considering probable edge cases, QA engineers can check that ISO 20022 messages are properly received and processed, interpretation of both mandatory and optional fields is done in the right way, data is converted into appropriate internal formats, the entire transaction life cycle remains error-free and consistent, and more.
- Integration testing
The move to a new standard marks a substantial change for the financial industry, requiring adaptation across banks and related infrastructure. Integration testing is one more essential phase that checks whether systems inside the company and those of external partners communicate correctly using the new protocol.
With the help of experienced QA engineers, organizations from the BFSI sector can confirm that their systems operate cohesively and in alignment with the new norm, uphold regulatory compliance, and provide high precision in cross-bank messaging processes.
- Test automation
Regardless of the software product, thorough testing focused on verifying the entire functionality takes time, which project teams may often lack because of high market competition and tight deadlines. Additionally, a lot of tests simply can’t be run only manually, as they are too complex, time-consuming, or may require simulation of user behavior that manual testing can’t effectively replicate. That’s where test automation is of high value.
By relying on QA automation engineers, financial institutions can cover a large volume of regression tests necessary to safeguard the stability of components that were previously working as intended, facilitate CI/CD pipelines, and significantly cut testing time.
For instance, with the help of image-based and data-driven test automation, a famous US-based company from the BFSI sector managed to reduce script code smells from 190 to 1, streamline QA processes, and enhance release quality by preventing high-impact defects from entering the production environment.
No room for error
Migration to ISO 20022 isn’t optional, and the deadline is fast approaching. The shift to this comprehensive messaging standard is essential, but with new challenges come new risks. Meticulous QA support should become a vital step in this process, preventing costly post-launch repairs and raising banks’ confidence in delivered digital platforms.
Reach out to a1qa’s specialists to ensure the failsafe operation of banking software after implementation of the new standard.
