Next Steps for XML-based Open Standards
|A short list of select standards groups:
IBC – International Bank Compensation Group – A corporate advocacy group promoting the development of standards for bank advising of service fee statements (International Electronic Account Analysis).
IFX – The Interactive Financial Exchange Forum – An open standards organization addressing wholesale and retail financial messaging.
ISTH-International Standards Harmonization Team – A group of four standards bodies (IFX, OAGi, SWIFT, TWIST) which have agreed to create a single payment initiation message, the core payment kernel.
OAGi – Open Applications Group – An Open Standards Organization focused on promoting interoperability among business applications and creating business language standards to support this goal.
RosettaNet – A supply chain community of the technology and telecoms industries. The RosettaNet Payment Milestone Program was the first full operation of XML standards for payment initiation and advising between corporates and their banks. RosettaNet corporations use SWIFT XML formats to standardize bank communications and facilitate full communication between remitter and beneficiary as a part of the payment.
SWIFT – originally the Society for Worldwide Interbank Financial Telecommunication – The largest global banking association, host to the SWIFTNet network. Used by banks and corporations globally to exchange financial messages in a secure and timely manner.
TWIST – Treasury Workstation Standards Team – Develops open standards for messaging related to financial markets activity, cash management, and commercial settlement , and supply chain management. Led by Shell Treasury with participants from the corporate and banking communities, and other service providers.
Originating and receiving wholesale electronic payments can be a challenge for the corporate treasurer. Multiple interfaces (by payment instrument, geography, and bank), proprietary systems, delays in funds delivery and application, incomplete information and other issues can come together to make the payment experience less efficient, less satisfactory than need be. A number of standards groups and payment industry participants have expended a lot of effort in 2004 to try to improve this situation. Have they succeeded? And is their job done? Is it clear what the corporate user must do to derive value from this process.
2004 has been an important year for open payment standards with completion of the RosettaNet XML payment pilot and its transition to full production. 2004 also saw the IST-H partnership of four standards bodies: IFX, OAGi, SWIFT, and TWIST which has resulted in completion and publication of a new, harmonized ‘core payment kernel’ thereby establishing a shared, open standard for wholesale payment. TWIST and the IBC group allied to create a standard for electronic advising of bank service fees, an effort still in progress.
These developments have helped streamline and make more efficient initiation and receipt of wholesale payments. Support for a common payment initiation format allows payers one message format (e.g. one technology investment) to be used in communicating to multiple banks, across payment systems, across country borders. It also allows one set of operating processes to be used to communicate with multiple banks. Standardized advising formats, coordinating full remittance information with the related payment, helps the receiver to automatically apply funds in a timely manner, achieving A/R straight through processing.
These are important accomplishments, well worth having. But are we done? Are there no more opportunities to derive advantage from standardization? Are all banks supporting? Are all corporations using? Has value been realized? Lets take these one by one.
By their nature, standards are always a work in progress. 30 years on, there is still a need to occasionally revise SWIFT’s MT standards. Change may be needed for a variety of reasons – new features are desired, something was not accommodated, payment instruments themselves change (e.g. the recent introduction of IBAN, formatting requirements associated with Anti-money laundering provisions, etc.). Some fundamental areas require attention, notably harmonization of advice and statement formats. Various business processes remain to be addressed with messaging standards, notably monthly bank bills (IBC). Further attention is likely in a variety of areas including supply chain management.
These standards may not be for all banks. It is clear though that only limited implementation by banks has occurred to date. There is substantial opportunity to increase the number of providers using, but what is being done about this?
Financial application providers (e.g. ERP and TMS providers) also need to support the standards to simplify systems implementation and operation. More communication is needed to encourage support by banks and financial application providers.
Only a small number of clients are using or implementing at this time. Not all corporates are immediately ready to implement the standards. More need to adopt the standards to develop a base of experience and market practice, and demonstrate the value proposition. Various issues explain why this is:
Much has been accomplished, but much remains. Action is required by corporates and banks if full value is to be realized. Action for corporates can be by adoption. Action can also occur by getting engaged in the process through the standards bodies addressing these issues, and through treasury associations who have committed effort to this area to represent their user community’s interests.
Some suggestions for action in 2005:
There is no doubt that standardization is a good idea. Processes and procedures cannot remain static at a time when technology is changing so quickly. Ultimately it is up to the industry participants, individually and through partnership, to drive innovation.