The Benefits of ISO 20022 for Corporates and Banks
Payments messaging standards are not necessarily the most exciting sounding items on the financial radar, and yet developments here are having a profound effect on corporates, banks, in fact anyone with a stake in the payments business. The most talked about standard of current times is ISO 20022. This article looks at what ISO 20022 is, what it means for corporates and financial institutions, and the benefits it can bring.
The International Organization for Standardization (ISO) is a global organisation of national standards bodies. ISO 20022, the universal financial industry message scheme, aims to give the financial industry a standard platform for the development of messages in one eXtensible Markup Language (XML) rule. According to the ISO, this is achieved using:
ISO catalogues all of the ISO 20022 messages on its website,1 in an effort to provide what it describes as a ‘flexible framework’, open for developers to categorise types of message according to a universally accepted approach.
This is certainly something that both corporates and banks are becoming involved with, because of the cost benefits involved by integrating systems for electronic data delivery. Tom Buschman, founder, chairman and CEO of TWIST Process Innovations, makes the point that there is global support for these standards in his article, Open Standards for Payables and Receivables.
Work is underway to incorporate other standards under ISO 20022, such as standards for derivative trading and the billing of bank services. A group of major banks is working on detailed implementation guidelines to avoid banks and their customers deviating from best practices.
TWIST’s Buschman continues: “It is nice that open standards are becoming mature and solutions that support these are more widespread. But the key is whether a company is interested to start implementing new solutions that make use of such open standards.”
Corporates that use payment services can start to benefit by actively engaging with their banks, as there is widespread knowledge among financial institutions as to how ISO 20022 standards can be deployed. TWIST’s Buschman suggests that corporates can simply start by using the following Australian list of user requirements for payment services in their discussion with banks.
The Australian Payments Clearing Association (APCA) identified a comprehensive list of high-level expectations of customers of users of payment services. The items are similar to those expressed in Europe over the course of the last decade.
Despite its international nature, ISO 20022 adoption is finding particular support within the single euro payments area (SEPA). Dr Markus Warncke, head of corporate finance at Villeroy & Boch, outlined this in a presentation he gave at SIBOS last year, a point that was picked up by Martine Goubert of BNP Paribas in her article, “ISO 20022 – What’s Driving Adoption?”. Warncke used the SEPA subset of ISO 20022 because it’s best practice in Europe, in his opinion. “We wanted to implement a standard that we can use Europe-wide but that also gives us the possibility to go global in the second step,” explains Warncke. He believes that ISO 20022 can be a profitable standard to use, as it makes it possible to avoid the daily use of various domestic formats in the euro countries, thereby reducing complexity and increasing efficiency.
Villeroy & Boch tested its first ISO 20022 FileAct payments in August 2008 and, at the time of SIBOS in September 2008, the company had 90% of its supplier payments executed through SWIFT with a SEPA format. Looking to the future, Warncke said: “Now we will turn our attention to non-euro payments – starting with the US dollar. And by the end of next year, we will have the SEPA Direct Debit format ready.” This example highlights how treasurers around the world, not just in the Eurozone, can make the case for ISO 20022 and the bottom-line value it can add to corporates who adopt it.
As already mentioned, standardised messaging affords corporates the chance to replace numerous domestic formats with a single ISO 20022-based standard. This makes the communication process with payments counterparties easier and allows integration with internal systems. Elie Lasker, senior market manager at SWIFT, points out that the number of corporates using ISO 20022 is increasing (on, and outside of, the SWIFT network) for sending payments to their different banks. “Going forward, SWIFT is focussed on assisting its corporate customers and banks in further adopting ISO 20022,” explains Lasker. SWIFT is one of a number of companies and associations that are actively involved in developing and advocating payments standards. A selection of the other main protagonists are listed in the box below.
As a universal payments standard, ISO 20022 helps automate payment data flows by using a wider collection of enhanced and structured message information, avoiding proprietary formats. This makes processes more efficient, helps reduce application development times, optimises the number of interfaces required and enhances security. All of these benefits can have a positive effect on the bottom line of corporates and financial institutions, which should give ISO 20022 the impetus to continue expanding its take-up and evolving as the global payments standard.
The European Committee for Standardization (CEN) is a business facilitator in Europe, removing trade barriers for European industry and consumers. Its mission is to foster the European economy in global trading, the welfare of European citizens and the environment. Through its services it provides a platform for the development of European Standards and other technical specifications.
CEN’s 30 national members work together to develop voluntary European Standards (ENs). These standards have a unique status, since they also are national standards in each of its 30 member countries. With one common standard in all these countries, and every conflicting national standard withdrawn, a product can reach a far wider market with much lower development and testing costs. ENs help to build a European Internal Market for goods and services and to position Europe in the global economy. More than 60.000 technical experts as well as business federations, consumer and other societal interest organisations are involved in the CEN network that reaches over 480 million people.
Founded in 1997, the Interactive Financial eXchange (IFX) Forum is an international not-for-profit industry association whose mission is to develop and promote the adoption of its open, interoperable standard for financial data exchange, suitable for use by all sectors of the financial services industry.
Forum membership is open to organisations interested in contributing to the development of open financial standards. Forum members include financial institutions, hardware, software and service firms, and related non-profit groups. The IFX Forum also promotes interoperability of industry standards by working cooperatively with other standards organizations and consortia.
The International Organization for Standardization (ISO) is the world’s largest developer and publisher of international standards. It is a network of the national standards institutes of 161 countries, one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system.
ISO is a non-governmental organisation that forms a bridge between the public and private sectors. On the one hand, many of its member institutes are part of the governmental structure of their countries, or are mandated by their government. On the other hand, other members have their roots uniquely in the private sector, having been set up by national partnerships of industry associations. Therefore, ISO enables a consensus to be reached on solutions that meet both the requirements of business and the broader needs of society.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a member-owned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. Over 8,300 banking organisations, securities institutions and corporate customers in more than 208 countries trust SWIFT to exchange millions of standardised financial messages every day.
SWIFT’s role is two-fold. It provides the proprietary communications platform, products and services that allow its customers to connect and exchange financial information securely and reliably. It also acts as the catalyst that brings the financial community together to work collaboratively to shape market practice, define standards and consider solutions to issues of mutual interest.
SWIFT has its headquarters in Belgium and has offices in the world’s major financial centres and developing markets.
SWIFT is solely a carrier of messages. It does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis. As a data carrier, SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity.
The Transaction Workflow Innovation Standards Team (TWIST) is a not-for-profit industry group with representatives from corporates, public administrations, financial services providers and solutions providers. The primary aim of TWIST is to close the gaps in the physical and financial supply chain to release the enormous value locked up in disjointed paper-based processes. To achieve this, TWIST rationalises financial industry standards by creating user-driven, non-proprietary and internally consistent XML-based standards for the financial supply chain.
This pertains to standards for the straight-through processing (STP) of wholesale trade transactions, working capital management and corporate payments. TWIST delivers global standards for business processes and technical integration that enable rapid and profitable change for its adaptors. Its core principle is to be open and inclusive to market participants and their service providers. TWIST’s approach emphasises market collaboration, as demonstrated in its proactive role in developing standards in conjunction with other standards such as ISO/SWIFT, IFX, FpML, RosettaNet, MDDL market data standards and CRG-Edifact. These endeavours are led by the corporate treasury operations of Royal Dutch Shell Oil and are actively supported by 70 other participants.
The United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT), a United Nations body, has a global remit. It encourages close collaboration between governments and private business to secure the interoperability for the exchange of information between the public and private sector. It has developed:
It is now drawing up the next generation of trade facilitation and e-business standards and tools.
Source: Conversations with the organisations themselves, and their official websites.
1 https://www.iso20022.org/catalogue_of_unifi_messages.page