ISO 20022 remittance exchange holds promise

One of the biggest headaches that companies face today is the posting and reconciliation of payments. Details such as invoice number, customer account, and other key information that help explain the purpose of the payment often do not travel with the payment. In turn, this fragmented flow of remittance data leads to inefficiencies and errors related to the manual re-keying of information. Exacerbating the exchange of business-to-business (B2B) remittance data are the multiple business formats and industry practices for remittance information, combined with competing standards and proprietary technology.

For years, large corporations alone have reaped the benefits of straight-through processing (STP) in using electronic data interchange (EDI) formats. Yet, even EDI has its limitations. Beyond the cost factor, the excessive data requirements are further complicated by unique specifications customized to each industry vertical and implemented among a few large trading partners on proprietary networks.

Meanwhile, small and medium businesses have yet to realize similar efficiencies. Emailing PDF files and postal mail are the most widely used tools of choice for exchanging payment related information between trading partners. The lack of a common standard for remittance exchange also is often highlighted as a major barrier to paper-based processes and migration to B2B electronic payments in many parts of the world.

A key development to ameliorate this is issue is the advent of the ISO 20022 XML-based standalone remittance standards, which were approved in April 2014. With the global momentum beyond SEPA-based countries to move to ISO 20022, ISO 20022 is an emerging international standard that holds promise for driving efficiencies and advancing uniformity to facilitate greater information exchange.

Interactive Financial eXchange Forum (IFX Forum, Inc.) in collaboration with NACHA, Bank of America Merrill Lynch, and Wells Fargo took the lead in developing the two ISO 20022 standalone remittance messages to address market needs.

Two standalone remittance messages were developed to reflect different market practices today. The remittance advice message, or remt.001, can carry complete remittance details and allows for the possibility of settling multiple invoices at one time, a common practice among payers. The remittance location advice, or remt.002, specifies where the details can be retrieved, such as a URL.  In geographies where legacy payment infrastructures lack the ability to carry sufficient remittance information, remt.002 can enable automated re-association of electronic payments with electronic remittance advice from a third party.

Given the global activity around ISO 20022 and, to address the needs of U.S.-based corporations, U.S. stakeholders responded. NACHA, the governing body for the ACH network, launched its XML-ACH Remittance Information Opt-in program to provide consistency for using XML in ACH addenda records and improve payment remittance automation for processing domestic and international payments. Earlier, in 2011, the Federal Reserve Banks and The Clearing House expanded their wire formats capacity to enable transmission of remittance data that is also ISO 20022 compliant.

Further encouraging news is that EBA Clearing—the dominant clearing and settlement network for the euro—is preparing to support an Additional Optional Service (AOS2) program for SEPA messages processed by its pan-European retail payment system STEP2 in May 2015. This will enable the transport of a larger and richer amount of structured remittance information with the necessary details to perform automated reconciliation in accounts receivable systems.

Notably, a key ingredient to success in having a remittance string of XML-based data that can be carried consistently through all channels will be the support of solution providers and financial institutions. Indeed, discussions are ongoing with global ERP vendors to implement the “unlimited-999” occurrences of remittance data, and it will also be crucial that the new ISO 20022 remittance messages are aligned as part of the process. Such efforts have the potential to transform the order-to-pay stream, addressing the considerations of not only large enterprises, but small and medium businesses to spur automation, enhance efficiency and ultimately achieve network improvements.