ISO 20022 has been aptly described as a recipe for making financial messaging standards easier. It provides a flexible framework that allows communities of users to build business transactions and message sets according to an internationally agreed approach using a common syntax, such as ISO 20022 XML. It grew out the need to attain convergence across numerous overlapping standardisation initiatives that were looking at financial XML messages. XML needs no introduction, it has firmly established itself as a ubiquitous means of formatting data and has attained universal acceptance as the basis for data storage and data exchange in all areas of data processing.
ISO 20022 has progressively gained momentum and its impact on the financial messaging landscape is increasing – in total, some 300 messages are at various stages of use. Since 2006, ISO 20022 messages have been published for the entire end-to-end payments chain, covering the corporate-to-bank payment initiation, bank-to-bank payment clearing and settlement, and bank-to-corporate account and status reporting. For payments, ISO 20022 adoption gained impetus from it being the format of choice for the single euro payments area (SEPA) in seeking to replace domestic retail credit transfers and direct debits with standardised European payments based on ISO 20022 messages.
Real-time gross settlement (RTGS) systems and low-value payments systems around the world have also shown increasing interest in adopting ISO 20022 (for example, the Zengin System in Japan and the International Payments Framework), while others are focusing on building alignment with the standard.
“We have seen demand [grow] for the use of ISO 20022 from corporates in Asia, particularly when it comes to payments in China for the Chinese character support,” says Connie Leung, SWIFT’s director, payments and trade markets, Asia-Pacific. “Many corporates are pleased with the work of CGI on the ISO 20022 standards and in particular we have seen recent implementation of the pain.001 message from corporate-to-banks in China. This trend will continue when we see more and more corporates and banks (both global and regional) embrace global standards to further streamline the corporate-to-bank communications and data exchange.”
As multinational corporates seek to reduce costs and mitigate risk across their global entities, treasurers are recognising the importance of ISO 20022 as the formula for structuring their data dialogue with their banks around the globe. Large players often have multiple bank relationships, a trend that has grown in the wake of the financial crisis, so as to not to ‘put too many eggs in one basket’. Managing multiple bank interfaces can be a challenge, particularly if different channels, different protocols, different formats, and different data requirements need to be factored into the implementation process. The management and maintenance overheads can be costly and onerous, and amplified when they are proprietary.
While the ISO 20022 payments message definitions in themselves provide a comprehensive basis for data exchange, they have also led to mapping variations and differences in how the messages are implemented in multi-bank environment. The design of the payment messages caters for a range of payment initiation (credit transfer and direct debit) instrument types, methods and reporting requirements. There are hundreds of elements (for example, over 1,300 in the credit transfer – pain.001.001.03), most elements are optional and external code sets are often shared across different message types. Consequently, implementation inconsistencies were encountered across different financial institutions, in particular highlighted by large corporates embarking on multibank implementations.
Common Global Implementation
Enter CGI. This is an ISO 20022-based initiative that was formed by a collection of banks and corporates specifically to jointly address these inconsistencies. Created in October 2009, CGI currently boasts 55 registered members, of which 41 are full contributing members. It is an ad hoc, voluntary forum that is open (without membership fees) to organisations that have a common interest in collaboration, promotion and adoption of the ISO 20022 XML financial message set. The CGI embodies the notion that, “a corporate can use the same message structure (for each message type) to interact with all of their transaction banks across the globe for payments initiation (credit transfer and direct debit), account and status reporting”.
The goal of CGI is to provide this forum for both financial (banks and bank associations) and non-financial institutions (corporates, corporate associations, vendors and market infrastructures) to progress various corporate-to-bank implementation topics on the use of ISO 20022 messages and to other related activities in the payments domain. In particular, its aim is to simplify implementation for corporate users, and thereby promote wider acceptance of ISO 20022 as the common XML standard used between corporates and banks.
The CGI goal is being achieved through consultation, collaboration and agreement among all players on a series of common implementation templates for relevant ISO 20022 financial messages, leading to their subsequent publication and promotion in order to attain widespread recognition and adoption. The high level of collaboration that has been attained among the major banks is significant to achieving global coherence with their respective implementations.
To date, six implementation templates have been released:
- Customer Credit Transfer Initiation (pain.001.001.03)
- Customer Direct Debit (pain.008.001.02)
- Customer Payment Status Report (pain.002.001.03)
- Bank-to-customer Account Report (camt.052.001.02)
- Bank-to-customer Statement (camt.053.001.02)
- Bank-to-customer Debit Credit Notification (camt.054.001.02).
These CGI templates detail specific implementation guidance (or market practice) on the use of the respective ISO 20022 XML schema, element by element. Each element is designated a usage status: For example, ‘R’ – required, ‘C’ – conditional, ‘BD’ – bilaterally determined, and ‘NU’ – not used. For the credit transfer this detailed guidance is further segmented by:
- Automated clearing house (ACH) domestic and international: General usage is equivalent to low-value or non-urgent transactions. Typically associated with a batch process and/or low priority transactions.
- Domestic and international wires: General usage is equivalent to high-value or urgent transactions with high priority.
- Cheques/drafts: Typically, paper-based transactions.
Users of these templates can benefit from a common and unambiguous approach to market practice that is designed to work across multiple financial institutions. In practice, this means that bank customers can take their payments initiation processing to a more consistent level based on a single global common implementation template for each of their outbound payments initiation message types (credit transfer and direct debit) and for their various inbound account and status reporting message types. From a competition and risk management perspective, it should simplify the process for a corporate to expand or switch to a new bank.
The CGI templates incorporate a concept of ‘data overpopulation’ that allows corporates to effectively provide not only the same information, but also all of their information to each of their target financial institutions. This information is then filtered by each receiving institution based on the requested payment method, clearing channel and any institution-specific requirements. The use of a single common template in this manner will reduce cost and complexity.
Another dimension to the CGI implementation templates is the use of appendices to provide further elaboration and specific guidance. For example, a list of individual payment system service level codes, country/region specific requirements, and implementation use cases.
The potential for CGI to streamline the broad community adoption of ISO 20022 for payments is large and illustrates that effective collaboration in defining market practice can be a win-win situation for all players involved, notably the financial institutions and their corporate customers (and treasurers). Achieving true multibank integration depends on a common template for information exchange that not only caters for the core data elements but also extends to providing support for those banks that may wish to offer value added solutions that are over and above the core CGI message implementation template. Here the concept of ‘data overpopulation’ plays a key role, and should not be overlooked in implementation.
An on-going development of SWIFT called MyStandards has been designed to leverage initiatives such as CGI. As a collaborative web-based platform, MyStandards facilitates the management of global standards including those from ISO 20022 and related market practice.
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