Communication between corporates and banks has entered a new era. Treasurers are increasingly requiring ISO 20022 XML services from their banks. For corporates, the benefits are obvious. The standardised language offers the opportunity for cross-border payment process harmonisation, as well as, intercompany payments in an automated fashion. Simultaneously, the banks are faced with a harsher competition and pressure to create new services.
Contrary to common beliefs, XML is not yet crucial for single euro payments area (SEPA)-related payments. The revolution continues and has changed the entire mindset for processes and doing business across the spectrum. XML is no longer only a technical language and tool.
Corporates are realising the value of using XML for all incoming and outgoing payments. In-house banks (IHBs) are emerging, as corporates are eager to take advantage of the XML revolution.
All stakeholders, including banks, corporates and payment service providers (PSPs), have to change their mindset. Moving to XML is not only standard change, but it also offers a common framework. XML requires, however, a new and innovative way of thinking. There is a fundamental change in the straight-through processing (STP) process, not just a fine-tuning exercise.
Cross-border Payments: New Instrument for Treasurers
There is one major challenge, however. Simultaneously as the corporate treasures are learning about the benefits of SEPA, the XML discussion is too narrowly focused on SEPA transactions.
From the treasurer’s point of view, it is increasingly important to use XML for all payment types: domestic, cross-border and SEPA.
It is important to understand that part of the traditional cross-border payments vanish thanks to the SEPA regulation. There should no longer be a difference between national and cross-border payments as a result of SEPA. This is one way in which SEPA and ISO 20022 XML, together, will benefit corporates. And when payments have this level of similarity, then this will make the reconciliation part also similar.
When banks offer ISO 20022 with cross-border payments, there is no longer any excuse to have different standards between domestic and cross-border (and SEPA) payments. Using one standard will also decrease maintenance costs in the long run, as old standards will stop being used in enterprise resource planning (ERP) systems.
Overall, this offers the possibility to choose the best cross-border banking partner depending on each situation.
More Effective IHBs
An increasing number of corporates have realised the true value of XML when creating IHBs because they can transfer data much more effectively. The entire financial value chain, including electronic invoices (e-invoices), will become more automated as a result of the move to XML.
IHBs can act as a stimulus for implementing the Global ISO Creditor Reference (GCR). Using GCR helps cross-border STP of payments and reconciliation on both the debtor and creditor sides.
Holy Grail of Cash Management?
After making payments, corporate treasurers are faced with reporting requirements. The data that comes with camt messages is vast, particularly compared with MT940s.
Corporate treasurers can receive a similar amount of information from their banks. By using XML-based cash management tools, the reporting of incoming and outgoing payments can reach a much higher level. In addition, data reconciliation will be easier and more efficient. With the XML data, automation becomes easier across the board.
Global Standardisation Continues
The conversion to XML has reached a tipping point, and there is no longer any doubt that the global standard will succeed. But there will always be additional flavours to standards. The most important thing, however, is that there is a common understanding of the future development. Organisations, such as the Common Global Implementation (CGI) Working Group, are important actors in this process.
Despite all the automation and improvements that digital banking has the potential to achieve, customers and their needs still form the very core of the banking sector.
Politicians have united in urging the Reserve Bank of Australia to lend its backing to the digital currency by officially recognising it.
In order to survive, banks must get ready for an open application programming interface-led economy and develop superior value propositions for their customers.
The banking industry will meet the challenge of the new era introduced by Europe’s Payment Services Directive, but it is up to its individual members to determine whether they sink or swim.