ISO 20022's Role in Payments
by Janet O. Estep
Jan Estep is president and CEO of Nacha, which serves as trustee of the ACH Network, managing the development, administration and rules for the payment network that universally connects all 12,000 U.S. financial institutions.
The ACH Network is at the center of commerce in the U.S. For decades, it has been moving payments and information together in and out of every bank account in the U.S. to the tune of almost 23 billion transactions annually totaling more than $40 trillion. As the trustee of the Network,Nacha continually works to identify opportunities to leverage the Network to improve the payments experience for all who utilize ACH payments.
Nacha has a long history of working with many organizations in the payments industry, both in the U.S. and abroad, to share best practices between geographies and to find areas of synergy. Nacha’s efforts to facilitate cross-border ACH payments includes support of the International Payments Framework Association (IPFA), which was formed from ideas coming out of a Nacha industry council and utilizes ISO 20022 to translate ACH payment messages from one country to another. Nacha also works with other countries to help them support extensive remittance information with a payment, such as we do within our ACH system in the U.S., as this is an area that has many divergent approaches across the globe today, even when a common standard is utilized.
As various groups and countries are exploring adoption of ISO 20022 – it is important to understand what ISO 20022 is and the role it plays in payments.
What is ISO 20022? ISO 20022 was developed by the International Organization for Standardization (ISO) and is a global messaging standard for financial business transactions, including payments. Today, many multinational companies are utilizing this standard as part of their accounts payable functions.
Benefits of ISO 20022. Several countries have adopted ISO 20022 for their ACH-like systems, including those in the SEPA region. Other countries, including Canada, Australia and the United Kingdom are looking to adopt ISO 20022, in addition to the U.S. Federal Reserve Banks (for wire transactions), and some card networks are exploring ISO 20022 for debit and credit card transactions. These organizations and countries are doing so because the standard provides greater flexibility and holds the promise of global interoperability.
Why is Standardization Important? Consistency across payment types and geographies is critical for the efficiency of downstream systems that process or post payments to both bank and corporate accounts. With more consistency there is the opportunity for straight through processing for these accounts that allow a payment to post without any manual intervention. Even though various countries utilize ISO 20022, implementations have been different, and its support of remittance information has not been consistent, so the industry continues to explore greater consistency in the utilization of the ISO 20022 format and messaging standard.
Does ISO 20022 Send More Information with a Payment? ISO 20022 provides an opportunity to send information with a payment, especially for those countries that have little or no ability to include information with their payments today. In the U.S., The ACH Network has enabled additional information to be sent through payment addenda records, and that functionality in a variety of forms has been in place for decades. In fact, XML-formatted remittance information is supported by ACH payment addenda records. ISO 20022 uses eXtensible Markup Language (XML) and can benefit companies that seek a standardized approach to sending payment files that carry all of the needed instructions in a format that the recipient can easily understand within business-to-business payments.
What Role Does Real-Time/Faster Payments Play With ISO 20022? A common misconception is that ISO 20022 is equivalent to real-time payments. A standard itself – such as ISO 20022 – does not speak to the “speed” of a payment, nor does it address the full roles and responsibilities of players, which is a function of business rules – but rather it specifically addresses the appropriate formatting of the payment message. For example, a hypothetical payment system could decide to adopt ISO 20022 as its message format and also decide that payments speed will be one-day. Conversely, another hypothetical payment system could decide to be real-time and use some other non-ISO message format. For countries and organizations that are exploring how to enable real-time payments, some are also looking to utilize the ISO 20022 standard message and they would like to do so in a way that is consistent from country-to-country. For example, the ISO 20022 Real Time Payments Group (RTPG) was established to document and harmonize cross-market adoption of ISO 20022 for real time payments and its work should be helpful as new real time payment systems are developed – in the U.S. or in other countries.
How Does Nacha/ACH Network Play a Role? Nacha is active within the U.S. ISO 20022 Stakeholder Group, as well as with international organizations, and is exploring where ISO 20022 can be valuable for various payment types in the U.S. Many major U.S. corporations and banks have shown great interest in adopting ISO 20022 and supporting other early adopters of the ISO standard, and we expect that to continue. We recently published an ISO 20022 Mapping Guide & Tool to assist financial institutions in translating ISO 20022 payment instructions from originators that wish to send corporate payments domestically or internationally.
Earlier this year, Nacha participated in the UK Payments Council-led meeting that formed the ISO 20022 RTPG. As gaps are identified, and as we determine how to achieve maximum synergy across geographies and across payment types, we can identify where any flows need to be adapted.
Nacha Resources. For more information on the work Nacha is doing related to ISO 20022, visit Nacha's ISO 20022 Resource Center.
ISO 20022's Role in Payments