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September 14, 2015 • Issue 15:09:01

ISO 20022 blazes trail to real-time global payments

Payments industry globalization reached a tipping point Aug. 11, 2015, when Payments UK and the International Organization for Standardization (ISO) published the first draft of ISO 20022. The harmonized set of XML messaging standards is based on a shared data dictionary and business process model designed to improve efficiencies across global payment platforms. The Federal Reserve described it as "an enabler of a single, common 'language' for global financial communications that can assist organizations in responding to evolving demands."

The universal platform was introduced by a working group of the ISO, an independent, non-governmental body that develops voluntary international standards. The 162-member organization, established in 1946 and based in Geneva, Switzerland, has published more than 19,500 standards affecting multiple industries, including technology, food safety, agriculture and healthcare.

"The new 'rule book,' based on the experience and knowledge of 50 organizations around the world, including ACI Worldwide, will allow others to successfully apply the standard in an immediate payments environment," said Barry Kislingbury, Senior Principal Solution Consultant at ACI Worldwide. "The first draft, created in just a couple of months, focuses on the messages and workflows needed in this environment and highlights a small number of gaps that the working group will need to focus on, to resolve in the short term."

Kislingbury, impressed by the committee's ability to create a working draft in record time, expects the standards to establish a foundation for "a global, interoperable, immediate payments environment" that will benefit consumers and payments industry stakeholders alike.

Increasing rationale for U.S. adoption

In October 2013, a stakeholder group comprised of the Federal Reserve Bank of New York, The Clearing House Payments Company LLC., NACHA – The Electronic Payments Association and the Accredited Standards Committee X9 – Financial Industry Standards Inc., began to evaluate the business case for U.S. adoption of ISO 20022. The group enlisted the aid of an independent consultant who recommended a phased approach, citing global momentum, global competition, cost savings and improved efficiencies as critical factors.

Open source, open invitation

The Federal Reserve and U.S. stakeholders are developing an implementation strategy for ISO 20022 in U.S. payment transactions. The group's initial focus involves using ISO 20022 in wire transfer and automated clearing house transactions to improve end-to-end efficiency in domestic and cross-border payments.

This approach is part of a five-pronged effort described in Strategies for Improving the U.S. Payment System. The strategies include engaging stakeholders; identifying effective approaches for safe, ubiquitous and faster payments; working to advance security and reduce fraud; achieving greater end-to-end efficiency in domestic and cross-border payments; and enhancing Federal Reserve Bank payments, settlement and risk management services in 2015 and beyond.

The Fed also cited numerous use cases to support its contention that upgrading to a modern, XML-based common format for payment messages can expand the knowledge base of formatting experts in the payments industry. This agency anticipates the measure will ease support of proprietary, legacy formats as seasoned format experts change jobs and retire.

Proprietary message formats can also adversely affect the speed and efficiency of wire transfers, the Fed noted. Many banks maintain mapping routines to ensure correct mapping of data for wire transfers to accommodate legacy and cross-border formats. Participating parties in inter-bank transactions may experience limited visibility into end-to-end transaction flows.

ISO 20022 payment and cash management message formats have structured messages that support real-time payment tracking and reporting. For further information, visit https://fedpaymentsimprovement.org/get-involved/iso-20022/. end of article

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