[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]
Remittance Standards for Wire Payments [NACHA Payments]
Senior Vice President, CHIPS
Senior Vice President, Federal Reserve Bank of New York
Business Manager, Standards, SWIFT
Synopsis from Conference Program
Three payments industry utilities have teamed up to foster discussion and action among financial institutions to help manage the migration of checks to electronic payments and ensure that the payment channels are ready. Join representatives from the Federal Reserve, The Clearing House and SWIFT in a lively and provocative discussion about corporate trends in wire payments, remittance standards initiatives, and steps financial institutions can take to influence the payments landscape. This includes initiatives to ensure that payments systems can carry remittance invoice information in a standard format to make it easier for corporations to reconcile and post electronic payments.
My Observations & Comments
There were a remarkable number of people in attendance for this session late in the day; I suspect many were curious given the recent announcement from the Fed on remittance standards for wires.
The effort to add remittance to wires is a great example of project leadership – hats off to Hargraves, Farrar, and Wills for their tenacity in making this come about.
Global Efforts to Promote eInvoicing and ePayment:
International Payments Framework (IPF) – Phase II of IPF is just commencing and will improve the cross-border payments process through operating rules that will enable interoperability between domestic and international ACH systems. The idea is for each country to retain its local ACH infrastructure and use a central translation model (potentially ISO 20022).
European Electronic Invoicing (EEI) – An informal task force of industry experts has been established to create a common European Electronic Invoicing (EEI) Framework. Representatives include stakeholders with relevant national experience and the commercial incentive to participate. Estimated benefits exceed 243 Euros/year.
International ACH Transactions (IATs) – As of March 2009 all international payments made via the ACH Network must be identified as International ACH Transactions using a new Standard Entry Class (SEC) Code called IAT. This will enable financial institutions to easily identify all international payments flowing through the ACH Network and all parties involved in the transactions, making it easier to comply with U.S. law (OFAC). NACHA intends to map the IAT format to ISO 20022 in order to facilitate payments to/from SEPA.
NACHA is already having conversations with the EU to explore global standards for electronic invoicing and on a domestic level is exploring opportunities to support small and medium sized businesses (see notes from NACHA B2B Strategy session).
The Federal Reserve worked in close collaboration with SWIFT and CHIPS in order to make remittance data for wires a reality. They recognized the need for structure to enable automation of payments and cash application. From the outset they sought feedback and input from large value networks around the world and realized that many were simultaneously looking for guidance on global standards.
The approach is to map existing proprietary standards to emerging standards in order to increase interoperability on an International basis and between STP 820 and ISO 20022. Mapping for STP 820 to ISO 20022 is on the FedWire web site here. In addition, guidelines for mapping for NACHA's IAT format to ISO 20022 will be developed.
Took advantage of the need to support cover payments – a regulatory compliance requirement – to get funding to modify the fed wire format for wire remittance as well (clever!).
Specifications for wire remittance will be available later this year. The Federal Reserve anticipates six months of testing.
The Q&A for this session was informative, too:
Audience members commented that the IAT format would be less viable once wire remittances are available since IAT only allows 160 characters of remittance data.
Another person suggested that UPIC (a substitute bank account and routing number that can be used to mask the sender or receivers true bank details) should be available for wires as well as ACH.
Comments also emphasized the value of XML in harmonizing the various payment messages so that structured invoice data can in turn be adapted for remittance messages and in turn loaded into business' AR systems for automated posting.
And, last but not least, the Federal Reserve urges financial institutions to start thinking strategically about how they will incorporate remittance data into their services for businesses.