by Helen Sanders, Editor
XML ISO 20022 and the benefits
The ISO 20022 standard provides the financial industry with a common platform for the development of messages using standardised XML syntax. Currently, corporates that operate internationally typically have multiple formats for exchanging data with their banks. This means that interfaces are cumbersome to maintain (even if using a single channel such as SWIFT, as banks require/provide data in different ways). Automated processes such as reconciliation are impeded as rules cannot be applied consistently and banks provide and require different levels of detail.
By standardising the way that data is exchanged between banks, between banks and corporates, and between corporates’ own internal systems, integration of systems and processes is far easier, and greater automation can be achieved. It also prevents companies becoming too reliant on an individual bank if their data and processes become entrenched.
SEPA payment products are based on ISO 20022 so by the migration deadline, all corporations in Europe will be using ISO 20022 for at least some of their payments; however, the standard has far wider applicability and can be used as a standard for payments globally.
The ISO 20022 standard for financial messaging has developed strongly over recent years, with growing corporate adoption and considerable commitment to success across the industry. There remain, however, some misgivings about the feasibility of a single standard that can be adopted and interpreted in a consistent way across a diverse financial community that comprises banks, vendors and corporates. Previous attempts, such as EDIFACT, have achieved a certain degree of success, but have never won universal acceptance. However, ISO 20022 has been introduced to a different marketplace than previous standards have been.
Firstly, the new SEPA payment products are based on ISO 20022 standards, which guarantees a certain degree of take-up on a pan-European basis.
Secondly, there is far greater recognition of the value of collaboration than there has been in the past. The days of limitless budgets are over, and banks need to prioritise where they put their investment dollars. The process of exchanging financial messages delivers no competitive advantage; however, the quality of information that is exchanged can be a major differentiator.
Thirdly, the change in the banking landscape also means that corporates have a louder voice. Today’s biggest corporations are a great deal larger than any of the banks, and are prepared to exert their influence on the development and priority of initiatives that enable them to exchange financial messages globally in a consistent way. This article features the views of five of the banks that are playing a leading role in the development and adoption of ISO 20022 on how the standard is progressing, the challenges, and how it is likely to develop in the future.
Wherever in the world a company is located, the reasons for implementing ISO 20022 are consistent.
Adoption of ISO 20022
There are already a number of corporate ISO 20022 case studies in publications such as TMI, and featured at treasury conferences, but it is often difficult to determine whether these companies are isolated examples or reflective of a wider trend. Rene Shuurman, Director – Global Product Manager, Connectivity Services, Citi Global Transaction Services, believes the latter,
“We are now past the initial early adoption stage when only the most visionary companies were implementing ISO 20022. Based on those early successes, ISO 20022 has been embraced by the mainstream group of companies and every RFP now contains questions about the standard. For example, we have now supported more 60 clients to implement ISO 20022. Although this is still not a huge number of organisations, it is very significant bearing in mind the complexity of some of these projects that involve transforming every element of corporate-to-bank communication, and often between internal systems as well. For early adopters in particular, there often had to be agreement between banks on a uniform deployment of the standards, so these projects represent a major milestone.”
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Susan Colles, Senior Vice President of Global Product and Channel Solutions, Bank of America Merrill Lynch, agrees,
“ISO 20022 is definitely now a mainstream trend, with not only large multinationals but also mid-market companies adopting the standard, with content ranging from in-country flows to cross-border global payments, including local character sets. Last year, ISO 20022 adoption grew by more than 50% in both the number of companies and volume of transactions, and we expect to see similar, if not more rapid growth this year.”
Tom Wiles, Global Head of Channel Management for Transaction Banking, Standard Chartered Bank, emphasises that even amongst corporates that have not yet expressed a direct interest in adopting ISO 20022, this a definite industry direction,
“This year, the number of ISO 20022 implementations that we have under way is twice the level of last year. We can say that it is now rare to receive an RFP (Request for Proposal) that does not include questions on ISO 20022 readiness.”
Peter Hoogervorst, Product Manager Direct Channels, Global Transaction Services – ICM, Royal Bank of Scotland, takes a more cautious line, however,
“We are still in the early adopter phase for ISO 20022, partly as some ERP and TMS vendors are not yet geared up for ISO 20022 beyond the messages required for SEPA compliance. However, this is set to change rapidly, so similar to the adoption of SWIFTNet, we have seen a relatively modest initial takeup which is already starting to accelerate.”
It remains the case that the majority of companies that are attracted to ISO 20022 are either those that have migrated to SEPA payment products, which are based on ISO 20022 formats, and those that have historically been obliged to work with multiple formats in different countries, leading to costly and fragmented integration of data and systems. Peter Hoogervorst, RBS summarises,
“A clear driver for ISO 20022 adoption in Europe is SEPA, as SEPA payment products are based on these standards; however, when migrating to SEPA, it is logical to transfer other payments to the new standard as well, to gain the benefits of standardisation at a global level.”
Rene Shuurman, Citi also sees that Europe is a key region for ISO 20022 adoption, not only because of SEPA but as a way of addressing the diversity across markets,
“Citi is active in over 90 countries across all regions and in all industries, so we have witnessed at first hand how different industries and regions are adapting their use of ISO20022. Initial interest has centred around Europe where there is significant diversity across countries, as opposed to the more homogenous North America markets. Even so, most clients are seeking to adopt the standard globally.”
At an industry level, intiatives like the CGI group are playing an instrumental role in the success in terms of broader adoption.
Tom Wiles, Standard Chartered emphasises, however, that it would be wrong to assume that only European corporates are active in ISO 20022 adoption, with companies headquartered in Asia also keen to leverage best practices in technology and integration, and address the challenges created by different formats in each market,
“SEPA is no longer the only driver for adoption. Until last year, virtually all our implementations in our footprint markets were the local subsidiaries of European-based multinationals. This year, for the first time, fully 30% of these implementations are among corporates headquartered in Asia. Corporate usage of the standard is still overwhelmingly for payments, with only 25% for reporting. Another trend to note is that most implementations of ISO 20022 are connected to a decision to adopt SWIFT – fully 75% of ISO 20022 message exchange is across SWIFTNet.”
Drivers for ISO 20022
Wherever in the world a company is located, the reasons for implementing ISO 20022 are consistent, as Kerstin Schoenwitz, Senior Product Manager, Client Access, Global Transaction Banking, Deutsche Bank outlines,
“Corporate requirements are quite clear: they are looking for centralisation, standardisation of formats, and straightforward multi-banking. XML ISO 20022, in combination with a bank-agnostic communication channel, is an ideal route to meet such goals, especially when considering the format harmonisation efforts of the Common Global Implementation (CGI) Initiative.”
Peter Hoogervorst, RBS continues,
“There are both cash management and technology factors involved in the decision to adopt ISO 20022. Clients are seeking future-proof technology, and there is a general trend towards bank-agnostic channels and formats. Most clients implementing SWIFTNet today, for example, will also implement ISO 20022. In doing so, they are able to improve processes and reduce costs.”
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Although the benefits are consistent across all industries, certain types of organisation have been amongst the early adopters. For example, Rene Shuurman, Citi explains,
“The consumer industry is amongst the first to adopt ISO 20022, as their margins are frequently under the most pressure, so ISO 20022 represents a significant opportunity for standardisation and cost reduction; however, the standards bring benefits to every industry.”
Peter Hoogervorst, RBS outlines,
“European government agencies are keen to take a leading role in SEPA migration, and therefore ISO 20022 adoption. In the private sector, technology companies are particularly keen to demonstrate how they are leading the industry in terms of technology deployment within their own business.”
Kerstin Schoenwitz, Deutsche Bank suggests that early adopters may be categorised less by industry and more on their business objectives, particularly as companies increasingly adopt centralised payments and collections models,
“Many of our discussions with corporates who are seeking to implement the payment factory model are focused on the move to XML ISO 20022 format.”
Addressing the challenges
Despite the opportunities that exist for standardisation, automation and centralisation, however, there remain some challenges. One criticism from corporates we have spoken to in the past is that banks are at different levels of maturity in ISO 20022 and do not always interpret the standards in a consistent way. Kerstin Schoenwitz, Deutsche Bank agrees that this has been a problem,
“Although supported by many banks for some years now, the ISO 20022 standard is broadly still in a roll-out phase to the market. Being quite generic and vast in its data scope, the XML format can be challenging to put into practice.”
However, individual corporates have found that this can be overcome by working collaboratively with their group of banks to find a common way forward. There is also a strong focus on addressing the issue of interpretation of standards at an industry level through the Common Global Implementation (CGI) group. As Susan Colles, Bank of America Merrill Lynch emphasises,
“Challenges to adoption are being addressed by the CGI Plenary through publishing guides based on specific ISO 20022 payment domain messages. These guides include how specific data should be captured and what values should be held in each field. The guides are being endorsed both by the banks and vendors which will help to ensure a standard approach to the way that the ISO 20022 messages are implemented.”
Tom Wiles also emphasises the importance of the role played by the CGI,
“At an industry level, initiatives like the CGI group are playing an instrumental role in the success in terms of broader adoption. The CGI is bringing together not just banks and SWIFT, but also corporate users and significant players in the ERP (Enterprise Resource Planning) and treasury management space, such as Oracle and SunGard, to arrive at a truly common interpretation of the standard that will be the biggest driver of the ultimate customer experience.”
Rene Shuurman, Citi continues,
“The CGI now comprises 32 banks, some of which are more active than others. Levels of readiness differ too, and in reality there are only around 12 banks that are proactive in encouraging ISO 20022 adoption, which is a relatively small number across the entire banking community. Consequently, the full potential savings may not yet be realised. We are trying to encourage more banks to become active participants, and we are also working closely with vendors. Education and training for clients is a priority too, and almost every event with a connectivity element now includes content relating to ISO 20022.”
Kerstin Schoenwitz, Deutsche Bank believes that education across the corporate community is essential,
“Many companies do not necessarily have the relevant experience in-house, and may not know whether or not their Treasury Management System and ERP system may support it. These systems tend to support XML ISO 20022 at different levels: for example, they may support ‘ready-to-use’ SEPA payment types, while XML for global coverage often requires additional mapping efforts by the user. Deutsche Bank has been proactive in working with suppliers to address this issue. For example, the bank has partnered with a provider to define an XML template that facilitates easier implementation and avoids the extensive mapping exercise with fields in clients’ systems.”
Rene Shuurman, Citi also emphasises the need for skills development,
“The learning curve is very steep: while most people in the industry have heard about ISO 20022, and many have heard success stories at conferences and in the trade press, this is quite different to understanding how to implement it in practice. Adopting ISO 20022 is not simply a programming exercise, but involves a review of underlying technology, processes etc. and an analysis of the impact of using ISO 20022. There are multiple stakeholders, both internally, including IT, system vendors, banks etc. and there needs to be a disciplined approach to project management, particularly change control.” [[[PAGE]]]
Rene also suggests that the vendor community needs to develop systems capabilities further,
“Although ISO 20022 has existed for around four years, it is only now that ERP, treasury management and payment system vendors are bringing out new versions of their systems which support it. Clients can now use vendor solutions rather than having to deal with integration themselves, but this is still the first phase of solutions and there is still a learning curve for many vendors.”
A positive future
However, the more experience that the financial community develops, across banks, corporates and vendors alike, the easier it will become to take advantage of the benefits that ISO 20022 offers. Peter Hoogervorst, RBS paints a bright future for ISO 20022,
“Over the next two years, we expect and hope to see adoption increase rapidly, as there are such considerable benefits for both banks and corporates. Domestic formats will persist during this time, but these will gradually become less significant, particularly in Europe.”
Tom Wiles, Standard Chartered emphasises too that companies in Asia will have a growing influence and interest in the standard, particularly as they expand their geographic footprint,
“We see that the future of the standards will increasingly be driven by adoption in the fastest growing markets of Asia, Africa and the Middle East. The massive shift of wealth eastwards is driving rapid change in the investment industry. Electronic payment volumes are growing rapidly as trade and wealth increases. Both these mega trends will result in significant upgrades in payment and securities clearing infrastructure, and ISO 20022 has a role to play in this.
We are seeing the rise of Asia-based multinationals, and this will accelerate. As these companies go global, they are investing in the latest technologies and the most sophisticated methods of organising and managing their treasury operations as they seek to improve liquidity management, reduce operational risk, and improve efficiency. To the extent that ISO 20022 helps them achieve these objectives, it will be an increasing demand of companies in our home markets.”
The evolution of ISO 20022 is not restricted to the number of organisations adopting it however, and there is a strong expectation that the standard will be extended to additional services as Rene Shuurman, Citi explains,
“Over time, ISO 20022 will become an established industry format with broad adoption and support across the major industry players. The XML schema family will also be extended further into additional areas such as proxy voting for securities services; indeed, the opportunities are endless for standardising both corporate-to-bank and bank-to-bank communication. At that point, there will be new challenges to address, such as version control to ensure that there continues to be ongoing investment whilst ensuring backwards compatibility and avoiding redundancy.”
Tom Wiles, Standard Chartered warns against assuming that ISO 20022 will sweep away existing formats, however,
“To achieve standardisation across banks, it is necessary to ensure a common interpretation of the ISO 20022 standards through such groups as the CGI. However, it is unlikely that we will see the disappearance of other standards in the near future. Banks that want to be responsive to their clients will need to be prepared to support multiple standards.”
Successful implementation of a standard requires co-operation and consistency across players, which may not always be easy when banks have quite different systems environments. Rene Shuurman, Citi continues,
“The original expectation was that standardisation of statement retrieval would be feasible, but as discussions progress, it is becoming clearer that there are significant differences between banks in terms of how they transmit statement information. While some, for example, are well-positioned to deliver extended remittance data etc. others are only able to transmit the core MT940 message.”
The more experience that the financial community develops, across banks, corporates and vendors alike, the easier it will become to take advantage of the benefits that ISO 20022 offers.
Our contributors are universally positive about the future potential for ISO 20022, however. Kerstin Schoenwitz, Deutsche Bank explains,
“We have seen a growing uptake of ISO 20022 and due to the efforts of the banks, SWIFT, corporates and vendors through the CGI Initiative, it is becoming a truly global standard that has universal applicability for corporate-to-bank communication.”
Susan Colles, Bank of America Merrill Lynch stresses that ISO 20022’s global applicability and potential for market infrastructures are amongst the key factors in its future success,
“Over the next several years, with more customers adopting ISO 20022, we may see a wider scope of messaging covered under the standard. Furthermore, while banks and corporates are implementing ISO 20022, market infrastructures have also taken it on board, such as SEPA and initiatives in Japan. These are looking at how to improve efficiencies in clearing infrastructure, as well as adapting in order to accept ISO 20022 messages. Other countries have shown interest in following suit, such as China and Thailand. In the United States, the Federal Reserve has defined how ISO 20022 defined tags can be used to provide extended remittance information that comes into effect in November 2011. Therefore, ISO 20022 has moved beyond bank-to-corporate communication to the financial industry as a whole.”
