Nacha, the electronic payments association, is starting an accelerated push to help corporations and financial institutions incorporate the ISO 20022 messaging standard a key element of moving forward with a faster payments initiative in the U.S.
In doing so, Nacha, as trustee of the Automated Clearing House, joins what has become an important issue for banks and businesses around the world seeking to consolidate transaction processes.
In the U.K., the Payments Council has pushed international cooperation in agreeing to establish ISO 20022 as the standard for payment messaging. ISO 20022 is a set of XML, or extensible markup language, messaging standards based on a shared data dictionary and business process model.
Companies use the standard to streamline business-to-business payments because it allows room for additional payment-related information while addressing end-to-end communications from the remitter through the beneficiary.
Nacha is taking only a slightly different approach to its emphasis on ISO, reasoning that many businesses are interested in utilizing ISO 20022 now for ACH transactions, rather than waiting on others globally to adopt the standard.
"A whole lot of companies and organizations are thinking about the future roadmap and when to convert to an ISO world and global standards," said George Throckmorton, managing director of network development at Nacha. "The other strategy is to meet the needs of users today, helping the early adopters who want to leverage XML and ISO 20022 now."
To that end, starting this week, Nacha will connect with businesses to discuss converting to the ISO standard. It already offers an ISO 20022 mapping guide that businesses can download off the Nacha web site.
The guide provides an ISO 20022 payment file with instructions for multiple payment types, and translating the payment messages to corresponding ACH network B2B credit transactions. In the future, Nacha plans to expand its mapping guide to include debits, pre-notes and consumer payments.
Worldwide, more organizations are adopting ISO 20022, signaling further opportunity for companies in the U.S. to adopt it as well, said Nancy Atkinson, wholesale banking expert and senior analyst with Aite Group.
"To my knowledge, no other standard has achieved broad acceptance globally," she said. "While still in the early stages, the promise of ISO 20022 is looking very positive."
While the Nacha mapping guide helps banks and businesses translate their current formats to ISO 20022, the preferred situation in the future will be "for nearly universal deployment of ISO 20022-based systems so that no translation is required," Atkinson said.
Nacha's interest in furthering ISO 20022 is not new. In 2013, the association launched its XML-ACH Remittance Program to establish conditions and rules for using ISO 20022 messages for B2B payment remittance information over the ACH network. In April 2014, the ISO 20022 standalone remittance messages were approved and published.
However, not many businesses jumped at the opportunity to standardize messaging at that time. "Businesses know about it, and they are glad we did it, but they were not quite ready to opt in yet," Throckmorton said.
Part of the reason for reluctance, Throckmorton said, is XML and ISO 20022 lack ubiquity.
"It would work great for two companies using it at the same time, but it would be too difficult for a company to get every other company it did business with to also agree to using the standard," Throckmorton added.
Nacha's interest in accelerating its efforts came about when banks, which can convert any payment file into an ACH formatted file already, began to sense that not all international businesses were interpreting the ISO standard in the same manner.
"Those banks asked Nacha to come in and standardize the mapping exercise," Throckmorton said. "It doesn't move a payment any faster, but it assures that bank A, B and C are all doing it the same way."
In its ISO 20022 education, Nacha will also emphasize how ISO 20022 eliminates data truncation and word restrictions on messaging fields, which provides clearer information about payment senders.
ISO 20022 also improves a company's compliance efforts.
"A lot of data is needed right now in the ACH network for a bank and end user to comply with regulations," Throckmorton said. "ISO holds a promise of helping financial institutions by having all of that information in the same place, no matter what type of payment it is."
Ultimately, ISO 20022 is about corporations wanting one payment file carrying all of the needed instructions in a format that the recipient easily understands.
"You don't want to have an accounts payable department in Germany and one in the U.S. that are doing the same tasks, but doing them differently," Throckmorton said. "You want to consolidate that."