Today, business payments and remittance exchange are at a crossroads. Evidence from economies from around the world illustrates that the process of transferring information like invoice details related to a payment from the buyer to the seller in business-to-business (B2B) transactions remains fragmented and not fully exploited.
Payments optimization—the combination of electronic payments and the automation of remittance information—can help companies reduce costs and gain better visibility and control over cash. Yet, today many US businesses continue to make the bulk of their disbursements by paper checks. In contrast, most European countries have embraced electronic payment instruments, with Germany, the Netherlands, Switzerland, and Sweden achieving over 95 percent penetration rate.
However, the efficient reconciliation of B2B payments with remittance information – i.e., the reason for the payment – remains a major hurdle in all parts of the globe including those with high electronic payments adoption. This is due in part to the complexity of remittance data that varies significantly by industry and context. In some cases, individual corporate remittance requirements also differ. Combined with the multiple standards and different technologies for transmitting payment related information, compound the issues in accurately identifying incoming payments and posting them to the correct accounts without manual intervention.
Worldwide, electronic data interchange (EDI) is the prevalent technology for remittance information exchange. Even so, EDI is fully implemented between a few large trading partners on proprietary networks. Newer XML-based technology—which offers flexibility and the ability to be adopted by a broader demographic, particularly smaller and midsize players—has the potential to realize similar efficiencies as large businesses using EDI formats.
Related to this, with the introduction of SEPA, the ISO 20022 XML message standard has gained visibility as a global standard for mass euro payment transactions. Accordingly, multinational corporations and their financial institutions beyond the euro area have moved to adopt the standard to ensure interoperability.
With the convergence to ISO 20022 standards, the XML-based standard offers the solution to streamlining the payment and reconciliation process with the digital transmission of an open, interoperable standard for financial data exchange from the buyer to the supplier. More importantly, in a significant development, the ISO 20022 Payment Standard Evaluation Group approved in April of 2014 two standalone remittance messages.
The two ISO 20022 remittance messages reflect the remittance models in practice today: the first carries the full remittance information, and the second provides information on how or where the remittance is delivered such as via a URL.
Given the global activity with ISO 20022 standards, geographies worldwide will be more prepared to accept these new remittance message types. Indeed, NACHA, the governing body for the US ACH network, launched its opt-in program to enable XML-based remittance information within the ACH network that will now reference the new ISO 20022 remittance messages.
Notably a key ingredient to success will be the support by solution providers and financial institutions. Having a remittance string of XML-based data that can be carried consistently through all channels is valuable for all parties across the financial value chain. Thus, forward thinking organizations will be leveraging this financial standard to streamline and accelerate finance business processes to reduce operating costs, manage risks, drive efficiencies, while improving visibility and control to realize increased profits.
To learn more about the global landscape of payments remittance exchange and recent developments in this area, download the CGI white paper, The Drive to Electronic Remittance Exchange in Business-to-Business Payment Automation.