The Importance of Data Structure: ISO 20022 and the Future of Payments

10 11 The Importance of Data Structure: ISO 20022 and the Future of Payments Treasury and Trade Solutions MT — free format option :50K:/24681012 E GHAZARYAN ARMAN ALBERTI KOSTANYAN 1/5 KOSTANYAN 1/5 ULTIMATE DEBTOR ADD 3 :72:/ACC/CHASUS33XXX //BY ORDER OF ABCDUS33XXX FOR GH //AZARYAN ARMAN ALBERTI ACCOUNT //24681012 :72:/INS/VISAUS33XXX In an ISO 20022 world, the unstructured free format MTn99 messages would be replaced by 17 different types of camt (cash management) ISO messages for investigations related to cash transactions; ISO 20022 has no support for generic MTn99 messages. 5 Camt messages are designed to assist the investment fund community with account management, bank transfers and account statements. Their structure is specific to the inquiry or action being requested. The following is a list of key camt ISO messages: camt.055 Issued by the initiating party (Debtor) to initiating bank (Debtor Agent) to request the cancellation of an initiation payment message previously sent camt.056 Issued by a FI to another FI or Clearing House to request the cancellation of an existing payment message camt.037 Initiated by a bank to the creditor agent requesting authorization to debit its account camt.036 Response from the creditor agent to the camt.037 sent providing authorization to debit its account camt.027 This message is used to transport the Claim Non-Receipt from the Originator Bank to the Beneficiary Bank, directly or through intermediaries camt.029 Initiated by a bank to provide the status of an ongoing investigation Below is an example of how these messages could be used to resolve a payment inquiry: Unable to apply — A financial institution is unable to execute the payment due to missing information. An investigation is opened to check the missing details with the debtor. Once additional information is issued, reconciliation can take place. 5 camt messages are message types sent by banks to their customers, in order to inform them on the status of an initiated transac- tion, the arrival of incoming transactions or to communicate their account .statements. Focus Area 3: Reconciliation and Data Exchange Reconciling cash positions via intra-day or end-of-day bank statements can be onerous for both banks and corporates due to missing remittance information, remitter identification, lack of data standardization across different message formats, in-country data variants or data truncation. For example, if a corporate wishes to reconcile payments based on intra-day statements (e.g., MT942 message type), its statement may not contain the ultimate debtor information (which is included in the pacs.008 (payments clearing and settlement) message); this can make it impossible to reconcile the originator of funds. 6 The ISO 20022 format enables transmission of detailed invoice information which is critical for end-to-end reconciliation. This is especially crucial for corporates’ enterprise resource planning (ERP) systems that generate invoice information against each payment record. The use of structured and enhanced payments data will increase automated reconciliation of payments and invoices and overall efficiency across the industry. Support for OBO Payments One major pain point for corporates reconciling their payments and receivables, especially for those with centralized treasury structures, is the inability to fit all required sending and receiving party information for on-behalf-of (OBO) payments within the current cross-border payments message format. OBO payments are increasingly used by corporates as a result of Open Banking regulations/PSD2 7 and the growing number of payment intermediaries. However, the current MT structure is not designed to support these payments efficiently. In contrast, ISO messages have dedicated and structured fields to support this type of payments message. camt.030 A C camt.030 camt.026 camt.026 camt.028 camt.028 B Issued by a bank when they are unable to execute the payment instruction due to missing or incorrect information. This message is used to provide additional or corrected information on a payment instruction or statement entry, in order to allow reconciliation The Notification Of Case Assignment (camt.030) message is sent to previous party in payment chain when the case is forwarded to a next party in payment chain. 6 Pacs.008 is the MT103 equivalent for a FI-to-FI customer credit transfer. 7 The UK’s Open Banking Implementation Entity (OBIE), the body tasked with designing open banking technology in the UK. See: https://www.openbanking.org.uk/news/three-years-since-psd2-marked-the-start-of-open-banking-the-uk-has-built-a-world- leading-ecosystem/ In MX messages there are dedicated fields available for various parties in the payments. There are dedicated fields available for Ultimate Debtor, Debtor, Initiating Parties. Debtor Party that owes an amount of money to the (ultimate) creditor. In the context of the payment model, the debtor is also the debit account owner. Creditor Party to which an amount of money is due. In the context of the payment model, the creditor is also the credit account owner. Ultimate Debtor Ultimate party that owes an amount of money to the (ultimate) creditor. Debtor Agent Financial institution servicing an account for the debtor. Creditor Agent Financial institution servicing an account for the creditor. Forwarding Agent Financial institution that receives the instruction from the initiating party and forwards it to the next agent in the payment chain for execution. Initiating Party Party initiating the payment to an agent. In the payment context, this can either be the debtor (in a credit transfer), the creditor (in a direct debit), or a party that initiates the payment on behalf of the debtor or creditor. The existing MT messages have limited number of fields and most of the data related to debtor or initiating party etc. in case of an OBO payments or Nested payments are put into the free format fields like Tag 72, which needs bi-lateral agreements to be in place and also introduces the risk of mismapping and data truncation. A pain.001 pacs.008 B Ultimate Debtor John Smith Creditor Agent XYZ UK Debtor Agent Citi NY Initiating Party Debtor Source: Citi material Source: Citi material Source: https://www2.swift.com/mystandards/res/cbpr/ISO_20022_Programme_UHB_Q2_2021_Edition_v1.0.pdf