With the development and growing interest in IP (Internet Protocol) and XML, there was an opportunity for the financial industry to move to a single common communication language to facilitate the exchange of information between financial institutions, their market infrastructure and end users.
XML, however, is not a language per se, but a meta-language, allowing you to design your own dialects for an unlimited number of different document types. Thus, several standardization initiatives began developing XML messages, each using its own dialect. Doprowadziło to do potrzeby “tłumaczenia” z jednego standardu na drugi, co wymagało mapowania danych bezpośrednio z jednej aplikacji do drugiej i odwrotnie. Było to kosztowne, nieskalowalne, trudne do wdrożenia i utrzymania.
In order to eliminate the above problems, the ISO TC68 Technical Committee has developed an international standard for electronic data exchange between financial institutions – ISO20022. The standard is designed to enable efficient and seamless data transfer in international payment transactions by establishing globally standardized data formats and a common language for communication in different areas of finance.
The key transition date for the ISO 20022 standard for global transactions is November 20, 2022, with a transition phase until November 2025. The new standard is particularly important for banks and companies that conduct international payment transactions, but also has a direct impact on the operation of ERP systems.
Payment transactions of the future
ISO 20022 is a way to simplify communication between service providers and customers, and enables efficient, consistent and more secure file exchange, as conversion or translation errors caused by different systems and data formats are now a thing of the past.
Standardization of payment transactions brings further benefits:
- The use of ISO 20022 message models ensures that business information will move seamlessly from one message to another, regardless of the syntax used to transport that business information. Currently, the preferred syntaxes of ISO 20022 are XML and ASN.1, but if a new and better syntax were chosen, the models would not have to be changed – only the rules for transforming message models into the desired message formats would change.
- ISO 20022’s rich message structure will facilitate transparency and increase operational efficiency in Straight Through Processing, as well as message filtering. References (e.g., invoice number) can be attached to transactions, making it easier for the recipient to assign an incoming payment, and open items can be automatically cleared.
- ISO 20022-based financial messages offer additional features, such as the use of various special characters.
- Reporting is improved, as standardized data offers more opportunities for meaningful analysis and comparable reports.
Implications for ERP systems
Currently, the payment reconciliation process in ERP systems, which involves comparing accounting records with bank statements to make sure they match and show no discrepancies, is still a challenge because older message formats often do not provide data that can automatically reconcile incoming payments with outstanding invoices. Among other things, the new message structure makes it possible to carry invoice information and thus make it easier to reconcile outgoing and incoming payments, saving time and resources.
Thus, ERP systems that are ISO 20022 compliant make it easier to reconcile bank statements with receivables or payables. The new file formats will have an impact in the following areas:
Commitments
A new file format for payment orders will be sent in the future. Formats such as DTA are being replaced by the PAIN (Payment Initiation) file format. The PAIN library is very extensive – not all formats are used and supported everywhere. The following three message types are the most relevant messages
PAIN: PAIN.001 Transfer order.
PAIN.002 Customer error/payment status reports
PAIN.008 Direct debit orders
Receivables
When the account statement data is transmitted electronically, the account information is also transmitted in the new file format. Examples of camt messages.
CAMT.052 Bank statement for customer; Message camt.052 replaces MT942.
CAMT.053 Bank statement for a customer; Message camt.053 replaces MT940.
CAMT.054 Bank notification to the customer of debit / credit to the account; Message camt.054 replaces MT900 (Confirmation of debit) and MT910 (Confirmation of credit) messages.
Given that companies cannot use incoming cash until it is reconciled, faster reconciliation also means that cash can be used more quickly to meet business objectives. As a result, a streamlined reconciliation process will allow companies to devote additional time to further business activities, while ensuring that cash and accounts receivable records are in order.
Summary
The financial sector is currently undergoing a significant transformation, accompanied by new technologies, business models, increased competition and growing customer demands. In order for financial institutions to remain relevant to their customers in terms of payments, forward-looking changes are needed, and ISO 20022 can provide the foundation for payments innovation and thus also trigger positive changes in ERP systems.
Source:www.iso20022.or
