The Five Numbers That Can Make Payments More Efficient

Though ISO 20022 is all about creating a standardized approach to building messaging standards across financial services, it’s still a standard that can be lost among many of the businesses that need it most.

The financial institutions, which are responsible for interpreting how to map an ISO message to an ACH file on behalf of their clients (corporates), are working with NACHA to help with standardizing the way the mapping happens.

But when it comes to the corporations themselves, many are still trying to wrap their heads around ISO 20022 and what it means for their business.

NACHA Managing Director George Throckmorton and Senior Director Robert Unger recently joined Karen Webster to explain that, while there are resources, such as NACHA’s mapping guide that maps ISO-to-ACH and ACH-to-ISO to support ISO integration for the ACH Network, there’s still plenty of work to be done when it comes to ISO education for both banks and corporates.

Making The Case For ISO 20022

“Now that we have completed the work with the mapping guide, we are now working with banks to determine how often it’s really being used and by whom,” Throckmorton explained.

From the corporate side, he explained, converting to an ISO environment not only involves the payment itself but the whole cycle they have for taking payments, including the reconciliation and processing of payments.

Meaning it’s not a quick and easy switch to make.

While Throckmorton said he wouldn’t consider there to be a reluctance to adopting the standard or using the mapping guide, banks said that, as they go out and talk to their corporations, there’s simply not enough reasons for the businesses to believe they need to totally convert all of their processes to support ISO.

However, highlighting the payment efficiencies that come with the ISO 20022 standard may be the best (and most convincing) starting point for approaching corporations.

Unger shared NACHA’s case study on how global pharmaceuticals company Merck optimized its performance by employing ISO 20022 XML for ACH payments.

“The story of ISO 20022 isn’t really about adopting the standard; it’s about how do you make your business more efficient,” he explained.

For Merck, which was once maintaining more than 400 bank interfaces to process its thousands of payments around the world, the need for a more efficient payment process was clear.

With multiple banking relationships across various countries and regions, Merck wanted to have better control over local payment decisioning and routing, as well as greater insight into its payments, Unger said.

To do that, it issued a reengineering project to reduce overhead and proprietary connections, which involved using ISO 20022 as an enabler to go from 400 interfaces to one.

“Now, they just create one file output, which includes a payment, the payment information and instruction, the value and the country — then, it’s up to the banks to figure out how to route that to the different clearing systems, and that’s what the mapping guide does,” Unger explained.

The Path To Ignition

Corporates have to want to create the efficiency, and once the desire is there, the ACH Network and banks are already capable of supporting the ISO 20022 standard.

As Throckmorton noted, increasing the understanding and eventual adoption of the standard requires figuring out what the triggers are that may drive corporates to begin adopting ISO further.

But it starts with the company wanting to invest in this, because they are doing a back-office conversion for a specific business reason.

Throckmorton said that what NACHA has discovered is that, in most cases, this driving force ends up being the desire for increased payment efficiency. As part of that enhancement, the opportunity is there to incorporate the ISO standard into the way that they do business.

While there is a lot of talk surrounding ISO adoption, Throckmorton made it clear that it’s a slow-moving type of trend that will require continuing to watch how the needs of the market evolve relative to its increased usage of ISO.

When thinking about the way forward, he added that NACHA plans to listen to and engage with the corporate community to provide the right educational resources surrounding ISO 20022.

“From an education standpoint, there’s still a pretty significant gap in the U.S. — it’s really hard to have that initial dialogue when there’s a lack of understanding,” Throckmorton explained.

Because ISO may not be on the radar of corporates, he said it’s about instead starting the conversation with the right questions: Are you looking at ways to increase efficiency? Are you trying to reduce costs and streamline processes? Do you want greater portability?

ISO is one of the things that can help corporates get where they want to be.

“When these corporates are ready, the Network is ready,” Throckmorton said.

“If you’re a corporation and right now you say you would like to send an ISO payment instruction to complete an ACH payment, we have a tool that can be used to do that.”