Contributed by Chesapeake’s John Snyder, Vice President of Business Development

How ISO 20022 Relates to Chesapeake

Chesapeake is in the financial software business and is rapidly developing a diverse, international, enterprise-level customer base. Thus, ISO 20022 will affect our products in the years ahead. Over the short term, two ISO 20022 application areas already carry implications for our SmartAnalysis:

1. The X12 822 standard is only used in the United States. To address the need for an international account analysis reporting standard, International Bank Compensation (IBC) partnered with the Transaction Workflow Innovation Standards Team (TWIST) to create the Bank Services Billing (BSB) standard. TWIST BSB, which was published several years ago, is being adopted by banks around the world. Notably, its design incorporated compatibility with ISO 20022 guidelines, and it has been submitted for incorporation into ISO 20022. Chesapeake enhanced SmartAnalysis to process TWIST BSB files as an alternative to X12 822 files. The TWIST BSB standard does not include bank service code specifications. It includes a data field designated for a service code but offers no instructions on what values to enter. TWIST was willing to let banks create their own codes. However, this missing element created a serious barrier to bank adoption of TWIST BSB. On the other hand, X12 822 clearly identifies the AFP service codes as part of the standard. Unfortunately, the AFP codes are not suitable for international use because AFP does not define a number of common bank service fees used outside the United States. Seeing this problem, AFP offered to revise its current code set to add the missing international codes. AFP recently published a proposed revised code set for review, called Global Service Codes, and Chesapeake participated in that review. SmartAnalysis user-defined code functionality guarantees that no product enhancements will be necessary to fully support the new AFP codes when implemented.
2. One of the most burdensome, non-automated tasks associated with corporate banking is account management – opening, closing, updating, changing signature authority, etc. Most activity occurs via non-standardized forms and phone calls. SWIFT took the initiative to solve this problem by creating an ISO 20022 message set for Electronic Bank Account Management (eBAM), which some banks and their large corporate customers are already using. Notably, SmartAnalysis already has a Relationship Manager module to maintain all of the demographics and parameters associated with bank accounts. Chesapeake is currently designing the best way to incorporate eBAM into this processing.

On another front, in 2009, the mantle of bank data reporting standards keeper was passed from BAI to ISO 20022. Over the years, banks will start sending ISO 20022 CAMT (cash management) message files instead of BAI files. That change will affect Chesapeake’s T-Recs Enterprise and Internet Data Manager (IDM). Both products are very BAI “aware” and will need to be able to understand the new messages just as well.

Two benefits accompany this change:

1. ISO 20022 will impose much more consistency in balance and transaction typing.
2. The same message set will include a replacement for SWIFT MT 940 statements (T-Recs Enterprise also is MT 940 “aware”) making it a single universal standard.

One other aspect of ISO 20022 will affect T-Recs Enterprise: the payments message set. As these messages become widely used for payments and transfers, Chesapeake will need to build them into import and export processing.

So, there is a lot of activity going on relative to ISO 20022. It will affect not only Chesapeake software but also most of our customers eventually. Fortunately, the changes are generally beneficial, adding and standardizing data while streamlining and automating processing. Those are all good things.

We want to get your feedback. Where do you see ISO 20022 becoming a requirement from your perspective? Are you processing ISO 20022 messages already? If so, what messages and for what applications? Do you see view ISO 20011 as a hassle or a business opportunity? Please comment!

If you have any questions, you can contact Chesapeake Systems Solutions by calling 410.356.6805 or visitChessys.com today!

Chesapeake provides industry-leading, end-to-end financial solutions that seamlessly integrate cash management/treasury with general ledger account reconciliation, account analysis, and regulatory compliance functions. Information-sharing across all applications optimizes funds management, improves the financial close process, increases the efficiency and accuracy of general ledger account reconciliation, and simplifies compliance by enforcing company policies and procedures and financial regulations. Chesapeake solutions deliver actionable information and productivity improvements that can benefit a wide range of organizations, yielding tangible ROI from your software investment. From retailers to banks and financial services organizations to insurance companies, Chesapeake solutions help minimize risk, reduce costs, and maximize profitability.

You can also follow Chesapeake on Facebook, Twitter, and LinkedIn.

History and Scope

The International Organization for Standardization (ISO) has been working on formulating a comprehensive, open, public financial messaging standard since the early 2000s. Known as 20022, it is a third-generation project, preceded by the original 7775 and more recently by 15022 (focused on security trading). ISO 20022, also called the UNIversal Financial Industry Message scheme (UNIFI), is more than just a financial messaging set standard framework. It is a full development methodology (providing a process for registering and certifying new standards) and a repository for certified standards. XMLformatted data provides the basis for its message syntax.

SWIFT supports and promotes ISO 20022; however, ISO 20022 does not specify a network transport mechanism. Message files can be moved in any way the business partners like, from “sneaker net” to state-of-the-art wireless. Nevertheless, SWIFT considers itself the preferred network, with some justification. It is secure, reliable and already embedded within the financial services industry worldwide. It doesn’t hurt either that ISO 20022 message traffic could help expand SWIFT’s presence in the corporate marketplace.

The abundance of software available to convert other message formats into ISO 20022 speaks to ISO 20022’s importance and influence. ISO 20022 message sets currently include the following major areas:

• Payments
• Securities
• Trade services
• Foreign exchange
• Cards and retail (credit, debit, merchants, etc.)
• Bank management and reporting
• Corporate actions

If you want to learn more, there is a wealth of reference material and news related to ISO 20022 on the web. Start with www.iso20022.org.

Check back next week for the conclusion of this 3 part series: How ISO 20022 Relates to Chesapeake Systems Solutions.

If you have any questions, you can contact Chesapeake Systems Solutions by calling 410.356.6805 or visit Chessys.com today!

Chesapeake provides industry-leading, end-to-end financial solutions that seamlessly integrate cash management/treasury with general ledger account reconciliation, account analysis, and regulatory compliance functions. Information-sharing across all applications optimizes funds management, improves the financial close process, increases the efficiency and accuracy of general ledger account reconciliation, and simplifies compliance by enforcing company policies and procedures and financial regulations. Chesapeake solutions deliver actionable information and productivity improvements that can benefit a wide range of organizations, yielding tangible ROI from your software investment. From retailers to banks and financial services organizations to insurance companies, Chesapeake solutions help minimize risk, reduce costs, and maximize profitability.

You can also follow Chesapeake on Facebook, Twitter, and LinkedIn.

The Big Picture

Today we live in a world of electronic messaging. From email to IM to text to Twitter to Facebook, each technology carries its own standard for creating, communicating and consuming messages. As the old saying goes, “The great thing about standards is that there are so many from which to choose.”

In the world of finance, messaging is a serious concern. After all, these communications involve money, not silly tweets. However, here too, there is an overabundance of messaging standards ranging from BAI to NACHA to SWIFT to EDI to XBRL to FIX, and more. You might wonder, “Why can’t we all just get along and speak the same language?” The not-so-simple answer is: Because most of these languages have been around for decades, and each is associated with a specific communication system and purpose.

Further, all are embedded within untold corporate software systems. It isn’t broke; it’s just messy and inefficient. So, do we need to fix it? The answer, at least over the long run, is “yes” for a number of compelling reasons. First and foremost, international commerce is expanding. Yet, there are two standards just for Electronic Data Interchange (EDI), which enables the  basic transfer of business documents. They are: ASC X12, employed within the United States, and EDIFACT, used by the rest of the world. ASC X12 contains the 822 transaction set, the standard for bank account analysis used exclusively in the United States. Why doesn’t the rest of the world adopt 822? Because it is part of ASC X12 and its standard bank service code definitions do not accommodate bank services, fees and charges that are common outside the United States. Conversely, EDIFACT does not offer any equivalent to 822.

The second reason is the need to improve efficiency. Expanding commerce means more message traffic. We need to minimize, if not completely eliminate, human interaction with messages. That is, we need to achieve straight through processing (STP), or executing the complete business transaction life cycle untouched by human hands. Having different standards doesn’t mean that the same data are contained in different looking packages. Every standard has a different perspective on content.

For example, an invoice may start out as an X12 810, resulting in a NACHA payment credit, which, in turn, is reported as a BAI debit to the originating account. Essentially, it is the same transaction in three different forms. But, even in the simplest case, data content will be changed, added and deleted along the way, as it is mapped from one standard to another. In a perfect world where a common standard exists, transformation processing would be unnecessary and all data would be preserved along the way.

The third reason is technology obsolescence. Standard development derived from old technology requirements, and a lot of this technology no longer exists. For example, BAI 88 continuation records and NACHA record and block sizes harken back to the days of punch cards and magnetic tape when data block length needed to be limited and managed.

Likewise, older computers offered limited bandwidth, and there was no Internet for sending data around the world on demand. These limitations are long gone, but their remnants create unnecessary complexity and inefficiency. They also make it difficult for humans to simply look at data and make sense out of it. Still, new technology exists and must be leveraged.

The final reason is the need for new messages to accommodate new financial functions and data. Instead of creating yet another disparate approach that, at best, tries to avoid the errors of the past, wouldn’t it be great to have one intelligent and consistent framework? That is what ISO 20022 is all about.

Check back next week for part 2 of this 3 part series: History and Scope.

If you have any questions, you can contact Chesapeake Systems Solutions by calling 410.356.6805 or visit Chessys.com today!

Chesapeake provides industry-leading, end-to-end financial solutions that seamlessly integrate cash management/treasury with general ledger account reconciliation, account analysis, and regulatory compliance functions. Information-sharing across all applications optimizes funds management, improves the financial close process, increases the efficiency and accuracy of general ledger account reconciliation, and simplifies compliance by enforcing company policies and procedures and financial regulations. Chesapeake solutions deliver actionable information and productivity improvements that can benefit a wide range of organizations, yielding tangible ROI from your software investment. From retailers to banks and financial services organizations to insurance companies, Chesapeake solutions help minimize risk, reduce costs, and maximize profitability.

You can also follow Chesapeake on Facebook, Twitter, and LinkedIn.