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Payments and ISO 20022 in the U.S. Market

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Breakout session: Payments and ISO 20022 in the U.S. Market

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Payments and ISO 20022 in the U.S. Market

  1. 1. ISO® 20022 Update U.S. High-Value & Low-Value Systems SWIFT Standards Forum Breakout Session Payments and ISO 20022 in the U.S. Market May 12, 2016 Nell Campbell-Drake, Federal Reserve Bank of Atlanta Gina Russo, Federal Reserve Bank of New York Jim McDade, The Clearing House
  2. 2. ISO 20022 Happenings in the U.S. 2 Not at all familiar Very familiar Somewhat familiar Not very familiar 61% 1% 9% 29% 2012 ISO 20022 Remittance Coalition Study 2014 ISO 20022 U.S. Stakeholder Group – Business Case Assessment No compelling financial business case, but potential strategic reasons to adopt Four Strategic Phases 1. Planning and Education Promote educational efforts and develop a national strategy for adoption 2. Cross-Border Payments Enable cross-border wire payments, following by cross-border ACH payments 3. Domestic Payments Assess value proposition and timing for adoption for domestic wire and ACH payments 4. Additional Consideration Consider as the standard messaging format for new products and services 2015 Federal Reserve: Strategies for Improving the U.S. Payments System Strategy 4 – achieve greater end-to-end efficiency for domestic and cross-border payments 2014 Press Release – undertake a multi-year effort to design and develop a secure, real-time payment system incorporating ISO 20022 standard 2015 NACHA White Paper – introduction to ISO 20022 for U.S. Financial Institutions 2
  3. 3. High-Value Systems 3 3
  4. 4. ISO 20022 for U.S. Wire Transfer Systems Proposed High-Level Implementation Strategy Scope  Include both domestic & cross-border wire payments  Include both inputs and outputs for the U.S. wire systems (all message types, inquiries, reports, etc.)  Include enhancements based on industry feedback Approach Two-phased approach that includes mandated sunset date for legacy formats: 1. Require all banks to receive ISO 20022 − Fedwire® Funds Service & CHIPS® will translate legacy formats to ISO 20022 during conversion period 2. Require all banks to send ISO 20022 − Legacy formats will sunset at end of this phase 4
  5. 5. ISO 20022 for U.S. Wire Transfer Systems Preliminary High-Level Timeline Detailed Planning (2016/2017) Finalize planning & announce format specifications (2017) Application development & internal testing (2018) Fedwire/CHIPS customer testing (2019) Fedwire/CHIPS begin production rollout (2020) Rollout complete & sunset legacy format (TBD) Detailed Planning Activities  Develop customer communications plans  Define project teams, detailed project plans, and timelines  Ensure ISO 20022 can accommodate everything needed for Fedwire Funds Service & CHIPS  Identify the specific ISO 20022 messages and fields that will be needed for Fedwire Funds Service & CHIPS − Could provide opportunity to streamline processes or eliminate messages with little or no usage − May identify changes needed to ISO message formats  Collaborate with the industry to identify, prioritize & design enhancements that will be included in implementations  Define format specifications/message implementation guides & validate with industry 5 5
  6. 6. Recent ISO 20022 Activities  In March, the Fed sent customer communication to announce intention to adopt ISO 20022 messages for the Fedwire Funds Service, including high-level implementation approach and timeline. − Additional ISO 20022 updates will posted at: https://fedpaymentsimprovement.org/  Updated the ISO 20022 use cases for U.S. wire transfer systems by adding an executive summary and additional use cases related to the “negative” business case and a corporate use case. ̶ Fed webinars on April 26 & May 17  Joined Swift’s high-value market practices task force to review the PACS messages to come up with best practices for an ISO 20022 implementation that goes beyond a like-for-like approach ̶ June workshop at Swift offices in London 6 6
  7. 7. ISO 20022 Use Case for Wire Transfer SystemsCompliance with domestic & global regulatory requirements Domestic & cross-border interoperabilit y Negative business case Single end- to-end payment file format Consistent format for extended remittance information (ERI) End-to-end payment tracking Next generation workforce Enhanced corporate capabilities 7 7
  8. 8. ISO 20022 Next Steps  Create ISO 20022 detailed project plan  Begin detailed planning work to determine how ISO 20022 messages will be used on Fedwire Funds Service & CHIPS  Engage industry to discuss potential enhancements that could be included in an ISO 20022 implementation  Provide update at Sibos conference in September 8 8
  9. 9. Low-Value Systems 9 9
  10. 10. 10 ISO 20022 Strategies for the ACH Network Industry tools and solutions that allow for the translation and integration of the ISO 20022 payment message standard for both payments initiation and payments remittance, incorporating the current ACH formats supported by the NACHA operating rules ACH Integration ACH Conversion Current file formats converted to ISO 20022 payment messages for all ACH payment types to all endpoints, supported by the NACHA operating rules, as revised to support different ISO formats and messages 10
  11. 11. 11 ISO 20022 ACH Integration Solutions in the Marketplace ACH Integration NACHA XML-ACH Remittance Opt-In Program (2013) Defines rules for the exchange of ISO 20022 formatted remittance messages for B2B transactions in a standardized XML format that supports extensive remittance information https://www.nacha.org/programs/xml-ach- remittance-xml-ach NACHA ISO 2002 Mapping Guide (2015) Provides standardized guidance to facilitate translation of ISO 20022 payment initiation credit transfer payment messages into ACH transactions https://www.nacha.org/iso-20022-mapping 11
  12. 12. Corporate originator requests for a single payment instruction for multiple payment types Elimination of data truncation and field length restrictions Improvements in financial institutions’ abilities to comply with growing regulatory requirements The need for the use of a modern programming language Interoperability with cross-border payments USE Cases Flexible options to carry payments information Use cases identified for converting the current ACH formats to ISO 20022 payment messages have similarities to the Wire use cases ISO 20022 ACH Conversion Exploration 12 ACH Conversion
  13. 13. 13 Potential triggers and/or events that may influence conversion Will the U.S. ACH Network Convert to an ISO Format? Significant gaps or opportunities Technology modernization System STP opportunities Cost justification Regulation Significant gaps or opportunities not met by ISO 20022 ACH integration impacting users ACH Operators complete significant system and operation modernization efforts that create a catalyst for ACH format conversion Benefits of ISO 20022 ACH format conversion justify the potential industry Regulatory/mandatory requirements Adjacent systems that facilitate STP are updated to support ISO formats for all parties and processes in the ACH flow
  14. 14.  Enhancements to NACHA ISO 20022 ACH integration solutions in the marketplace  Continued industry outreach and collaboration to obtain feedback on potential triggers and document use case studies  Identify additional areas where work today can be leveraged to help move to tomorrow  Continued work with the U.S. ISO 20022 Stakeholder Group on events and tools to educate industry on ISO and opportunities for low-value payments. ISO 20022 Next Steps for ACH 14
  15. 15. More Information on ISO 20022 • NACHA Resource Center Web site − https://www.nacha.org/ISOresources • Federal Reserve Resource Center Web site − https://fedpaymentsimprovement.org/payments-efficiency/iso-20022/ • Remittance Coalition - Federal Reserve Resource Center Web site − https://fedpaymentsimprovement.org/wp-content/uploads/understanding- iso-20022.pdf 15 15
  16. 16. Notices • “ISO” is a registered service mark of the International Organization for Standardization. • “Fedwire” is a registered service mark of the Federal Reserve Banks. • “CHIPS” is a registered service mark of The Clearing House Payments Company L.L.C. • “SWIFT” is a registered trademark of S.W.I.F.T. SCRL. The Federal Reserve Banks do not sponsor, endorse, or recommend (or provide any warranties, express or implied, regarding) any third party or any third-party products or services referenced in this presentation. 16

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