Data & Dollars Delivery: NACHA’s Roadmap for XML in the ACH

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[insert RPA Name] is a specially recognized and licensed provider of ACH education,
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Professional (AAP) is a service mark of NACHA.
Data & Dollars Delivery:
NACHA Roadmap for XML in the ACH
George Throckmorton, Managing Director, NACHA
Nasreen Quibria, Executive Consultant, CGI
Robert Unger, Senior Director, NACHA
© 2013 [Insert RPA Name]. All rights reserved. Through its Direct Membership in NACHA
[insert RPA Name] is a specially recognized and licensed provider of ACH education,
publications, and support. Regional Payments Associations are directly engaged in the
NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns
the copyright for the NACH A Operating Rules & Guidelines. The Accredited ACH
Professional (AAP) is a service mark of NACHA.

2
Agenda
• Business drivers/background
• Stakeholder assessment and requirements
• Opt-in rules for using XML in the ACH

3
Business Drivers for XML in the ACH
• Scope: XML formatted remittance data for B2B transactions
• Market Opportunity
– 13.3 billion B2B remittances/month sent separately from payment
• 15.5 billion remittances per month for U.S.-based companies and their
trading partners worldwide
• 10% sent US B2B remittances are sent with the payment using
standardized formats; 56% must be rekeyed
• Data and dollars together is a preference when combined with value-
added services for payment processing
– Small businesses make up more than 50% of trading partners
• Negligible use of EDI
– Payment system migration to XML
• Wire systems ERI
• Growing usage of XML in supply chain
• Desire for payment system harmonization
Source: Aite Group and Aite Group survey of 240 receivables or
payablesmanagersor experts at U.S.-based companies

4
Of U.S. remittance volumes by channel, only 10% are sent
with the payment using standards
Method or Channel for Providing Remittance Details
Number of
Monthly
Remittances
(billions)
1 Sent by mail 2.6
2 Provided through a bank or third-party lockbox resource 2.2
3 Included with the payment in an unstructured or freeform format 1.7
4 Provided at a location such as an online banking site or the remitter's website that is accessed with a code or
key
1.6
5 Included with the payment in a format supported by a standards group 1.5
5 Sent by email 1.5
6 Provided in Electronic Data Interchange, or EDI, format directly to your company from your trading partner 1.2
7 Provided through a value-added network in Electronic Data Interchange, or EDI, format 1.1
8 Provided by SWIFT (Society for Worldwide Interbank Financial Telecommunications) 0.8
9 Provided by Telephone 0.5
10 Sent by fax 0.4
10 Provided by a trading partner network that is supported by a third-party vendor, such as Ariba or SunGard 0.4
Source: Aite Group
10% of 15.5 billion
remittances

5
. . ., 56% must be re-keyed
Method or Channel for Providing Remittance Details
Number of
Monthly
Remittances
(billions)
1 Sent by mail 2.6
2 Provided through a bank or third-party lockbox resource 2.2
3 Included with the payment in an unstructured or freeform format 1.7
4 Provided at a location such as an online banking site or the remitter's website that is accessed with a code or
key
1.6
5 Included with the payment in a format supported by a standards group 1.5
5 Sent by email 1.5
6 Provided in Electronic Data Interchange, or EDI, format directly to your company from your trading partner 1.2
7 Provided through a value-added network in Electronic Data Interchange, or EDI, format 1.1
8 Provided by SWIFT (Society for Worldwide Interbank Financial Telecommunications) 0.8
9 Provided by Telephone 0.5
10 Sent by fax 0.4
10 Provided by a trading partner network that is supported by a third-party vendor, such as Ariba or SunGard 0.4
8.7 billion, or 56%, of 15.5 billion
Source: Aite Group

6
Overwhelmingly, U.S.-based companies’ receivables
respondents would like wire transfer and ACH remittance
data to be in the same format
Source: Aite Group survey of 240 receivablesor payablesexperts at U.S.-based companies,
Januaryto March 2012

7
XML Background/Timeline
• NACHA issued a “facilitating XML in ACH payments” request
for comment that closed on January 9, 2009
– Summarized response data indicated an interest for supporting
XML formatted remittance for corporate and small business but
no consensus on a path forward
– Summarized response data identified a growing trend among
end users of utilizing XML formatted data for payments
remittance and identified two areas of possible focus
• A strategy to support early adopters of XML remittance, as well as
long term ubiquity
• Standardized use of XML formatted data

8
Background/Timeline
• NACHA completed an XML strategy entitled
“Recommendation To Support XML Formats On The ACH
Network for Payments Remittances" with consultant
Urban Micro
– The strategy identified a phased approached
• Phase 1 – development of an opt-in program utilizing a NACHA
XML data dictionary and schema
• Phase 2 – development of an ISO20022 stand-alone remittance
specification
• NACHA joined IFX Forum to assist XML/ISO20022
remittance standardization effort

9
NACHA Standardized XML Remittance Opt-In Program
Development
• NACHA contracted CGI (former Logica) to assist in the
development of the opt-in program. Deliverables of the project
included:
– Assessment of current industry payments remittance “lifecycle”
including transaction flows and processing
– Evaluation of stakeholder impacts
– Evaluation of potential XML standards and schema
– Harmonization of Fedwire ERI Tags and ISO20022
– Development of best practice and guidelines for opt-in participation
– Development of phase 2 strategy for ISO20022 stand-alone
remittance support

10
Agenda

11
No. 11
The Path to Incorporating XML in ACH
Addenda Records…

12
World’s 5th largest independent IT and BPS firm
10,000 clients across
the globe
71,000 professionals,
85% shareholders*
High-end business
and IT consulting
100+ mission-critical
IP-based solutions
$10+B annualized
revenue
400 offices,
40 countries around
the world
System integration, IT
and business process
outsourcing
Client satisfaction:
9.1/10
Who is CGI?
* Before Logica

13
CGI Analysis
Overview of
Current State in
the Industry
• Corporate Remittance
Process Flow Lifecycle

14
Large Corporate
Originator
Customer Account Number
Customer Name
Invoice Gross Amount
Amount Paid
Invoice Number
Invoice Date
PO Number
Discount
Adjustment Amount
Adjustment Code
Smaller
Corporate
Originator
The Clearinghouse / The Federal Reserve
ACH Operator
ODFI
1
1
2
4
3
ODFI
Translator
ODFI ACH
Processing
Repository
Services
Warehouse
ACH Processor
( e.g., PEP+, Fundtech)
validates addenda record
count (but not content or
addenda data format). On
us transactions stripped
and processed in-house.
Non on-us transaction sent
to ACH Operator.
ODFI Translator
(e.g., homegrown, Sterling
GentTran, GXS, Clear2Pay,
Software AG WebMethods, Jack
Henry, etc.) create ACH/EDI file
as necessary – or – according to
orginator/receiver profile – may
also create check or wire. Also
determines if remittance is
included in a CTX, or is available
for re-association using the
Individual ID field as the re-
association key
Repository Warehouse
provides services such as
Positive Pay, origination
reporting, research, etc.
Smaller business may use
an ACH Web Service
(provided by the bank or
other payment company)
or other business package
with module (e.g., S1) –
could have direct
connection (e.g. online
banking) or an HTTP
upload)..
• Large corporate use
accounting software
(e.g., SAP, Oracle)
create file in EDI or other
specified format (e.g.,
iDoc format with each
customer having e a
different iDoc
configuration)
• Large corporate could
also send a fully
formatted CTX
Payment and
Remittance
Data
Payment / Remittance Origination – Processes and Affected Systems

15
Large Corporate
Originator
Payment and
Remittance Data
Customer Account Number
Customer Name
Invoice Gross Amount
Amount Paid
Invoice Number
Invoice Date
PO Number
Discount
Adjustment Amount
Adjustment Code
Smaller Corporate
Originator
The Clearinghouse / The Federal Reserve
ACH Operator
1
2
4
3
RDFI
Translator
RDFI ACH
Processing
Receiver DDA
Limited information – no addenda
(format depends on posting application)
4
Archived transactions for
research)
RDFI ACH History
Warehouse
RDFI Receiver
Services
Information reporting (e.g., intra-day
and previous day for receiver to
track posted transactions) – (format
depends on posting application)
Small corporate options for
receiving addenda: web
view, fax, mail
Large corporate options
for receiving addenda:
direct transmission (raw
data), translated file,
custom formats –
parameter driven per
customer profile
ACH Processor
(e.g., PEP+, Fundtech)
receives and validates
file/addenda record
count (but not content or
addenda data format)
Addenda translated –
options provided to
Receiver for
viewing/downloading
Payment / Remittance Receipt – Processes and Affected Systems

16
CGI Analysis
Overview of
Current State in
the Industry
• XML in the Business
Environment
Evaluation of
Fedwire ERI
• Validation of ISO 20022
compliance
• Applicability to ACH with
addenda
• Current assessment and
findings
• Comparison of Fedwire
ERI and ACH with
Addenda

17
ACH with Addenda Records Fedwire ERI/ISO 20022 Impact of ISO XML in the ACHFormatIdentifier
NACHA formats indicate the
existence of an addenda
record with ‘7’ in Entry Detail
Addenda Record. Addenda
type ‘05’ follows, which is valid
for SEC Codes ACK, ATX, CCD,
CIE, CTX, DNE, ENR, PPD and
TRX.
If used the Addenda Record
must follow the entry detail
record with which it is
associated and that entry
detail record must have “1” in
position 79.
8200 tag indicates the existence of
unstructured addenda information
of a Fedwire CTP message
The ability to count, monitor risk, etc.
will require a new SEC Code, or
change in the record format e.g.,
addenda record indicator to use “1”
for addenda, “2” for EDI ANSI X12,
and “3” for XML, which will also have
an operator impact.
Formats
ANSI or NACHA banking
convention
Unstructured addenda information
in wires specifies format (can be
XML, STP 820, SWIFT, etc.)
No identifiable concern
Numberof
Remittances
CTX allows multiple remittance
information
Supports approximately up to 30
invoices in a single wire transfer
payment
No identifiable concern
Comparison of Fedwire ERI and ACH with Addenda

18
ACH with Addenda Records Fedwire ERI/ISO 20022 Impact of ISO XML in the ACH
Length
CTX allows 9,999 addenda
records with 80 characters
in length
Allows approximately 9,000
characters of unstructured, related, or
structured remittance information
e.g., Fed/ISO format allows 2048
characters for URL
According to the Aite/NACHA remittance
study, 9,999 characters will be more than
sufficient to handle typical remittance
information. One initial concern was that if
information must be split into two or more
entries, the resulting complications may
cause some potential participants to
discount the use of XML. However, current
vendor solutions have the ability to
concatenate data with minimal effort.
ValidCharacterSet
Valid character sets for ACH
follows the ASCII code chart
The Fedwire IXML format follows the
SWIFT ISO 20022 message
standards, which restrict the allowed
characters for free text XML
elements to Basic Latin. The Fed
encountered several issues with
special characters identified.
No Identifiable special characters of
concern to prompt rejection at the Operator
level, if SWIFT ISO 20022 message
standards are followed. Need to further
investigate carriage return and line feed, as
they may be required to be substituted for
“good” character sets. The official ISO
20022 message standards conform to the
UNICODE character set, though SEPA also
adheres to the limited character set of Basic
Latin.
Timing
Batch Real-time No identifiable concern
Comparison of Fedwire ERI and ACH with Addenda

19
CGI Analysis
Overview of
Current State in
the Industry
• XML in the Business
Environment
Evaluation of
Fedwire ERI
• Validation of ISO 20022
compliance
• Applicability to ACH with
addenda
• Current assessment and
findings
• Comparison of Fedwire
ERI and ACH with
Addenda
Evaluation of XML
standards and
schemas
CGI Proposed
Model
• Schema Standards /
Languages
• XML Schema
Specifications

20
CGI Proposed Model
Elements of the Proposed Model
• NACHA rules will permit payment-related information in
XML format to be included in the ACH addenda.
• XML schema supported by the NACHA guidelines will be
XSD.
• The Standard Entry Class Codes available for XML
transactions will be CTX.
• No changes in the detail record to indicate XML formatted
addenda will be required.

21
How does it work?

22
Sample CTX with XML Remittance Data
XML
Declaration,
tells device
opening the
file that it is
XML
compliant

23
Sample CTX with XML Remittance Data
continued…

24
Rules Assessment – CGI Recommendation
Mandatory
versus
Opt-in Approach?
• Phase I – Utilize an Opt-in or optional service
• Phase II – When ISO 20022 approved standard is available for XML
remittance information, mandate requirement of receipt of XML
remittance data

25
B2B transactions involve companies with different resource levels and technological
capabilities. For this reason, the operational impact varies by type of company in the
remittance process flow lifecycle – whether a corporate, financial institution, solution
provider/processor, or operator – and size of company.
Stakeholder Impact
Corporate Small - Medium
Financial Institution Small - Large
Solution Provider/Processor Small - Large
Operator Small
Operational Impacts for Stakeholders

26
• Facilitate more electronification of B2B remittance process and attract small and
midsize companies in the process
• Create additional revenue streams for banks and solution providers to offer
payments remittance services
• Risk of banks losing customers to competitors that can provide value
add/convenience to corporate and small business customers in support of
payments remittance processing
• Financial institutions that are already in the process of technology upgrades,
particularly those whose banking architectures have been in place for 20 to 30
years and looking for flexibility and agility with new technology
• Current industry developments - High-end applications are increasingly
supporting XML in financial services, and the migration to XML in payments
remittance is a natural progression
• The lower cost of XML (in contrast to EDI) may result in other companies
entering the payments remittance market
• XML can provide businesses another alternative to achieve straight-through
processing of payment-related information
Opportunities for Stakeholders

27
No. 27
Key Best Practices for Stakeholders
• Validate and if required
translate or repair remittance
information in NACHA
recommended XML standard
• Communicate with your
customers
• If provide translation services
from other formats to
standard XML format, validate
• Provide training and support
• Evaluate impact that XML
remittance may have on other
internal systems
• Special handling of remittance
information separate from
payment
ODFI
• Support ability to receive XML remittance
information included with ACH payments
• Evaluate remittance reporting channels and
formats to determine which ones will be used
for the reporting of remittance information
received in XML format
• Provide the ability to translate the XML
remittance information to the reporting
formats that you plan to make available to
customers
• Communicate with customers
• Validate the XML translationsagainst industry
standardsfor compliance for each channel
and format
• Special handling of remittance information
separate from payment
• Discuss with your customers
their requirementsfor XML
remittance information in ACH
payments
• Consider supporting XML
remittance addenda to your
ACH solutions
payment
• Evaluate the impact that new
XML remittance information
may have on the delivery
mechanism or connection to
and from the Federal Reserve
Banksand EPN
…to name a few
RDFI Solution Providers

28
No. 28
Key Best Practices for Stakeholders
• Communicate with your bank
• Evaluate your ACH origination
software systems to determine
whether you can support the
sending of XML remittance
information
• Evaluate you’re A/P process for
ACH remittance information
previously sent via other
channelssuch as email or mail
can be migrated
payment
• Validate ACH remittance
information for compliance with
NACHA recommended XML
standard
Originator
• Communicate with your bank
• Review software products used to process
incoming ACH payments(e.g., A/R. treasury
workstation, or ERP) and discuss with your
software providers whether they support or
plan to support remittance information in XML
• Communicate with your customers
• Special handling of remittance information
separate from payment
• ACH operators should send on
all XML remittance addenda
that travel with ACH payments
• Maintain and provide a
directory or list of the financial
insitutitions that have opted-in
for XML remittance addenda
with ACH payments
…to name a few
Receiver Operators

29
Agenda

30
NACHA Opt-in Program Defined
• Opt-in program features:
– Projects, Programs or Pilots developed for a subset of
ACH Network users
– Participants bound by “opt-in” rules in addition to the
NACHA Rules, and are bound by a participant agreement
• NACHA creates, owns, and governs participant and ACH rules
– No impact (e.g., operational support, development, cost) to
non participants
• Opt-in program for XML formatted remittance data in
CTX payments approved by NACHA Rules/Operations
Committee January 2013

31
XML Process Flows – Identical to EDI Flows

32
Opt-in Rules for XML Formatted Remittance Data
• Participation
– Participants must sign participation agreement with NACHA and
will be bound by the opt-in rules as well as the NACHA Rules
– Financial institutions must register as both ODFI and RDFI
– NACHA will maintain the list of participants
• Transactions
– Opt-in rules apply only to CTX
– There will be no operator validation of addenda records
– Only data tags identified in the NACHA data dictionary can be
included in remittance files
– No changes required for 5-6-7 header records.
• XML-formatted addenda will specifically be identified by the
XML Declaration, or the first line in the 7 record e.g., <?xml
version="1.0" encoding="UTF-8"?>

33
Opt-in XML Schema (sample)
Name Description Example
XML Declaration The first line in every XML file is the XML
Declaration. It tells the device opening it that
the file is XML compliant. The version
attribute specifies the version of XML in use,
while the encoding attribute specifies what
character encoding was used to create the
XML file, so the information is displayed
properly
<?xml version="1.0" encoding="UTF-8"?>
Schema Element In the rest of the schema, defines the
Elements and Attributes. The subsequent
line alerts the interpreter that this information
is XML Schema, and provides the location of
the Schema. (Schemas must be located in a
completely separate file outside of XML. The
separate file defines the elements and
attributes that work together to define the
content.)
<xsd:schmema xmlns: xsd="http://www.w3.org/2001/XML
Schema">
XML Schema Syntax
And more!

34
Opt-in XML Data Dictionary (sample)
Data Element Description Tag Name
Occur-
rence
Type Example Data
Manda-tory or
Option’l
RemittanceAdviceHeader
XML Declaration Declares XML version and
encoding
[1..1] Text <?xml version="1.0" encoding="UTF-
8"?>
M
InitiatingParty Party initiating the payment [1..1] M
ForwardingAgent Originator's agent [0..1] O
PayerPaymentReference Payer's unique reference
number for the payment
[1..1] Max35Text O
PaymentDate Payment send date [1..1] ISO Date M
PaymentAmountTotal Total amount of payment [1..1] CurrencyAndAmount M
Data Dictionary ACH Remittance Information
And more!

35
Next Steps
• Phase 1: opt-in program
– Features: Opt-in rules/agreement, NACHA defined XML
schema and data dictionary
• Phase 2: implement ISO20022 standard
– NACHA prefers to reference supported, external
standards (e.g., EDI is managed by ANSI X12)
– NACHA participating with the IFX Forum (a submitting body to
ISO) to develop international remittance specification
– Phase 2 features: Updating NACHA Rules, ISO defined XML
schema and data dictionary
– Status: IFX Forum submitting materials for ISO 20022 approval
2nd quarter

36
No. 36
George Throckmorton| Managing Director
GThrockmorton@NACHA.ORG
(o) 804.737.8200
Robert Unger | Senior Director
RUnger@NACHA.ORG
(o) 703.561.3913
Questions? Contact Us
Nasreen Quibria| Executive Consultant
Nasreen.Quibria@cgi.com
(o) 781.373.8554

Data & Dollars Delivery: NACHA’s Roadmap for XML in the ACH

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Data & Dollars Delivery: NACHA’s Roadmap for XML in the ACH