4 ISO20022 myths debunked

August 23, 2012  |  Electronic Invoicing, Europe, Payment

This article is based on the post “The unavoidable opportunities of ISO 20022” by Zanders Treasury and Finance Solutions. They take all the credits and IP.

This year the European Commission set the SEPA deadline for 1 February 2014. As from that date, SEPA will replace all local payment systems. Also the overall majority of regular payments and collections in the euro zone will have to be processed as a SEPA payment as of 1 February 2014.

So now is the time to take action to replace the current – not SEPA compliant – formats to prevent a disruption in the payment process.

SEPA and ISO 20022 myths

The most logical choice for a new standard seems to be ISO 20022. Banks, corporates, SWIFT and other parties involved set themselves the task of creating a standard for the exchange of all financial data. And, ISO 20022 not only arranges for the traditional payment instruction, but also the reporting, additional invoice information and status messaging. Finally, ISO 20022 could also be used for other financial data communication such as e-invoicing and electronic bank account management (eBAM).

Despite, or perhaps due to, the increased interest in ISO 20022 some myths were born. Time to take a look at these myths and debunk them:


ISO is plug-and-play

Unfortunately, it isn’t. Payments are indeed being processed in accordance with a uniform standard, but they can differ considerably per country and per bank. ISO 20022 only prescribes the format in which information can be exchanged.
Because countries need different payment information or instructions, the format of the ISO 20022 XML file will undoubtedly differ per country. So a seperate implementation process per country is required.

On top of that, banks have different ISO 200222 requirements. When a party wants to change its bank, the ISO 20022 file will need to be amended to comply with the requirements of the new bank.
Thankfully these amendments are dealt with within the ISO 20022 definition and are said to be relatively easy to implement.


SEPA and ISO 20022

This is not the case: SEPA sees to agreements made between countries, banks and clearing houses in the European Union with the purpose to standardize payments between these countries.
XML can be seen as providing the foundation which is used by ISO 20022 to define standards for financial data.
So, SEPA in turn sets a number of terms and conditions, of which an important one prescribes the use of ISO 20022 XML.


ISO 20022 is prescribed by SEPA

Wrong. For banks, it is mandatory to use ISO 20022 in their interbank SEPA communication. For the party that wants to make use of the bank’s services, ISO 20022 is NOT obligatory.
However, because it is often not possible to use local payment formats for payments under SEPA, in practice ISO 20022 will be indispensable for many companies and organisations.


SEPA and ISO 20022 is a sunk cost project

Not necessarily. You could also view such a project as an opportunity to standardise systems and processes, to start to communicate differently with banks or to gain experience with ISO 20022 so it can also be used for other applications.
The SEPA implementation offers a unique opportunity to review the IT landscape of the company and to standardize and consolidate it where possible.

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