The answer is: yes, because standard formats substantially reduce the technical complexity of payment transaction processes and therefore contribute to a modern state-of-the-art treasury. By way of example, we demonstrate how the use of a payment factory can be optimized by harmonized formats. This takes companies a major step forward towards payment excellence.
There is often a large number of payment formats for globally-active corporates and the maintenance of these formats in IT systems occasionally requires significant time and knowledge resources as regular changes to formats need to be considered for each country. It is therefore no wonder that harmonization and standardization initiatives gain increasingly in importance. Of these initiatives, Common Global Implementation-Market Practice (in short: CGI-MP) is the best-known. Standard formats are jointly defined by banks, companies and service providers on an XML basis (ISO 20022 standard) in five working groups. The issues addressed by the working groups include "Credit Transfers (WG1)", "Bank Account Reporting (WG2)", "Debit Transfers (WG3)", "eBAM (WG4)" and the working group that is still to be formed will address the issue "Bank Services Billing (WG5)"; the latter was created not least as a result of pressure from German companies and the German Treasurers' Association (VdT).
Last but not least, the issue of format is relevant for the payment factories that are already being used by many companies and which present two basic approaches to cost reduction and process efficiency. By adopting the "volume bundling" approach, corporates required to manage a range of countries and formats seek to reduce process complexity by centralizing activities. The aim of the second approach, "domestic instead of foreign payment", is to avoid cross-border payments. The format issue is of major relevance to both approaches on the outbound side as well as the frequently neglected inbound side in the form of account statements, direct debits and status notifications. The supply of individual payment files by subsidiaries is another aspect to be considered. For instance, the establishment of the CGI-MP standard can also harmonize internal processes.
Let us take a closer look at the three aspects under consideration. The inbound use of the CGI account statement format can increase the clearing rate, provided transaction banks offer the option of dedicated reporting using the camt.053-notification in contrast to the previous MT940 account statements. Furthermore, the payment factory is provided with the necessary transparency concerning the executability of all payments using pain.002 notifications and can respond in realtime if payment is refused. Details on the reasons for the refusal are also contained in status notifications, making a call to the bank to clarify the reasons redundant.
On the outbound side, the use of a standard format has the effect of streamlining processes, thus reducing complexity and increasing efficiency. Ideally, all payments by a company can be presented in pain.001 notifications, regardless of whether they are express payments, cross-border or domestic payments. Although country-specific particularities need to be considered, maintenance and continuation of an individual format is much easier than the maintenance and continuation of many local formats.
From a technical viewpoint, the CGI-MP formats are not merely relevant for dispatch to the banks, but also of interest for the internal delivery of payments, as the conversion of payment formats – which were often necessary in the past – is no longer material to processes. Any compromises necessitated by the conversion are a thing of the past thanks to standard field filling, while at the same time faster processing and thus a later internal cut-off time is made possible. This approach can especially benefit companies with global payment transactions.
In the final analysis, the harmonization of inbound and outbound formats also facilitates the more rapid connection of new subsidiaries, thus resulting in a scalable treasury organization. Furthermore, the use of CGI formats allows group-wide transaction banks to be changed with significantly less technical effort. Treasury thereby creates a type of technical "plug-and-play" to connect transaction banks. At the same time, the flexible XML structure on the outbound side enables smooth adaptation of new as well as country-specific requirements, since banks, as participants in the initiative, already allow for the necessary adjustments in the respective format. Although the CGI initiative does not guarantee complete harmonization of formats between banks, the effort to adjust optional fields is far less than that involved in the use of bank-specific formats. The objective should therefore be to use the CGI-MP formats as the only format in the payment factory and have IT centralize the maintenance of formats to help reduce the complexity of the data structure.
We maintain that the implementation of CGI-MP formats represents a further step towards payment excellence. This applies to companies which are in the process of setting up a payment factory or are seeking to implement such a factory as well as to companies with established payment factories. The harmonization of formats means that a payment factory can be better utilized while also guaranteeing optimization in areas other than treasury. In designing the payment factory, it is therefore essential that technical issues in relation to formats are fully considered alongside a professional appraisal of the process.
Author: Thomas Mehlkopf, Manager, email@example.com
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