„One for All“How Companies Can Benefit from the Standardised ISO

20022 CGI Format for Global Payments November 2013 by Thomas Keim,

Senior Consultant, Hanse Orga

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The standardised ISO 20022 CGI message format (based on XML1) for global payments is increasingly gaining ground and provides many benefits to companies. These include, among others: uniform communication with numerous banks, standardised and automated processes across the group, lower costs for payments, faster transactions even if business volume increases, and a future-proof format due to interoperability with other standards.

Based on these advantages, there is a marked trend towards utilisation of standardised formats for payments by both corporates and banks. This whitepaper will provide an introduction to ISO 20022 CGI for all interested companies and will highlight how companies can benefit from going beyond SEPA and choosing ISO 20022 CGI for SEPA and world-wide payments.

Introduction A recent webinar conducted by Hanse Orga showed that 44 % of the participants were well informed about ISO 20022 CGI or are already in the process of implementing the standardised XML formats for their global payments. This reflects the growing interest in ISO 20022 CGI by customers and the fact that ISO 20022 CGI formats are increasingly seen as the ultimate way for harmonising global payments. Ten years ago, such a poll would have delivered entirely different results, as it was only then, that standardised XML formats emerged as a communication standard for electronic communication that was also used for bank-to-customer communication.

So what is ISO 20022 CGI all about, how does it relate to SEPA and how can corporates benefit from imple-menting the standardised formats?

Let’s first have a quick look at how and why it all began.

The Road to ISO 20022 CGIIn the globalised economy today, the number of payments that are made across borders is constantly rising. Moreover, the payments are largely made electronically nowadays, and paper-based payments such as checks are turning into a thing of the past. One of the great advantages of electronic payments is, of course, the fact that they can be processed faster by banks and companies. There are, however, still many different local for-mats and different payment methods in place across the world that hamper a true straight-through processing even of electronic payments.

1 XML – EXtensible Mark-up Language

Are you planning to implement CGI in your company?

No, we are still unsure about CGI

Yes, we have started to investigate CGI

Yes, we have already started the implementation of CGI

No, we have decided not to implement CGI

53%

25%

19%

3%

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Customers, hence, increasingly asked for harmonised formats for payment processing that could be used for worldwide payments and that would be accepted by all banks. The expectations of customers proved a key accelerator for the harmonisation efforts in payments. Early 2000 XML emerged as a communication standard for electronic communication that was also used for bank-to-customer communication. However, there were several initiatives that were trying to standardise the different uses of XML, but in fact many different XML stan-dards for financial communication were the result of these initiatives. In the end, an internationally accepted standard set of XML formats for payment and cash management messages was defined by the International Standards Organisation (ISO) which is known as ISO 20022.

The ISO 20022 standard received a significant push, when a number of major financial institutes, corporations, system providers and other organisations such as SWIFT joined forces in the Common Global Implementation (CGI) initiative to fine-tune the broad set of ISO 20022 data fields – for which different local variants exist (e.g. for USA, Hong Kong, etc.) into a true standard for the payment processes between banks and companies. The European approach to the harmonisation of payments culminated in the mandatory SEPA regulations that are also based on ISO 20022 standards and helped further promote the use of XML standard formats.

As a consequence, ISO 20022 CGI has evolved as the global standard for payment processes across the world with which companies cannot only cover SEPA but all other international payments, too. When companies have many international, non-SEPA transactions, they can benefit from going beyond SEPA and choosing the ISO 20022 CGI standard set. However, choosing ISO 20022 CGI as the means for implementing SEPA payments can also deliver additional business value to companies, for example, in terms of truly standardised formats without the local characteristics that are typical under SEPA and with functions for reporting. Let’s have a look at the details in the following chapter.

Advantages of ISO 20022 CGI – Why it makes sense to go beyond SEPA The mandatory SEPA regulations as determined by the European Payments Council and the European Parliament are a key driver for further harmonisation of payment formats on the basis of ISO 20022. There are, however, a number of issues with SEPA that may incite a great number of companies to go a step further and chose ISO 20022 CGI for all their SEPA and their global, non-SEPA payments.

To start with, SEPA provides harmonised formats for payments and collections. Reporting, though, is not cove-red by the regulation so that companies will still have to maintain different systems for their reporting and cash management. ISO 20022 CGI, on the other hand, does provide standardised XML formats also for reporting – in form of camt (Cash Management)-messages (e.g. camt.052, camt.053, camt.054) – so that companies can streamline not only their payment processes with ISO 20022 CGI but also their overall cash management.

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2

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Many different initiatives for ISO 20022 formats

SEPA XML formats as determined by the EPC

Local variants of the SEPA standard

Bank-specific variants of ISO 20022

ISO 20022 CGI – one global standard format of ISO 20022

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As a consequence, companies can eliminate the number of formats and achieve a faster and more reliable overview of the group-wide cash situation.

A second point is that despite all harmonisation efforts, SEPA still allows local flavours to its standards. This is reflected in the messages where a component describes the different local variants. For example, for Germany the local variant of a credit transfer message is as follows: pain.001.002.03. That means that wherever such local variants exist for the different SEPA member countries they have to be taken into account when proces-sing a payment. Moreover, the format, for example for the German local variant, only covers customer accounts in Germany. With ISO 20022 CGI, however, companies can cover customer accounts in all SEPA member countries.

Thirdly, ISO 20022 CGI pursues the concept of “data overpopulation” which further simplifies the processing of payments. In practice, this means that customers can provide all their information to the bank. The bank, if part of ISO 20022 CGI, will ensure that only the data is passed on to the receiving bank that is locally required. All other information that may be redundant at the receiving end will simply be neglected. For the customers, this is a very effective and straight-forward approach that helps companies save time and costs due to the reduced maintenance. It also enables customers to easily switch between banks that are part of ISO 20022 CGI which is an important advantage in terms of risk management. By allowing “data overpopulation” customers will no longer need to follow the EPC-recommended customer-to-bank implementation guidelines that would require them to only send the information as defined in the guidelines. With ISO 20022 CGI they can do without the filtering and elimination of redundant information.

Last but not least, one of the greatest advantages of ISO 20022 CGI is in the world-wide coverage of payments and the end-to-end processing for global payments, not only in Europe.

Most major cash management banks already support ISO 20022 CGI, and with growing customer demand the number of banks participating in ISO 20022 CGI is expected to rise in the near future so that more customers can benefit from the global XML standard.

How are the standard XML formats set up?

The XML formats define first of all which business area is concerned, i.e. whether it concerns payment initiation, cash management or another area. The business area (pain, camt, etc.) is followed by three digits that define the message type, e.g. credit transfer (001) or direct debits (008).

ISO 20022 CGI XML Formats – Business Value for Companies

� World-wide coverage � End-to-end processes for global payments, not just in Europe � Standardised formats not only for payments and collections, but also

for reporting � Multi-bank approach � Data overpopulation � No local flavours to the standard, but instead just one implementation

guide � „State-of-the-art“-technology

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The following three digits indicate the variant of the XML format that is used. In the harmonised ISO 20022 EPC approach the variant is 001 and describes the standardised variant as defined by ISO 20022 and generally used for SEPA (variant 002 is used by “Deutsche Kreditwirtschaft” in Germany, variant 003 is used for “CGI”). Whereas ISO 20022 CGI focuses on providing just one standard, SEPA does allow for local exceptions and modifications to that standard in order to take care of the current local formats used. As a consequence SEPA does not provide a harmonisation of a European standard as many would have hoped. Going the ISO 20022 CGI way enables a standardised approach for non-SEPA and SEPA payments and delivers significant additional benefits to companies.

Finally, the last two figures indicate the version number of the format. For example, the sets of formats defined by ISO 20022 CGI are updated when the need arises and are, thus, released as a new version. The latest ver-sion is version 03 of 2009 and is supported by the major cash management banks. The previous version 02 is still in use and serviced by most banks offering ISO 20022 CGI.

Can my bank deliver ISO 20022 CGI?

Generally, the major cash management banks that are delivering world-wide services do offer the ISO 20022 CGI formats. A full list of banks that are contributing members of ISO 20022 CGI can be found on the ISO 20022 CGI website (www.swift.com/cgi) hosted by SWIFT. The banks participating in ISO 20022 CGI offer standards for many different payment types already today: SEPA payments, legacy formats, foreign currency payments, urgent payments (same-day payments), etc. Before implementing ISO 20022 CGI, companies should, however, always check with their respective banks whether they are “ISO 20022 CGI-ready”. We recommend to also closely validate the coverage and possible exceptions for certain countries and/or payment types.

And what about my payment management system provider?

ERP systems and add-on software solutions related to payments are often already able to integrate and process XML so that companies do not need to custom-build or programme their own solution and can thus save time and money. In order to achieve a truly standardised global payment and cash management process, compa-nies should make sure that their payment technology is able to not only cover the ISO 20022 CGI formats for communication with banks, but that the solution is also able to help streamline the internal payment processes of a company. Enterprises can significantly benefit from a solution that is fully integrated into their ERP system and that is able to seamlessly connect and integrate external systems into the central ERP system, for example supported by the Hanse Orga FinanceSuite Payment Management. Moreover, central and multi-bank commu-nication should be enabled directly from the software. This will help to avoid any risk-prone interfaces and will ensure that the standardisation approach with ISO 20022 CGI can be extended across the entire group.

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Best-practice example:

The global approach and validity of ISO 20022 CGI has incited a European market leader in sanitary technology to go for ISO 20022 CGI instead of just migrating to SEPA. Since all SEPA formats are covered by ISO 20022 CGI anyway, the company looked beyond the immediate SEPA compliance requirements when preparing for SEPA Instead of only meeting the SEPA obligations, the financial decision-makers of the company recognised the strategic advantage of standardised ISO 20022 CGI formats and thus chose ISO 20022 CGI for a harmo-nised payments process that not only fully complies with SEPA regulations, but also provides additional XML formats for reporting. The time for implementing the ISO 20022 CGI XML formats was well chosen, as at the beginning of the year 2013, ISO 20022 CGI has matured and now delivers an up-to-date version of the stan-dardised set of XML formats.

So, in one sweep, the sanitary company was not only able to harmonise the European payment transactions of the group, but also their global payments. As a consequence, they have been able to make their payment transactions much more efficient and they benefit from cost and time savings. Instead of several payment runs, for example, which would incur in case of different currencies, with ISO 20022 CGI XML only one payment run is now required. Thanks to the integrated payment software solution of Hanse Orga the ISO 20022 CGI formats were seamlessly introduced and applied to several local entities across different countries. All payments via all banks can now be conducted in just one step. The approval workflow has become much easier, the computer system is less blocked and the administration of data has become simpler and faster.

Conclusion & Outlook

The ISO 20022 CGI approach of „one format for everything“ can not only be seen as a promising approach for the future but can already be leveraged today. ISO 20022 CGI enables companies world-wide to achieve greater efficiency and security for their payment processes.

While ISO 20022 CGI delivers standardised formats for payments already today, the initiative is also working on XML standards for electronic Bank Account Management (eBAM) with standardised acmt messages to expand the concept of harmonised formats also to other areas of customer-bank communications. The idea

What types of messages are covered by ISO 20022 CGI?

ISO 20022 CGI message types currently include:

From customer to bank � Credit transfer: pain.001.001.02/03 � Direct debit: pain.008.001.02/03

From bank to customer � Payment status report: pain.002.001.02/03 � Debit / credit notification: camt.054.001.02 � Account report (intraday): camt.052.001.02 � Account report (end-of-day): camt.053.001.02

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behind eBAM is to provide standardised message formats to companies for opening, closing and maintaining bank accounts and with the aim to significantly simplify their bank account management and to reduce the paper work involved today in these processes. A pilot project with SWIFT and a number of companies, system providers and banks provided practical insights and valuable recommendations for the further development of the acmt messages. System providers, e. g. Hanse Orga, already offer solutions today for bank account management and are ready for the “e” of eBAM. Although eBAM was pushed off the agenda somewhat by the SEPA deadline, it is resurging on the list of projects of financial decision-makers when they focus on further optimisation potential for their financial processes.

by Thomas Keim

Thomas Keim is Senior Consultant at Hanse Orga AG.

E-mail address: t.keim@hanseorga.de

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About Hanse OrgaHanse Orga is one of the leading providers of specialised financial software solutions for SAP®. We are certified as a SAP® Software and Technology Partner. With over 180 dedicated employees, we successfully completed over 90 projects in 2012 to the benefit of our customers. Our customer base consists of 500+ worldwide companies, spanning all industries including: Oil and Gas, Chemicals, Insurance, Retail, Manufacturing, Consumer Goods, Telecom, Logistics, Government, etc. Hanse Orga offers fully integrated SAP® software solutions for optimising all processes along the Financial Supply Chain. For more information about Hanse Orga and our solutions for cash application, payments, treasury management, cash and liquidity management, bank account management, or our consultancy services, please contact us at www.hanseorga.com