The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA

School of Study: Payments Innovation and Technology

Using ISO 20022 to Modernize

Payment Formats

Orlando Santos, Payrailz

So what is ISO 20022?

• ISO 20022 is an ISO standard for electronic data interchange between financial institutions. It describes a metadata repository containing descriptions of messages and business processes, and a maintenance process for the repository content. The standard covers financial information transferred between financial institutions that includes payment transactions, securities trading and settlement information, credit and debit card transactions and other financial information. A (global) messaging standard for standards.

• The repository contains a huge amount of financial services metadata that has been shared and standardized across the industry. Underlying all of this is the ISO 20022 metamodel - a model of the models. The first syntax supported for messages was XML Schema, and JSON is now supported.

• ISO 20022 is widely used in financial services. Organizations participating in ISO 20022 include Nacha, Afinis, FRB, TCH, Visa, Mastercard, SWIFT (US), and Payments Canada and nearly 100 other countries and hundreds of corporates worldwide.

And who is ISO?

• The International Organization for Standardization (ISO /ˈaɪsoʊ/) is an international standard-setting body composed of representatives from various national standards organizations.

• Founded in 1947, the organization promotes worldwide proprietary, industrial and commercial standards. It is headquartered in Geneva, Switzerland, and works in 164 countries.

• It was one of the first organizations granted general consultative status with the United Nations Economic and Social Council.

Managing the Standard

• The Standard is issued by ISO Technical Committee 68 (TC68), which is responsible for Financial Services in ISO.

• The Standard is managed by Working Group 4 (WG4), a sub-group of TC68 whose charter is "the management of ISO 20022".

• The Standard defines a Repository Management Group (RMG) composed of senior industry experts. It is the highest registration body.

• SEG Standard Evolution Group composed of industry experts in specific business domains of the financial industry

• SWIFT is the Registration Authority for ISO 20022. RA is the guardian of the ISO 20022 financial repository.

Adoption of ISO 20022

Advantages of ISO 20022

• ISO 20022 provides many characteristics supporting standardization, efficiency and interoperability.

ISO 20022 Message Catalogue

Business Area/Description

acmt - Account Management

admi - Administration

auth - Authorities

caaa - Acceptor to Acquirer Card Transactions

caam - ATM Management

camt - Cash Management

casp - Sale to POI Card Transactions

catm - Terminal Management

catp - ATM Card Transactions

colr - Collateral Management

fxtr - Foreign Exchange Trade

pacs - Payments Clearing and Settlement

Business Area/Description

pain - Payments Initiation

reda - Reference Data

remt - Payments Remittance Advice

secl - Securities Clearing

seev - Securities Events

semt - Securities Management

sese - Securities Settlement

setr - Securities Trade

tsin - Trade Services Initiation

tsmt - Trade Services Management

tsrv - Trade Services

ISO 20022 Messages Defined

Payments – Creditor/Debtor

• Pain.001 is a payments initiation message depicting a Credit Transfer (e.g., push payment)

• Pain.002 is a payments status report (e.g., acknowledgement)

• Pain.008 is a payments initiation message depicting a Direct Debit request (e.g., wire drawdown)

Cash Management - FI to Customer

• Camt.052 is an account status at a point in time (e.g., intra-day account position, entries)

• Camt.053 is an account statement at a point in time for booked entries (e.g., account position, credit and debits)

• Camt.054 is a notification of credit or debit entries (e.g., transaction details)

Parties in an ISO 20022 Message Flow

ISO 20022 Message Use Case

ISO 20022 and JSON

• In January 2018, members of the ISO 20022 RMG and TSG published a whitepaper on ISO 20022 and JSON.

• The purpose of this document was to help implementers in the financial services industry define RESTful Web Service Application Programming Interfaces (API) with resources represented in XML and/or JSON syntax, based on new and existing models in the Repository as defined by the international standard: ISO20022:2013 Financial services — Universal financial industry message scheme.

• This document was developed in response to a resolution by the ISO 20022 RMG indicating worldwide demand for help in understanding the use of ISO 20022 where JSON is used as syntax.

ISO 20022 XML v JSON Format

Business Domains in ISO 20022

Examples of ISO 20022 Usages

Naming Scheme - ISO 20022 Messages

Comparing SWIFT MT and ISO 20022

SEPA Credit Transfer Flow

Leveraging ISO 20022 to Further Global Standardization - U.S. Payment Systems Landscape

ISO 20022 Stakeholder Group

• A U.S. ISO 20022 Stakeholder Group was formed a few years ago to determine if the U.S. payments systems should adopt ISO 20022 to remain competitive.

• The Group engaged an independent consultant to evaluate the business case for or against adopting the standard payment messages in the U.S. The consultant (KPMG) conducted the study and released its report in April 2014. It concluded that while there was not a compelling financial business case at this time for adoption, there were strategic reasons. Strategies to support the strategic reasons include education, assessment of the value proposition and timing for ISO 20022 domestic and cross-border payments for Wire and ACH, along with ISO 20022 being considered as the standard messaging formation for new products and services.

• Federal Reserve Bank of New York – Wholesale Product Office

• Federal Reserve Bank of Atlanta – Retail Payments Office

• The Clearing House Payments Company L.L.C.

• Nacha

• Accredited Standards Committee X9 — Financial Industry Standards, Inc.

Integration into the ACH Network

ACH

• Integration involves developing tools and solutions that allow ACH users to leverage the ISO 20022 payment message standard for both electronic payments initiation and remittance without making changes to the current U.S. ACH formats and with the support of the Nacha Operating Rules.

Migration of the Hi-Value Payment Systems (Fedwire and CHIPS)

Wires

• Migration involves replacing the proprietary message formats for the Fedwire Funds Service and the CHIPS wire transfer system with message formats based on a global standard. This can improve payment processing efficiency and promote interoperability among high-value payment systems around the world.

Collaboration

• SWIFT will facilitate an industry migration of cross-border payments and cash management messages (MT categories 1, 2, and 9) to ISO 20022. The start date is aligned with the high-value payments systems in the Eurozone currently scheduled for November 2021, which will be a similar timeframe and approach to the U.S. and UK payment market infrastructures.

• Nacha continues to work with high-value wire operators to try to ensure that the ACH ISO mapping and remittance information is as consistent as possible.

Fedwire Funds Migration

Phase 2ISO like for like

Target Date: Q1 2022 to Q3 2023

(12 to 18 months)

Phase 1ISO Preparation

November 23, 2020

Phase 3ISO Enhancements

Target Date: Q4 2023

2020 2022 to 2023 2023

Fedwire Stability Period1 to 3

months

Changes to legacyproprietary format to:• Prepare for & simplify

the migration to the ISO 20022 format

• Align with the SWIFT 2020 changes

• Migrate Fedwire Funds Service participants in waves over 12 to 18 months to send and receive ISO 20022 messages that have fields and character lengths that are comparable to the legacy format.

• The Fedwire Funds Service will translate the legacy format to ISO 20022 and vice versa when necessary to accommodate Fedwire senders and receivers that are not using the same format.

Enable participants to send optional enhancements.

Fedwire Funds Migration Takeaways

1. Collaborate with management/staff and external partners on migration plan to support phased implementation.

2. Internal assessment to identify needed changes to other tools that may be linked to wire process.

3. Development of educational plan for staff to ensure adequate awareness and knowledge to support organization’s migration activities.

4. Periodic access of Fedwire ISO 20022 implementation center web site (www.FRBService.org) and participation in educational events to stay abreast of latest developments and support organization’s migration strategy.

5. Materials are also published on SWIFT MyStandards.

CHIPS Migration

CHIPS Migration – Message Flow

CHIPS Migration Takeaways

1. TCH has published CHIPS phase 2 MUGS on SWIFT My Standards and the CHIPS Proprietary Legacy Phase 1 Readiness Implementation Guide is available to Participants directly via regulator communications channels.

2. Common CHIPS and Fedwire customers (Testing) - shared customers of both CHIPS and Fedwire have requested testing schedules from both CHIPS and Fedwire be optimized to reduce the pain points of having to complete an entire system restore when switching from one phase code bases to another between CHIPS and Fedwire.

a) Example: if both CHIPS and Fedwire are allowing their banks to test their ISO 20022 phase 2 codebase on a Tuesday in their respective test environments, the banks can test that day both CHIPS and Fedwire with less effort than if Fedwire were having Phase 1 testing that day and CHIPS having their legacy code testing that day. Alignment of testing schedules reduces the negative impact to the common customers. At this time, Fedwire and CHIPS systems are NOT integrated for any type of end-to-end testing.

b) TCH and Fed agreed to align testing schedules where possible.

c) Fedwire and CHIPS are hopeful of a October 24, 2020 test where both Fed and TCH will be testing their ISO 20022 phase 1 code and USING THE SAME SYSTEM DATE.

CHIPS Migration Takeaways

3. CHIPS and Fedwire are working together on migration of our common customers on to the Phase 2 ISO 20022 code bases.

4. Interim Translation – During the Phase 2 migration phase, CHIPS will have a seamless translation and mapping utility to allow our banks to translate between ISO 20022 and legacy and vice versa as banks are being migrated to ISO 20022.

Built on ISO 20022

The Clearing House Real-Time Payments• The newest immediate

payment system in the U.S. is built on the ISO 20022 standard.

• RTP is designed to be flexible and to support extensive data and an array of messages.

24/7/365

RTP Messages

Control and Scalability

Diverse Use Cases

Further Global Standardization Using ISO 20022

Afinis Interoperability Standards

• Afinis Interoperability Standards seeks to advance API standardization and other financial services standards to increase efficiency, innovation and interoperability in the industry.

• As such, Afinis leverages the ISO 20022 standard, when possible, in the creation of APIs.

References

• iso20022.org ISO/TC68/20022/RMG - Registration Management Group: Schema, newsletters, publications, extent of global adoption, presentations

• A tree visualization of the iso20022 xsds schemas

• Business Payments Coalition (US)

• ASC x9

• Common Global Implementation - Corporate to bank schema mapped to US and global payment systems, documentation:

• SWIFT – SWIFT standards and documentation, online tools

• Nacha - ISO 20022 Resource Center

• Afinis Interoperability Standards

• Federal Reserve System - Resource Center for Adoption of ISO 20022 for Wire Transfers & ACH

• The Clearing House

• ISO 20022 for Dummies