Treasury departments of large global corporates are often dealing with complex payments processes and environments, including multiple banks. Cash management and funding are often managed locally in the various countries, where multiple banking partners are involved. By using a combination of different bank communications channels like SWIFT, host-to-host communications in shared service centres or web-based banking systems in subsidiaries, it is difficult for corporates to integrate these channels effectively within their TMS and ERP systems.
With disparate systems and processes, treasurers lack the visibility and control across their payments. Their decision-making is impaired if they can’t see what payments are leaving the organisation. Without the proper automation and workflow in place, companies are at risk of errors and the increasing risk of fraud.
New technology, which connects corporates with their financial partners, particularly with banks, is evolving fast. Cloud-based solutions integrate services so that corporate treasurers can gain access to a wide range of additional services through one single access point. Increased standardisation for exchanging financial messages between counterparties will allow easier integration of systems and processes, thanks to ISO 20022.
Using the more structured and richer data that ISO 20022 provides allows not only better straight through payment processing, but also helps corporate treasurers further automate their reconciliation processes, and therefore increase payments speed and reduce costs. By implementing these ISO 20022 messages, more information can be provided to compliance departments when performing sanction screening or transaction monitoring, and may also enhance fraud prevention and detection. This will lead to a more seamless client experience as those payments are embedded in the processes that they support.
There are other possible implications of ISO 20022, however. One is cost. If you continue to send payments using MT formats, the bank will need to convert the messages to ISO 20022 – which is likely to result in higher fees. Another consideration is that banks are continuing to work on upgrading to newer versions of ISO 20022. As a result, organisations that don’t have a payment hub will have to upgrade their back-end systems and carry out development in their ERP systems, which is likely to be an expensive undertaking.
ISO 20022 is a game changer and signifies an opportunity for banks and corporates to improve operational efficiency and reassess existing business models. By taking out all the effort that today is spent on message translations, conversions, manual reconciliation etc, allows every actor in this payment chain to focus on value added activities, on data driven services, on better liquidity forecasts and better risk models.
The good news is that the migration is not mandated for corporates. Older messaging formats will still be supported. But companies that don’t migrate will not be able to harness the opportunities brought by richer data. Companies that already have a payment hub between their ERP/TMS systems and bank communication channels, that is fully compliant with ISO 20022, will be able to benefit from the changes. However, companies that don’t have a payment hub will need to start a dialogue with their banking partners and ERP/TMS providers. Preparation for ISO 20022 should start now, whether a large corporate is looking to adopt to ISO 20022 end-to-end, or a smaller company simply wants to provide the necessary party and remittance information to its banks.