The Canadian Case For ISO 20022

When analysts from SWIFT and its ISO 20022 Registration Authority took a look at the various efforts behind adoption of the global messaging standard in 2014, a report found that while implementation projects were on their way across Europe, Russia and Africa, among the laggards were the U.S. and Canada.

Proponents of ISO 20022 say that the standard could help the U.S. in its faster payments initiatives. Officials there are still assessing the business case of adopting ISO 20022, with the Federal Reserve Bank of New York recently telling PYMNTS that there is a struggle to convince the market of ISO 20022’s benefits.

“It is quite clear from the initial engagements that we have had that we need to do a much better job of marketing and getting the narrative out,” said the NY Fed’s executive vice president and head of the wholesale product office, Richard P. Dzina.

That’s probably sound advice for any market hoping to achieve faster, more efficient payments — especially cross-border — by adopting a unified payments messaging system.

Now, Canada is taking on the education and marketing effort.

The Canadian Payments Association (CPA) is in the midst of a long-term effort to convince industry stakeholders that adopting ISO 20022 will encourage electronic payment adoption and benefit Canada on a wide scale.

This month, the association, in conjunction with SWIFT, released a paper to examine these potential benefits.

“The main drivers behind CPA’s ISO 20022 initiative are to provide the Canadian financial community with enriched, robust remittance data, to enhance domestic and cross-border interoperability and to increase efficiency,” said Mark Brule, director of the CPA’s payments innovations operations.

“This will provide downstream benefits for CPA’s members, stakeholders and their customers by reducing the heavy reliance on integration, manual processes and multiple, disparate payment standards,” he added in a statement.

The authors of the report, entitled “Adoption of ISO 20022 for Payments and Extended Remittance Information in Canada,” noted that, as the home of the world’s eleventh largest economy in terms of GDP, Canada cannot afford to ignore the possibilities of wide-scale ISO 20022 adoption.

But today, the nation’s financial services sector is juggling multiple messaging standards at once: Automated Funds Transfer uses the standard 005 format, Electronic Data Interchange uses the ANSI X12 standard and wire payments via the Large Value Transfer System use the SWIFT MT payments messaging procedure — MT 103 or MT 205, all depending on what type of transaction is taking place.

This poses a problem beyond a lack of standardization, the report argued.

“Existing payment standards are limited in the amount of remittance information they can support,” concluded the CPA. “The inability to exchange remittance information is viewed as an impediment to greater adoption of electronic payments. As a result, businesses continue to rely on paper-based payment methods, such as checks.”

The ISO 20022 messaging standard addresses several of the points of friction that can arise from the current climate of multiple standards in use, analysts said.

“The benefit of ISO 20022 is that you start with modeling the business, identifying all process and data requirements. Once you have the business defined, then you start to discuss the communication flows, the messages and fields needed for information exchange,” explained SWIFT Head of Standards Stephen Lindsay in the report.

“It is only at this lowest level that any physical message formats are defined,” he continued. “With ISO 20022, if the syntax changes, the business model and message layer do not change, and new messages can simply be generated using the new syntax.”

According to Lindsay, more than 90 percent of payments data elements are already a part of the ISO 20022 Data Dictionary.

The benefits for Canada’s market are aligned with those of other markets around the globe: cross-border interoperability, automated reconciliation, higher transparency, greater efficiency, higher-quality data and the like.

But, according to some industry stakeholders, Canada is first in line to recognize these benefits — if the nation takes a strategic, scaled and phased approach to widespread adoption.

“As there is no single remittance format in place today, it’s ‘the sooner the better’ for Corporate Canada to implement and adopt the new standard,” said Canadian National Rail Senior Manager of Credit and Payment Management Jack Fucale in the report.