ISO 20022 and B2B Payments Reconciliation

ISO 20022 represents a new global standard for payment messages, with many market infrastructures worldwide either adopting or transitioning towards this format—primarily in Account-to-Account payments. Its key advantage lies in the richness of data accompanying payment messages.

When payments are initiated from corporate ERP systems and sent to banks, it is expected that ERP systems include comprehensive payment details. These details are transmitted through the ISO 20022 message, which travels with the payment to the beneficiary. Typically, this is done via PAIN 001; however, in cases where PAIN 001 is insufficient, REMIT 001 may be used in certain regions by the payment originator.

While conceptually straightforward, the practical implementation across the payment chain presents several challenges:

1. Originating Side (Corporate ERP Systems): Many corporate ERP systems may lack the technical readiness or commitment to data quality necessary to transmit complete payment data using PAIN 001 or REMIT 001 formats.
2. Beneficiary Side (Banks): Banks must ensure their systems can process ISO 20022 messages accurately and maintain data integrity during transmission. This often requires upgrades to their infrastructure. Banks convey this data through account statements (camt.52/53/54) or payment advice (camt.035). Managing multiple software solutions for different payment schemes adds complexity, particularly when consolidating data into a single advice.
3. Beneficiary Customers' ERP Systems: For seamless end-to-end functionality, beneficiaries’ ERP systems must be capable of ingesting and reconciling detailed payment data (e.g., camt.035 or camt.52/53/54 statements). Achieving this may involve significant system upgrades, algorithm-driven rules, and data mapping to enable automated reconciliation.

While there is substantial work ahead to address these challenges, the long-term benefits promise to be significant.

Reconciliation as a Service: A Value-Added Service by the Banks

Banks could capitalize on the shift to ISO 20022 by offering B2B payment reconciliation as a value-added service, creating an additional revenue stream.

This service might include providing customers with daily reconciliation reports that simplify payment management. By collecting invoice and purchase order details from businesses, banks could match incoming payments using ISO 20022 data sets, performing reconciliation on their behalf. These tailored reports could then be seamlessly integrated into corporate ERP systems.

This can be the stop over solution till the time systems are in place by each party in the payment chain to consume and process entire ISO 20022 information.