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Why is There so Much Talk About XML and ISO 20022? Olli Khk nen!

"ordea # 22 May 20$2 The har%onisation &ork on XML standards! the introduction o' the sin(le euro )ay%ents area *S+,A- and the to e%bed XML into enter)rise resource )lannin( *+/,- syste%s are 'actors to&ards 'urther &ides)read ado)tion and )ro%otion o' XML and ISO 20022! the 'uture standard 'or the 'inancial industry0 Banks and corporate clients have for years been frustrated about the lack of end-to-end straight-through processing (STP) in the market for wholesale payments. !"#$%T& an international electronic data interchange standard developed under the 'nited (ations& tried to deal with this problem& but did not succeed& mainly because it never was accepted as an international standard. (ow& a new format plus a new standard have entered the scene) e*tensible +arkup ,anguage (*+,) and "S- .//... But will they be able to address this deficiency more efficiently0 "t seems so& and the benefits are obvious. *+, and "S- .//.. are not a proposition for the future1 they can be achieved and implemented today. +ore and more users are seriously taking-up *+,& even though the standard is still new and young in its lifecycle. The harmonisation work on *+, standards& the introduction of the single euro payments area (S P$)& the initiatives to embed *+, into enterprise resource planning ( 2P) systems and the limitations of electronic data interchange ( !") are all factors driving towards further widespread adoption and promotion of *+, and "S- .//..& the future standard for the financial industry. XML and its -riginally& *+, was a synta3 used for transporting inventory data& but later it was e3tended to cover a wide range of services& such as financial data. Today& a standard *+, core payment kernel for corporate-to-bank payment initiation and status messages is available. This core payment kernel consists of an agreed set of key financial data components re4uired for a payment message in any currency. The payment kernel can be processed by any bank irrespective of location and can be issued by any corporation irrespective of the business line. Two factors in particular have been critical to the success of this pro5ect. #irst& all parties agreed to use the latest "S- standard& "S- .//..& for the definition of the core payment kernel message models and *+, schemes. Second& all have committed themselves to include it in their own e3isting sets of standards. The ob5ective of "S- .//.. is to enable communication interoperability between financial institutions& their market infrastructures and their end-user communities& all using *+, messages.

2lobal XML Messa(in( +any international forums have been working to develop the new "S- .//.. messages and several banks have participated in this work& including (ordea. -ne of these 6ground-breaking7 forums is the %ommon 8lobal "mplementation (%8") 9orking 8roup& which was established in .//: by ma5or global banks& corporates& 2P vendors and S9"#T. The goal of this forum is to ensure the introduction and success of *+, on a global level. The overall ob5ective of the work is to simplify implementation for corporate users and thereby to promote wider acceptance of "S- .//.. as the common *+, standard used between corporates and banks. So far& %8" has published a set of implementation rules covering the latest versions of credit transfer initiation (pain.//;)& payment status report and account statement report. 9ork will be carried forward to include credit and debit notification reports& transaction reporting and direct debit messaging. +/, 3endors and XML +a5or players in the global transformation of the present financial infrastructure are the 2P vendors. %lose co-operation with the software vendor community is therefore important. Banks are currently co-operating with 2P vendors& including S$P& about implementing the %8" *+, standard& so it can be understood and used by all banks and 2P vendors. "n addition& S9"#T is working with 2P vendors to help them integrate the new "S- .//.. standards. +ost of the ma5or 2P systems are already supporting *+, which means that corporates do not need to custom-build solutions. The move by 2Ps to embed *+, into their systems and core business applications will no doubt encourage the whole progress. +4I5s Loosenin( 2ri) The current !" systems and standards were insufficient in aiding the reconciliation process. *+, is well placed to supersede !"& but naturally this change will take place over a number of years. Today& !" is accommodated in most bank systems because many customers are still using it. But mapping across applications and the lack of clarity across legacy formats makes the task of getting a reconciliation number across the clearing system a daunting task. !" and *+, are likely to co-e3ist for some years. <owever& *+, is e3pected to gradually overtake !" because it is easier for corporates to use across their entire supply chain. S+,A and the 6se o' XML $nother e3pected milestone in the use and implementation of *+, standards is S P$. S P$ enables consumers& businesses and governments to make cashless payments

throughout the euro area from a single payment account using a single set of payment instruments as easily& efficiently and safely as they can make payments today in the domestic conte3t. $mong the first to benefit from S P$ are all customers doing business or travelling within the '. -ver time& the benefits of the standardised and more competitive infrastructure will benefit citi=ens. S P$ will have a huge effect on accounts payable ($>P) and accounts receivable ($>2)& as all S P$ countries will replace their standards and automated clearing houses and adopt new formats and networks. S P$ will be an accelerator for the adoption of new technologies and more universal formats& such as *+,& and it will allow more information to be transmitted through the payment systems. -n an end-to-end basis& the uropean Payment %ouncil ( P%) is going down the *+, road in its re4uirements for the implementation of S P$. $ll banks will offer the *+, format before the end dates. *+, will be the format used for customer file content to and from the banks. The +nd 4ate 'or S+,A I%)le%entation "n !ecember ./;;& the ' %ouncil completed the process for creating a regulation that establishes technical re4uirements for credit transfers and direct debits in euros& and end dates towards their implementation replacing e3isting national instruments. The regulation was finally approved by the ' Parliament in #ebruary ./;.. The regulation sets the migration end date of ; #ebruary ./;?. #inland& as a full euromember country& took a faster national path to migrate credit transfers already by ./;;. The solutions used are fully compliant with the coming regulation. (on-euro countries (such as !enmark& (orway and Sweden) will have a longer transition period until -ctober ./;@. The new regulation puts an end to speculations which were inspired by the slow voluntary migration from legacy to S P$ products. (ow& the users of payment services have a firm perspective and certainty to invest in and complete the changes re4uired to start using the new services based on S P$ infrastructure. The coming end dates will no doubt force all corporates to deliver S P$ payments to the banks in the *+, file format only. The regulation will be even more interesting for corporates in non-euro countries inspiring them to use %8" *+,& since from -ctober ./;@ the ' will demand that all corporates use *+, for all payments and direct debit transfers between customers and banks. "f only the S P$ *+, definition is used& corporates will have to deliver one file type for euro payments and another file type for domestic payments. %8" implementation plans allow more fle3ibility for corporate clients to make several payment types& such as salaries& urgent payments& domestic& and cross-border transactions& with a single implementation guide& and the market is already seeing solutions where payment is a payment is a payment.

"ordic 7ar%onisation The first "S- .//.. implementations in the (ordic countries were based on version . for payment messages and payment status message. $ll (ordic banks present in #inland have implemented this. The ne3t "S- .//.. version for payments& version A& is used by the %8" forum. Banks are therefore supporting two parallel versions and naturally the generic recommendation is to use the latest one. "n case there is a burning need to go for the ne3t versions (which are not yet even in the pipeline)& then the oldest will be dropped and not supported by the market. (eedless to say the transition will take place over a period of time. %omplying with the re4uirements of S P$ schemes and the new regulation has re4uired (ordea to invest in changes in the payments systems in all 6(ordea countries7. The bank today offers %orporate e8ateway as a single point of entry for corporates& which supports one technical interface in terms of file format& communication and security. (ordea will add *+, format to this service and has already implemented the payment& credit>debit advises and the account statements. The purpose of implementing *+, is to deliver harmonised file format services to (ordea customers whether they are operating on a local or global basis. This process will make sure that information is delivered and>or received according to global standardisation rules ("S-& %8"& S9"#T& etc) in worldwide standard formats& such as S9"#T #"(& !"#$%T and *+, "S- .//.. formats& and the relation of information across these messaging formats. This work will include message implementation guides and customer documents. 8onclusion (ordea believes that the "S- .//.. standard and the %8" implementation guide will be the main stream for standardisation and implementation in 2P systems for the coming years. +oving to %8" *+, will be a huge advantage for both corporates and financial institutions. There is still much to be done to reach a consensus on how "S- .//..-based payment message standards should be used and implemented. #inland is ahead of the pack in urope& but naturally this will change with the forthcoming directive (through the S P$ %redit Transfer (S%T) and S P$ !irect !ebit (S!!)). #ull benefits wonBt be realised until there is a critical mass of banks& corporates and 2P vendors all using the same standard and implemented in a similar fashion. <owever& we are getting close to a situation where the core "S- .//.. *+, standards are available in the field of payments& and where both the banking community and technology vendors are able to offer more harmonised services for the benefit of all parties.