For decades, wire transfers have been the quickest, most reliable, most expensive and dumbest way to make payments. Using wires isn't dumb. It's the wires themselves that are, with their tiny data fields and inability to convey more than bare-bones information about payments. "We get high-value wires to settle multiple invoices," reports Christy Barwick, a Microsoft senior manager in corporate finance, "but the information we need to auto-post or apply the cash is not there. Even when the payer sends it, it gets cut off by the short data field.
"It means a lot of manual work for cash application," Barwick says. "We'd love to see a solution that delivers full remittance detail in structured fields so that the process can be automated straight through."
That solution is coming. The two wire clearing networks, FedWire and Chips, now have the rails to carry the freight of full remittance detail. Starting in November, banks will be required to show that they are able to receive the full remittance detail that arrives with wires. Now it's up to banks and corporations to load and unload the freight.
Wires currently have one field that can hold up to 140 characters of information. The new format has multiple fields and a capacity of 9,000 characters, explains Ken Isaacson, a vice president and project manager for wire remittance data at the Federal Reserve Bank of New York.
"There are three ways to link wires to remittance information," Isaacson explains. "Structured fields can be populated within the wire. The new formats are field-to-field compatible with the 820 and ISO 20022 data formats."
There is also an unstructured option, in which the sender can populate a block with data. With proper coding, the wire can pass along 820 or XML data, Isaacson says. Or the wire can provide a URL and reference number that take the receiver to another site where remittance data are stored, he explains.
The infrastructure can transport data in a variety of formats, including EDI 820, Edifact, STP 820, XML and ISO 2022, says Ray Mulhern, senior vice president for product management and strategy at The Clearing House, which operates Chips. One sticking point is SWIFT: its MT103 messages can carry 9,000 characters, but they are only available to a closed user group, Mulhern reports. "SWIFT members in the U.S. tried to get it opened up as a general message, but the internationals didn't buy it yet," he says.
Persuading foreign banks is far from the only hurdle. "A lot of heavy lifting remains to be done, especially by vendors and banks," Mulhern notes. Corporates need to work with their vendors, primarily the providers of ERP systems and treasury workstations, to learn how to send and receive the remittance information in the variety of formats that will be used. And they need to work with their banks, he says.
Companies that initiate wires will have to modify their A/P systems and treasury workstations to support the new formats and provide the remittance detail, notes Debbie McSheffrey, a director at consultancy Strategic Treasurer in Atlanta.
Because of all the work involved, Isaacson does not expect a dramatic liftoff in November. "Some players will be ready and we'll see initial usage, followed by slow growth," he predicts.
Think of the large data capacity as an envelope that can carry information in multiple formats, Mulhern advises. While that sounds flexible, it will require negotiations among trading partners about which format they want to use, he says, as well as a lot of work by banks and vendors to accommodate those standards and find automated ways to use them. "There are a lot of moving parts. It will take time to build out, and we'll all learn as we go."
Most of the foundation has already been laid, leaving some observers more optimistic. Corporations, large banks, software vendors and network operators all worked together to hash out what would work, so the project starts with consensus support, says David Bellinger, director of payments for the Association for Financial Professionals, which has been a staunch advocate of the change.
"The major banks are mostly supporting this initiative," Bellinger says. "I've talked with several, and they all have active projects under way. The vendors are involved. They are all getting their ducks in a row." He predicts a fast start for domestic wires, but a slower uptake for international wires.
Corporations have driven the project from the beginning. In a 2008 survey, banks voted to proceed, but now some are complaining about the cost and struggling to make a business case based on passing along the cost of their upgrades, Isaacson reports. There is no mandate, such as there is in the ACH world, that all financial institutions support a new format, so adoption will depend on market forces, he says.
"All the trading partners we talk to are interested in linking remittance data to wires," reports Anita Prasad, Microsoft's general manager for treasury capital management. "It all depends on the technology road map and how ready the banks are. We all need to talk to our banks and encourage them to get ready."
Paul Trozzo says his bank will be ready. "We're working with our vendors and putting together a game plan to support the new formats," says Trozzo, senior vice president and product group manager at PNC Bank. "We plan to provide the detail and deliver it through whatever channel the customer prefers. If they want online reporting, it will be there. If they want transmissions, we will send them." Some banks may simply store the remittance data in a repository at the bank and give customers access to it, he adds.
In the absence of an integrated solution, wire senders and receivers have been sending remittance detail by e-mail, using reference numbers to connect e-mail data with the wire payment, AFP's Bellinger explains. Some may continue to do it that way after November, but "what corporations really want is data that travel with the payments," he says. "That will eventually replace e-mailed data."
The complexity of the project and the extended timeline could lull some treasury managers into taking a wait-and-see stance, but that could be exactly what prevents progress. "Banks see this as a product," the Clearing House's Mulhern notes. How much banks support it depends on the business case and how it will affect their ability to compete.
"Corporations have to drive this. They have to look at their wire traffic and their workflow around wires and decide how much they could save," Mulhern says. "If enough corporations ask for it strongly enough, the banks will build it."