ISO XML probably represents the best effort at establishing a universal language for payables and receivables, but there are still obstacles to adoption
By Ann Lubart
In 2004, when Don Davis embarked on an XML-based payments pilot involving U.S. semiconductor maker Intel Corp. and Finnish cell phone manufacturer Nokia Corp., he would have readily admitted that he had modest expectations about when Intel would enjoy significant benefits. At the time, the proposed standard built around extensible markup language (XML) represented the latest effort at bringing straight-through processing to b-to-b payments, and Davis, Intel's systems and business solutions manager and a veteran of earlier supply chain automation attempts, figured it would take at least a year to realize respectable success at matching incoming data to payments with the new global messaging standard. But ISO XML—as it came to be known after its publication by the International Standards Organization last summer—surprised Davis, and right from the start, he reports, he was matching a stunning 80%. "My expectations were 30% initially and then growing that rate to 80% as we gained experience setting up the match parameters," Davis notes. Instead, "the pilot started at 81.5% and has grown to more than 95% auto-matching today."But as successful as ISO XML would appear from the Intel experiment, that accomplishment won't necessarily translate into sweeping adoption across industries or across the globe—at least not this year or maybe for the next five. It won't even translate into total conversion by Intel, which currently uses the new standard only for receivables. Standing in ISO XML's way is the barrier to any new standard seeking broad-scale adoption: It costs money, and if the current system isn't broken, then—well, you know the rest. "A major challenge for ISO XML is that there are investments in A/P and A/R in place that are working today and are not going to vanish overnight," says Leonard Schwartz, the director of SWIFTNet MACUG and FileAct for channel management at Dutch bank ABN Amro Bank.
The good news for ISO XML, however, may be that it has one of the best shots of any of the recent payments standardization efforts for eventually achieving widespread implementation. "I see a relatively small number of corporates moving forward with the XML standards in 2005," says Mark Sutton, the London-based global product manager for delivery services in HSBC Corp.'s global payments and cash management unit. "However, a large number of companies will be actively watching this space with a view to adoption in the next three to five years as financial and operational benefits become clearer in the short to medium term."
Why? The first and most basic reason is because it's cheaper and easier to implement than earlier standards, making it more attractive to small and midsize companies and anointing it as the likely choice of companies when they take on new customers or if a change in current payment formats with existing customers becomes necessary.
A second big reason is the fact that Web-based ISO XML offers real-time communication. In cases of discrepancies, the timely nature of the data allows for online dialog about transactions between systems and people, hopefully facilitating their resolution much earlier in the process.
But finally, ISO XML has its own secret weapon—a feature that enabled Davis to log such a remarkable auto-match rate from the beginning. That tool is known as a unique remittance identifier, or URI—a reference tag that accompanies information relating to a payment that comes from the bank or from the buyer to the seller and is used for matching receivables. What makes URI so advanced is a design that allows the reference number required for automated receivables matching to go from buyer to seller, via all of the banks and various global payments systems in between, and still arrive in one piece, regardless of the number of intermediaries. It is also compatible with the major electronic data interchange (EDI) formats, including EDIFACT, SWIFT Fin and ANSI X12. According to Arthur Brieske, the U.S. head of accounts payable and receivable at Deutsche Bank's global transaction banking division, it is the versatility of the URI that makes ISO XML a global standard with universal applicability in domestic and cross-border markets.
ISO XML's universality wasn't achieved by chance. In an effort to move beyond the issue of proprietary interfaces and compete on service, global presence and other value-added differentiators, the major cash management banks deserve the credit for the standard's most outstanding benefit—its universality. While the corporate community had frequently requested this kind of versatile standard, it was the emergence of XML as a programming language that allowed the banks to provide it. Under the earlier EDI payment solutions, banks became the central collection point for remittance information. That role ended up costing banks more than they bargained for as they found themselves forced to create standards for varying industry requirements and ultimately expensive interfaces with their various clients worldwide. And in the end, everyone seemed to be out to shoot the messenger—especially when messages arrived late or dollars short.
HARMONIZING THE HIGH TECH SECTOR
As industry groups—such as RosettaNet, a consortium of more than 500 high tech companies, like Intel, Cisco and National Semiconductor—began to work up XML-based industry standards for the high tech sector, banks were eager to provide the payments piece of the puzzle. In this standards-setting exercise, the banks played a leading role on the International Standards Harmonization Team (ISHT), which developed the ISO XML payments standard. Among the banks on the ISHT were JPMorgan Chase, Deutsche Bank, Bank of America, ABN Amro, Citibank, Nordea and HSBC. Their goal was simple: to design a truly universal global messaging standard for payments that did not require constant customization and which enabled remittance information to flow separately from the payment, taking the pass-through responsibility for data away from the banks.
To that end, nothing contributed more than the development of the URI. To ensure that the URI's design (e.g., character length) would enable it to pass intact within the payment message through nearly all structures, the ISHT's development team canvassed 73 payment clearing systems worldwide.