Data & Dollars Delivery: NACHA’s Roadmap for XML in the ACH

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publications, and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns

the copyright for the NACH A Operating Rules & Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA.

Data & Dollars Delivery: NACHA Roadmap for XML in the ACH

George Throckmorton, Managing Director, NACHANasreen Quibria, Executive Consultant, CGI

Robert Unger, Senior Director, NACHA

© 2013 [Insert RPA Name]. All rights reserved. Through its Direct Membership in NACHA [insert RPA Name] is a specially recognized and licensed provider of ACH education,

publications, and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns

the copyright for the NACH A Operating Rules & Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA.



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Agenda

• Business drivers/background• Stakeholder assessment and requirements• Opt-in rules for using XML in the ACH



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Business Drivers for XML in the ACH • Scope: XML formatted remittance data for B2B transactions• Market Opportunity

– 13.3 billion B2B remittances/month sent separately from payment• 15.5 billion remittances per month for U.S.-based companies and their

trading partners worldwide• 10% sent US B2B remittances are sent with the payment using

standardized formats; 56% must be rekeyed• Data and dollars together is a preference when combined with value-

added services for payment processing– Small businesses make up more than 50% of trading partners

• Negligible use of EDI– Payment system migration to XML

• Wire systems ERI• Growing usage of XML in supply chain• Desire for payment system harmonization

Source: Aite Group and Aite Group survey of 240 receivables or payables managers or experts at U.S.-based companies



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Of U.S. remittance volumes by channel, only 10% are sent with the payment using standards

Method or Channel for Providing Remittance Details

Number of Monthly

Remittances (billions)

1 Sent by mail 2.6

2 Provided through a bank or third-party lockbox resource 2.2

3 Included with the payment in an unstructured or freeform format 1.7

4 Provided at a location such as an online banking site or the remitter's website that is accessed with a code or key

1.6

5 Included with the payment in a format supported by a standards group 1.5

5 Sent by email 1.5

6 Provided in Electronic Data Interchange, or EDI, format directly to your company from your trading partner 1.2

7 Provided through a value-added network in Electronic Data Interchange, or EDI, format 1.1

8 Provided by SWIFT (Society for Worldwide Interbank Financial Telecommunications) 0.8

9 Provided by Telephone 0.5

10 Sent by fax 0.4

10 Provided by a trading partner network that is supported by a third-party vendor, such as Ariba or SunGard 0.4

Source: Aite Group

10% of 15.5 billion remittances



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. . ., 56% must be re-keyed

Method or Channel for Providing Remittance Details

Number of Monthly

Remittances (billions)

1 Sent by mail 2.6

2 Provided through a bank or third-party lockbox resource 2.2

3 Included with the payment in an unstructured or freeform format 1.7

4 Provided at a location such as an online banking site or the remitter's website that is accessed with a code or key

1.6

5 Included with the payment in a format supported by a standards group 1.5

5 Sent by email 1.5

6 Provided in Electronic Data Interchange, or EDI, format directly to your company from your trading partner 1.2

7 Provided through a value-added network in Electronic Data Interchange, or EDI, format 1.1

8 Provided by SWIFT (Society for Worldwide Interbank Financial Telecommunications) 0.8

9 Provided by Telephone 0.5

10 Sent by fax 0.4

10 Provided by a trading partner network that is supported by a third-party vendor, such as Ariba or SunGard 0.4

8.7 billion, or 56%, of 15.5 billion

Source: Aite Group



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Overwhelmingly, U.S.-based companies’ receivables respondents would like wire transfer and ACH remittance data to be in the same format

Source: Aite Group survey of 240 receivables or payables experts at U.S.-based companies, January to March 2012



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XML Background/Timeline

• NACHA issued a “facilitating XML in ACH payments” request for comment that closed on January 9, 2009– Summarized response data indicated an interest for supporting

XML formatted remittance for corporate and small business but no consensus on a path forward

– Summarized response data identified a growing trend among end users of utilizing XML formatted data for payments remittance and identified two areas of possible focus

• A strategy to support early adopters of XML remittance, as well as long term ubiquity

• Standardized use of XML formatted data



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Background/Timeline

• NACHA completed an XML strategy entitled “Recommendation To Support XML Formats On The ACH Network for Payments Remittances" with consultant Urban Micro – The strategy identified a phased approached

• Phase 1 – development of an opt-in program utilizing a NACHA XML data dictionary and schema

• Phase 2 – development of an ISO20022 stand-alone remittance specification

• NACHA joined IFX Forum to assist XML/ISO20022 remittance standardization effort



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NACHA Standardized XML Remittance Opt-In Program Development

• NACHA contracted CGI (former Logica) to assist in the development of the opt-in program. Deliverables of the project included:– Assessment of current industry payments remittance “lifecycle”

including transaction flows and processing– Evaluation of stakeholder impacts– Evaluation of potential XML standards and schema– Harmonization of Fedwire ERI Tags and ISO20022– Development of best practice and guidelines for opt-in participation– Development of phase 2 strategy for ISO20022 stand-alone

remittance support



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Agenda




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No. 11

The Path to Incorporating XML in ACHAddenda Records…



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World’s 5th largest independent IT and BPS firm

10,000 clients across the globe

71,000 professionals,85% shareholders*

High-end business and IT consulting

100+ mission-critical IP-based solutions

$10+B annualized revenue

400 offices, 40 countries around the world

System integration, IT and business processoutsourcing

Client satisfaction:9.1/10

Who is CGI?

* Before Logica



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CGI Analysis

Overview of Current State in

the Industry

• Corporate Remittance Process Flow Lifecycle



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Large Corporate Originator

Customer Account NumberCustomer NameInvoice Gross AmountAmount PaidInvoice NumberInvoice DatePO NumberDiscountAdjustment AmountAdjustment Code

Smaller Corporate Originator

The Clearinghouse / The Federal Reserve

ACH Operator

ODFI

1

1

24

3ODFI

TranslatorODFI ACH

Processing

Repository Services

Warehouse

ACH Processor ( e.g., PEP+, Fundtech) validates addenda record count (but not content or addenda data format). On us transactions stripped and processed in-house. Non on-us transaction sent to ACH Operator.

ODFI Translator (e.g., homegrown, Sterling GentTran, GXS, Clear2Pay, Software AG WebMethods, Jack Henry, etc.) create ACH/EDI file as necessary – or – according to orginator/receiver profile – may also create check or wire. Also determines if remittance is included in a CTX, or is available for re-association using the Individual ID field as the re-association key

Repository Warehouse provides services such as Positive Pay, origination reporting, research, etc.

Smaller business may use an ACH Web Service (provided by the bank or other payment company) or other business package with module (e.g., S1) –could have direct connection (e.g. online banking) or an HTTP upload)..

• Large corporate use accounting software (e.g., SAP, Oracle) create file in EDI or other specified format (e.g., iDoc format with each customer having e a different iDocconfiguration)

• Large corporate could also send a fully formatted CTX

Payment and Remittance Data

Payment / Remittance Origination – Processes and Affected Systems



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Large Corporate Originator

Payment and Remittance DataCustomer Account NumberCustomer NameInvoice Gross AmountAmount PaidInvoice NumberInvoice DatePO NumberDiscountAdjustment AmountAdjustment Code

Smaller Corporate Originator

The Clearinghouse / The Federal Reserve

ACH Operator

1

2

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RDFI Translator

RDFI ACH Processing

Receiver DDA

Limited information – no addenda (format depends on posting application)

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Archived transactions for research)

RDFI ACH History Warehouse

RDFI Receiver Services

Information reporting (e.g., intra-day and previous day for receiver to track posted transactions) – (format depends on posting application)

Small corporate options for receiving addenda: web view, fax, mail

Large corporate options for receiving addenda: direct transmission (raw data), translated file, custom formats –parameter driven per customer profile

ACH Processor (e.g., PEP+, Fundtech) receives and validates file/addenda record count (but not content or addenda data format)

Addenda translated –options provided to Receiver for viewing/downloading

Payment / Remittance Receipt – Processes and Affected Systems



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CGI Analysis


the Industry


• XML in the Business Environment

Evaluation of Fedwire ERI

• Validation of ISO 20022 compliance

• Applicability to ACH with addenda

• Current assessment and findings

• Comparison of Fedwire ERI and ACH with Addenda



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ACH with Addenda Records Fedwire ERI/ISO 20022 Impact of ISO XML in the ACHFo

rmat

Iden

tifie

r

NACHA formats indicate the existence of an addenda record with ‘7’ in Entry Detail Addenda Record. Addenda type ‘05’ follows, which is valid for SEC Codes ACK, ATX, CCD, CIE, CTX, DNE, ENR, PPD and TRX.If used the Addenda Record must follow the entry detail record with which it is associated and that entry detail record must have “1” in position 79.

8200 tag indicates the existence of unstructured addenda information of a Fedwire CTP message

The ability to count, monitor risk, etc. will require a new SEC Code, or change in the record format e.g., addenda record indicator to use “1” for addenda, “2” for EDI ANSI X12, and “3” for XML, which will also have an operator impact.

Form

ats ANSI or NACHA banking

conventionUnstructured addenda information in wires specifies format (can be XML, STP 820, SWIFT, etc.)

No identifiable concern

Num

ber o

f R

emitt

ance

s CTX allows multiple remittance information

Supports approximately up to 30 invoices in a single wire transfer payment

No identifiable concern

Comparison of Fedwire ERI and ACH with Addenda



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ACH with Addenda Records Fedwire ERI/ISO 20022 Impact of ISO XML in the ACHLe

ngth

CTX allows 9,999 addenda records with 80 characters in length

Allows approximately 9,000 characters of unstructured, related, or structured remittance information e.g., Fed/ISO format allows 2048 characters for URL

According to the Aite/NACHA remittance study, 9,999 characters will be more than sufficient to handle typical remittance information. One initial concern was that if information must be split into two or more entries, the resulting complications may cause some potential participants to discount the use of XML. However, current vendor solutions have the ability to concatenate data with minimal effort.

Valid

Cha

ract

er S

et

Valid character sets for ACH follows the ASCII code chart

The Fedwire IXML format follows the SWIFT ISO 20022 message standards, which restrict the allowed characters for free text XML elements to Basic Latin. The Fed encountered several issues with special characters identified.

No Identifiable special characters of concern to prompt rejection at the Operator level, if SWIFT ISO 20022 message standards are followed. Need to further investigate carriage return and line feed, as they may be required to be substituted for “good” character sets. The official ISO 20022 message standards conform to the UNICODE character set, though SEPA also adheres to the limited character set of Basic Latin.

Tim

ing Batch Real-time No identifiable concern

Comparison of Fedwire ERI and ACH with Addenda



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CGI Analysis


the Industry


• XML in the Business Environment

Evaluation of Fedwire ERI

• Validation of ISO 20022 compliance

• Applicability to ACH with addenda

• Current assessment and findings

• Comparison of Fedwire ERI and ACH with Addenda

Evaluation of XML standards and

schemas

CGI Proposed Model

• Schema Standards / Languages

• XML Schema Specifications



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CGI Proposed Model

Elements of the Proposed Model

• NACHA rules will permit payment-related information in XML format to be included in the ACH addenda.

• XML schema supported by the NACHA guidelines will be XSD.

• The Standard Entry Class Codes available for XML transactions will be CTX.

• No changes in the detail record to indicate XML formatted addenda will be required.



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How does it work?



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Sample CTX with XML Remittance Data

XML Declaration, tells device opening the file that it is

XML compliant



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Sample CTX with XML Remittance Data continued…



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Rules Assessment – CGI Recommendation

Mandatory versus

Opt-in Approach?

• Phase I – Utilize an Opt-in or optional service• Phase II – When ISO 20022 approved standard is available for XML

remittance information, mandate requirement of receipt of XML remittance data



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B2B transactions involve companies with different resource levels and technological capabilities. For this reason, the operational impact varies by type of company in the remittance process flow lifecycle – whether a corporate, financial institution, solution provider/processor, or operator – and size of company.

Stakeholder ImpactCorporate Small - Medium Financial Institution Small - LargeSolution Provider/Processor Small - LargeOperator Small

Operational Impacts for Stakeholders



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• Facilitate more electronification of B2B remittance process and attract small and midsize companies in the process

• Create additional revenue streams for banks and solution providers to offer payments remittance services

• Risk of banks losing customers to competitors that can provide value add/convenience to corporate and small business customers in support of payments remittance processing

• Financial institutions that are already in the process of technology upgrades, particularly those whose banking architectures have been in place for 20 to 30 years and looking for flexibility and agility with new technology

• Current industry developments - High-end applications are increasingly supporting XML in financial services, and the migration to XML in payments remittance is a natural progression

• The lower cost of XML (in contrast to EDI) may result in other companies entering the payments remittance market

• XML can provide businesses another alternative to achieve straight-through processing of payment-related information

Opportunities for Stakeholders



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No. 27

Key Best Practices for Stakeholders

• Validate and if required translate or repair remittance information in NACHA recommended XML standard

• Communicate with your customers

• If provide translation services from other formats to standard XML format, validate

• Provide training and support• Evaluate impact that XML

remittance may have on other internal systems

• Special handling of remittance information separate from payment

ODFI

• Support ability to receive XML remittance information included with ACH payments

• Evaluate remittance reporting channels and formats to determine which ones will be used for the reporting of remittance information received in XML format

• Provide the ability to translate the XML remittance information to the reporting formats that you plan to make available to customers

• Communicate with customers

• Validate the XML translations against industry standards for compliance for each channel and format


• Provide training and support

• Discuss with your customers their requirements for XMLremittance information in ACH payments

• Consider supporting XML remittance addenda to your ACH solutions

• Provide training and support


• Evaluate the impact that new XML remittance information may have on the delivery mechanism or connection to and from the Federal Reserve Banks and EPN

…to name a few

RDFI Solution Providers



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No. 28

Key Best Practices for Stakeholders

• Communicate with your bank• Evaluate your ACH origination

software systems to determine whether you can support the sending of XML remittance information

• Evaluate you’re A/P process for ACH remittance information previously sent via other channels such as email or mail can be migrated


• Validate ACH remittance information for compliance with NACHA recommended XML standard

Originator

• Communicate with your bank

• Review software products used to process incoming ACH payments (e.g., A/R. treasury workstation, or ERP) and discuss with your software providers whether they support or plan to support remittance information in XML

• Communicate with your customers


• ACH operators should send on all XML remittance addenda that travel with ACH payments

• Maintain and provide a directory or list of the financial insitutitions that have opted-in for XML remittance addenda with ACH payments

…to name a few

Receiver Operators



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Agenda




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NACHA Opt-in Program Defined

• Opt-in program features:– Projects, Programs or Pilots developed for a subset of

ACH Network users– Participants bound by “opt-in” rules in addition to the

NACHA Rules, and are bound by a participant agreement • NACHA creates, owns, and governs participant and ACH rules – No impact (e.g., operational support, development, cost) to

non participants• Opt-in program for XML formatted remittance data in

CTX payments approved by NACHA Rules/Operations Committee January 2013



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XML Process Flows – Identical to EDI Flows



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Opt-in Rules for XML Formatted Remittance Data

• Participation– Participants must sign participation agreement with NACHA and

will be bound by the opt-in rules as well as the NACHA Rules– Financial institutions must register as both ODFI and RDFI– NACHA will maintain the list of participants

• Transactions– Opt-in rules apply only to CTX– There will be no operator validation of addenda records – Only data tags identified in the NACHA data dictionary can be

included in remittance files– No changes required for 5-6-7 header records.

• XML-formatted addenda will specifically be identified by the XML Declaration, or the first line in the 7 record e.g., <?xml version="1.0" encoding="UTF-8"?>



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Opt-in XML Schema (sample)

Name Description ExampleXML Declaration The first line in every XML file is the XML

Declaration. It tells the device opening it that the file is XML compliant. The version attribute specifies the version of XML in use, while the encoding attribute specifies what character encoding was used to create the XML file, so the information is displayed properly

<?xml version="1.0" encoding="UTF-8"?>

Schema Element In the rest of the schema, defines the Elements and Attributes. The subsequent line alerts the interpreter that this information is XML Schema, and provides the location of the Schema. (Schemas must be located in a completely separate file outside of XML. The separate file defines the elements and attributes that work together to define the content.)

<xsd:schmema xmlns: xsd="http://www.w3.org/2001/XML Schema">

XML Schema Syntax

And more!



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Opt-in XML Data Dictionary (sample)

Data Element Description Tag Name Occur-rence Type Example Data Manda-tory or

Option’l

RemittanceAdviceHeader

XML Declaration Declares XML version and encoding

[1..1] Text <?xml version="1.0" encoding="UTF-8"?>

M

InitiatingParty Party initiating the payment [1..1] M

ForwardingAgent Originator's agent [0..1] O

PayerPaymentReference Payer's unique reference number for the payment

[1..1] Max35Text O

PaymentDate Payment send date [1..1] ISO Date M

PaymentAmountTotal Total amount of payment [1..1] CurrencyAndAmount M

Data Dictionary ACH Remittance Information

And more!



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Next Steps

• Phase 1: opt-in program– Features: Opt-in rules/agreement, NACHA defined XML

schema and data dictionary • Phase 2: implement ISO20022 standard

– NACHA prefers to reference supported, external standards (e.g., EDI is managed by ANSI X12)

– NACHA participating with the IFX Forum (a submitting body to ISO) to develop international remittance specification

– Phase 2 features: Updating NACHA Rules, ISO defined XML schema and data dictionary

– Status: IFX Forum submitting materials for ISO 20022 approval 2nd quarter



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No. 36

George Throckmorton| Managing Director

[email protected]

(o) 804.737.8200

Robert Unger | Senior Director

[email protected]

(o) 703.561.3913

Questions? Contact Us

Nasreen Quibria| Executive Consultant

[email protected]

(o) 781.373.8554

Data & Dollars Delivery: NACHA’s Roadmap for XML in the ACH

Business

Transcript of Data & Dollars Delivery: NACHA’s Roadmap for XML in the ACH