Straight-through processing (STP) is often considered the ideal or gold standard in payments processing – and for good reason. STP for businesses refers to when a payment process is completely electronic and automated from start to finish. STP and modern payment processes bring many benefits to both the payer and payee, including more efficient payments. More efficient payments will benefit businesses through lower costs, better cash management, error reduction, risk mitigation, increased transparency and improved automation of business processes.
Businesses have difficulty achieving STP for business-to-business (B2B) electronic payments for many reasons. One of the most prevalent is the difficulty in sharing electronic remittance (e-remittance) information, particularly when it cannot travel with the payment.
Remittance information is the reference information that a payer provides a payee to describe what they are paying for. For years, most remittance information has been sent separately from the payment, often in an email, in an unstructured form (free-form text) that must be manually processed by the payee.
However, there is an opportunity to progress toward STP as three primary components for sharing automated remittance information are now achievable: content, format and delivery. Payees achieve STP when the correct data content is delivered electronically in a structured format that can be automatically processed into their accounts receivable systems.
Components 1 and 2: Content and Format
ISO® 20022 messaging is viewed by the payments industry as the solution to provide the data content and structured format needed to automate e-remittance information. ISO 20022 is a set of extensible markup language (XML) messaging standards across major financial services domains (cash, securities, trade, card and foreign exchange) which provides a single, common “language” for global financial communications. This language can assist organizations in responding to evolving demands such as enabling remittance data systems to communicate and share remittance information in an automated way.
Work is already underway to pursue this vision. The X9 ISO 20022 Market Practices Work Group is currently working to develop and document best practice recommendations for remittance information to prepare for ISO 20022 usage in the United States. One result will be a U.S. ISO 20022 best practices market guide for remittance information content, which will help the industry align on common information to send in the ISO 20022 messages.
Component 3: Delivery
The final component of remittance information is delivery. There are two ways to deliver e-remittance information: within a payment and separate from it. Emails and web portals are common ways to deliver remittance information separate from a payment. Delivering e-remittance information within a payment can be achieved by using an addenda in a payment, which is what ACH has enabled for many years.
Instant payments also allow for e-remittance information to travel with the payment. Both the FedNowSM Service and The Clearing House’s Real-Time Payments service (RTP) have been designed to allow ISO 20022 structured e-remittance information to travel with the payment.
The Exchange Framework
Even within modern systems like the FedNow Service and RTP, however, there are still times when e-remittance information cannot travel with the payment (e.g., when the remittance information is complex and voluminous). An electronic data exchange framework that can deliver documents and data using an open virtual network is currently being assessed for the delivery of electronic invoices (e-invoices) by the Business Payments Coalition (BPC). This exchange framework (Off-site) model may provide a path forward for businesses to send, receive and automate e-remittance information for straight-through processing as well. The exchange framework is payment-agnostic and supports all payment types. It offers the ability to electronically deliver ISO 20022 structured remittance data (and data in other standard formats) separate from a payment and links the data back to the payment for processing.
The ability of exchange frameworks to offer a meaningful path for delivery of e-invoice and e-remittance information continues to gain notable momentum within the industry. In September 2021, the BPC, with support from the Federal Reserve, launched a market pilot to build and test an electronic e-invoice exchange framework, that will enable businesses in the United States to exchange e-invoices across all payment types, using their existing accounting systems. In parallel, the BPC and the Fed launched a Remittance Delivery Assessment Work Group to assess whether an exchange framework can facilitate electronic delivery of remittance information.
Regardless of delivery method, both instant payments and the exchange framework support the ISO 20022 message standard, bringing all the pieces of the puzzle together.
The B2B payments ecosystem is at a crucial juncture. With solutions in sight for content, format and delivery of e-remittance information, there is momentum to take advantage of this positive progress and work toward STP for more efficient B2B payments.
Interested in learning more? Join the FedPayments Improvement Community (select “E-invoicing” and “Electronic Payments and Remittance” under the interest preferences), and follow FedPayments Improvement on LinkedIn (Off-site) and Twitter (Off-site).
“ISO” is a registered service mark of the International Organization for Standardization.
“FedNow” is a service mark of the Federal Reserve Banks. A list of marks related to financial services products that are offered to financial institutions by the Federal Reserve Banks is available at FRBservices.org.