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Insider Report

Raising Canada’s payment standards: ISO 20022 CPA initiative aims to improve efficiency of domestic and international transactions and create a better payment experience


usinesses, payment service providers, software developers, and financial institutions exchange a tremendous amount of information to support the financial activity of Canadians. To manage this process, they follow financial messaging standards to create financial messages, which are exchanged electronically. In the modern age, you’d think that payment instructions and the related remittance information would all travel together in one payment message, but unfortunately that’s often not the case, particularly when many payment standards in use today are older than the World Wide Web. As part of a comprehensive strategy to modernize Canada’s payment system, the Canadian Payments Association (CPA) is adopting an internationally recognized methodology for the development of financial messages. ISO 20022 will support domestic commerce, strengthen Canada’s competitiveness as a trading nation, and create new opportunities for Canadian financial institutions, payment service providers, and businesses. “There is more to this initiative than simply introducing a new standard. 40


It is about making Canada’s payment system more efficient – and making the payment experience better for everyone. Through the ISO 20022 initiative, the CPA is helping to bring straight through processing and electronic invoicing to Canada. We are also promoting international interoperability through this initiative as it will make it easier for Canadian businesses to transact globally in a competitive world economy,” says Gerry Gaetz, president and CEO, CPA1 The CPA is one of Canada’s key financial market infrastructures. It operates the core national clearing and settlement systems, which support the clearing (exchange and reconciliation) of the vast majority of inter-bank payments, and settlement at the Bank of Canada. CPA systems cleared and settled $43.7 trillion worth of payments in 2013, an average of $173.4 billion each business day. As the center of excellence for payments in Canada, the CPA leads its member financial institutions, businesses, government, and the public in developing the rules of the road for the Canadian payments highway. Over the years, the CPA has implemented multiple standards for electronic

payments that move across its systems: one standard for automated funds transfers or AFTs (pre-authorized debits and direct deposits), a second for electronic data interchange or EDI (business-to-business transactions and bill payments), and a third for wire payments. But the legacy standards lack the flexibility to adapt to the changing payment needs of businesses and other users of the Canadian payment system in today’s digital environment. Additionally, each of these standards, which were developed to meet particular payment needs at specific points in time, uses specific terminology that requires unique interpretation. As a result, Canadian businesses, payment processors, and financial institutions need to maintain multiple suppliers, software, processes, and business systems to support their payment operations. Valuable time can be lost when manual intervention is required to translate a message across multiple platforms. Bill Piggot, VP of international money movement for ADP and member of the CPA’s Stakeholder Advisory Council, believes that “a lack of consistency of payment format across financial institutions and countries as the world payment area evolves is one of September/october 2014

the biggest challenges facing Canadian businesses today.” There is a global convergence2 toward the adoption of ISO 20022. Since it was developed to meet the needs of the entire financial industry, as opposed to a single sector, it contains message definitions and other content required by the methodology to explain the underlying concepts and processes in the business environment in which the messages will be used. This provides the flexibility to translate existing messages to an ISO 20022-compliant format or build entirely new types of financial messages. It also ensures that the messages can be interpreted correctly by people and machines. According to Brent Mizzen, director of policy development for the Canadian Life and Health Insurance Association and chair of the CPA’s Stakeholder Advisory Council, “using one set of message definitions instead of several will save businesses time and money. We fully support this move, and we look forward to ongoing collaboration with the CPA, financial institutions, and other stakeholders in going down this road to greater payment efficiencies.” ISO 20022 also provides an increased capacity for remittance data to travel with

Payments Business Magazine SeptOct 2014