The Benefits of the Creditor Reference

The use of creditor references is common in most SEPA countries. Studies show that in excess of 95 per cent of all incoming flows have been automated based on country specific creditor references. These references allow for automatic reconciliation of receivables against outstanding invoices. Absent such standards, reconciliation would be done in a much less efficient way, for example manually, based on information such as client name, amount paid and invoice number.

Creditors and banks involved in the processing of a bill payment transaction are able to verify the correctness of the creditor reference indicated by the debtor (payer) with the payment instruction based on a unique check digit included in the creditor reference. In the area of online banking this verification generally takes place at the same time as the debtor enters the payment details.

Last but not least, creditor reference standards are the basis for close cooperation between businesses and ERP vendors, integrators and other service providers with regard to the development of efficient IT applications in the area of payment processing.

The global ISO Creditor Reference standard

On account of the significant differences among existing national creditor reference standards, Finland as a member country in ISO decided to develop a new global standard featuring the best functionalities in use today. The global ISO Creditor Reference standard approved in one of the ISO Sub Committees (SC 7, Core Banking) deploys three distinct features: identifier, check digit algorithm and length of the reference. The letters "RF" have been assigned to indicate the presence of a Creditor Reference; the algorithm is the same as in the IBAN (International Account Number) check digit calculation; the length of the reference totals 25 characters maximum length. For a detailed description of the technical features inherent to the ISO Creditor Reference see links below.

Market Adoption of the ISO Creditor Reference

The availability of a global ISO Creditor Reference standard does not immediately replace existing national or local creditor references. Ultimately, the adoption of the ISO Creditor Reference will be determined by market demand, e.g. whether originators of large volumes of invoices (billers) and their customers (payers) decide to use the global ISO standard.

First feedback from corporate clients indicates that the new ISO Creditor Reference will be adopted in a first step for cross border invoicing as there are no overlapping procedures with existing domestic references in this area. Banks currently offering creditor reference should therefore prepare for a period of parallel use of existing national creditor reference standards and the new global ISO standard. By contrast, banks operating in countries where no creditor reference standard is in place today might consider deploying the new ISO standard. Either way, from an ISO perspective it is recommended that banks supply the necessary user manuals and initiate campaigns to promote use of the global ISO Creditor Reference.

The global ISO Creditor Reference in the context of the SEPA Schemes

The global ISO Creditor Reference also provides an important link between billers and payers seeking to explore the market place which makes up SEPA. They may rely on this new ISO standard which creates opportunities for end-to-end reconciliation of receivables in the four corner model regardless of the location of the biller and / or the payer in the 31 countries that make up SEPA.

The use of this ISO standard is optional in the context of the SEPA Credit Transfer Scheme developed by the EPC. In the SEPA Direct Debit Schemes, the use of this ISO standard is only a matter for the creditor. However, the EPC believes that the global ISO Creditor Reference offers a good approach for the creation of a SEPA-wide application. The EPC has therefore developed a guidance document on the use of the ISO Creditor Reference Standard in the context of the SEPA Schemes (see below).

Olli Kähkönen is representing Finland in ISO TC 68, Financial Services, RMG, Registration Management Group and ISO SC Sub Committee 7, Core Banking.

For further information, please visit ISO at www.iso.org (standards under development) and www.swiftcommunity.net (E2E STP Creditor Reference).