Issue 2 - April 2009
Going globalThe new ISO Creditor Reference
24.04.09 By Olli Kähkönen
ISO (International Standard Organisation) approved a new standard that allows creditors, e.g. billers such as insurers and telecommunication companies, for example, to automatically reconcile incoming payments with outstanding invoices. The ISO Structured Creditor Reference to Remittance Information (in short: the ISO Creditor Reference standard) further increases the rate of straight-through payments processing. Whereas similar standards have been developed on national level, the ISO standard provides for the first time a means of automatic reconciliation fit for global use. The EPC recognises that the ISO Creditor Reference standard offers the potential for SEPA-wide application and provides guidance for banks, businesses and service providers on the optional application of this standard in the context of the SEPA schemes. Olli Kähkönen introduces the new ISO Creditor Reference.
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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.
Other articles in this issue
24.04.09 Update EPC Plenary Meetings - Main decisions taken in March 2009 By Herman Segers 24.04.09 The Preview - Rulebook Release Management 2009 By Christian Westerhaus 24.04.09 SEPA only: the EPC Vision - EPC recommendations on end date for SEPA migration By Gerard Hartsink 24.04.09 New EPC Publications now online - Everything you need to know about SEPA By Meral Ruesing 24.04.09 A mixed Bag - European Parliament approves revised Regulation 2560/2001 on cross-border payments By Séverine Anciberro 24.04.09 PSD Implementation: six Months to go - Will Member States meet the deadline? By Ruth Wandhöfer 24.04.09 New Kids on the Block - An introduction to payment institutions By Ruth Wandhöfer 24.04.09 Every Road has got to end somewhere: the Need for a SEPA Migration End Date - Re-emphasised by the European Central Bank By Wiebe Ruttenberg and Monika Hempel 24.04.09 Great Expectations - E-invoicing: time to seize the opportunity By Charles Bryant 24.04.09 Overcoming the Homer Simpson in us - How to create a less-cash society By Leo Van Hove and Leonor Machado 24.04.09 Facing the Facts in April 2009 - EPC tracks progress of SEPA implementation By Herman Segers 24.04.09 Missing in Action, mostly - Public sector lags behind in SEPA implementation By Gerard Hartsink 24.04.09 On Bananas and the Integration of Euro Payments - The SEPA commitment of EU governments By Herman Segers 24.04.09 ECOFIN Council Conclusions: Annual Progress Report on the State of SEPA Migration - European Commission reports on migration by public authorities By Zuzana Kalivodova 24.04.09 SEPA at your Fingertips - The EPC Roadmap for Mobile Payments By Dag-Inge Flatraaker 24.04.09 SEPA Direct Debit: the Green Light - EPC launches SEPA Direct Debit Schemes in November 2009 By Gerard Hartsink 24.04.09 The Doors are open - Guidelines for adherence to the SEPA Direct Debit Schemes are now available By Gerhard Singer 24.04.09 Creditors: Help is here - EPC introduces rules on the use of legacy mandates under the SDD Scheme By Kevin Brown 24.04.09 SEPA B2B Direct Debit: the E-Mandate - Public consultation is going on now By Christian Westerhaus 24.04.09 Think ahead - The SEPA Scheme change management By Christian Westerhaus 24.04.09 More is More - EPC Newsletter for Scheme Participants Herman Segers
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