STP Forces Payment Industry To Reconsider XML

Straight-through processing, or STP, isn't just for securities anymore.

"Most of the discussion over the past couple of years has been in the capital markets area with STP," said Warren Lewis, global managing director for the banking industry at Microsoft. "As we move away from paper-based checks more and more, and with the Check Truncation Act that's pending, the opportunity to go to more straight-through processing in the various channels in banking becomes greater and greater."

Consequently, the major payments networks may have to adjust. As the industry's leading payment switch, NACHA currently uses electronic data interchange, or EDI, to connect to its associated banks. Although that's workable, and profitable, for a limited number of large participants with a high volume of transactions, EDI doesn't make it easy for additional participants, particularly small-to-medium-sized enterprises, to connect to the network.

That's a potential benefit of the XML-based standards underlying the Web services computing model. But the concept of switching to an XML standard for payments received a cool reception from NACHA at first. "Their position in April was that XML has a lot of overhead relative to EDI electronic data interchange, relative to the size of the payload," said Gary Maier, managing director of global financial services at Iona Technologies, a Waltham, Mass.-based software company. "They were leaning towards a dismissive type of attitude to XML."

In April, NACHA's Internet Council recommended that the question of XML remittance data in the ACH be put on hold. "Not enough data exists to move forward in promoting ACH network changes at this time," the Council wrote in a white paper, XML Formatted Remittance Data in the ACH: A Feasibility Assessment. The paper is available at https://internetcouncil.nacha.org/docs/XML.pdf

But the Council left the door ajar. "Significant interest remains in the potential for using XML in the ACH, and there is a desire to 'keep an eye' on related payment developments that would lead the members to re-evaluate this question."

"NACHA is looking at XML-based messaging and the feasibility of it for some of their funds transfer categories," said Microsoft's Lewis. "Once you do that, you're positioning it for this kind of straight-through processing."

NACHA isn't the only organization considering the use of XML-based standards to facilitate payments. "Visa and Concord EFS are beginning to offer Web services interfaces to basically plug into their payment processing networks," said Iona's Maier.

The goal is to allow middle-market industry participants, such as small regional and community banks, to make real-time, secure payments using alternatives to the ACH. "In order to reach out to that broad type of community, you have to have something that's easy-to-use and standardized," said Maier.

Unlike STP in the securities industry, STP in banking would probably not involve a deadline-driven push towards total industry adoption of a common standard. Indeed, it's likely to be more of an issue of relevance--banks that don't provide customers with access to real-time payments may have an increasingly difficult time justifying themselves.