By Hank Farrar, The Clearing House, and Lauren Hargraves, Federal Reserve Bank of New York
As the nation's major wire transfer systems gear up to offer significant new functionality, financial institutions and technology providers have a rare opportunity to deliver additional value to corporate clients-the power of information.Payments are critical to corporations because they facilitate important business objectives. Wire transfers offer superior payment characteristics, such as speed and the ability to reduce risk, but can fall short in delivering on business objectives because recipients often don't have the information needed to correctly apply the payment.
At the end of 2010, both major wire transfer systems in the United States-the Fedwire Funds Service from the Federal Reserve Banks and CHIPS from The Clearing House-will offer new functionality that pairs wire's unique payment features with important information about the underlying reason for the payment, such as invoice and other remittance data.
To achieve the full potential of these opportunities, financial institutions and technology providers should take proactive steps now to ensure that corporations can reap the benefits of the most substantial enhancements to the nation's major wire transfer systems in many years.
These changes will empower corporate customers to meet their business objectives more efficiently than they do today. For instance, corporations will avoid the expense and inconvenience of identifying unexplained payments, which should help them reconcile their payments with much greater efficiency. Instead of making a series of burdensome phone calls or sending multiple e-mails to determine why a payment was sent, a corporation will be able to look to the payment message itself. Or, if the company chooses to invest in automated processes, it will have an IT system to reconcile and post the payment directly to an accounts receivables or enterprise resource planning (ERP) system.
To implement the changes smoothly, the Federal Reserve Banks and The Clearing House are working closely with banks, corporations, technology vendors, global payments systems operators and industry associations like the Association for Financial Professionals.
How Banks Can Prepare To effectively send remittance information with wire transfer payments, banks should consider the following initiatives:
• Create a roadmap for implementing the changes. Because many customer portals require modification, the interfaces with market infrastructures and core payment-processing engines must also be adapted. It is critical to identify all potentially impacted areas early on and to develop an action plan and timeline for each. • Realistically appraise the capabilities of clients. Each corporate client brings a slightly different set of requirements and state of readiness. Some clients may be looking primarily for XML-based ISO 20022 information, while others are interested in EDI-based ANSI 820 STP information. Banks need to determine exactly what is needed as quickly as possible. • Consult with correspondents/respondents. Banks should reach out to their correspondents and respondents to ensure that they are aware of the coming changes. Correspondents and respondents - especially banks that are not direct participants in the Fedwire Funds Service or CHIPS - will need to ensure that they can transport the additional information contained in the enhanced message format. • Address the issue of cross-border payments. Banks involved in cross-border payments may need to talk with their messaging network providers, such as SWIFT, about leveraging those channels using the enhanced message formats. • Work with the wire transfer systems. Take advantage of training opportunities and materials from the Federal Reserve Banks and The Clearing House. To help educate clients, visit FRBservices.org/fedwire/index.html and www.chips.org. • Review statements and statement delivery channels. Banks need to determine if these can be leveraged to transport invoice information to corporate clients.
How Technology Providers Can Prepare Technology providers will play a key role in helping banks and corporations leverage system enhancements. Among the initiatives they should consider: • Quickly identify the banks and corporate clients most affected by these changes and reach out to them. • Work with corporations to assess the possible changes to treasury workstations, cash management software, and ERP software for these types of wire transfer messages. • Determine the corporate interfaces that need support, such as XML, EDI, and SWIFT, among others. • Map the new processes that need to be created for information now sent via electronic bank statements, such as BAI statements. • Help corporations assess whether other paper-based payments can now be handled by the new wire transfer message formats.
After many years of discussion and planning, a new era of efficiency is arriving for wire transfer payments. By working together, banks, corporations, and technology providers can realize even more value from the nation's two major wire transfer systems.
Lauren Hargraves is Senior Vice President, Wholesale Product Office, Federal Reserve Bank of New York. Hank Farrar is Senior Vice President of The Clearing House, responsible for CHIPS.