Integrating ISO 20022 into US ACH operations

As banks transition to ISO 20022 for wires and instant payments, large corporates see the potential of expanding the adoption to other rails – such as the US ACH Network – to drive further treasury automation. XMLdation explores how the mapping and testing of ISO 20022 messages and ACH formats can make this a reality

Although introduced back in 2004, ISO 20022 is very much today’s hot topic. The new global standard’s rich data and structured format delivers a wealth of benefits for banks and corporates alike and could help to harmonise the array of payment messaging standards in use across the world.

The ISO 20022 transition is already in full swing, with financial institutions (FIs) in the United States (US) focused on ensuring their wire payments, such as the Federal Reserve’s FedWire and The Clearing House’s CHIPS, as well as their cross-border payments through the Swift network, are ISO 20022 compliant.

The impact of this transition – and its potential benefits – extends to corporate clients, which are increasingly looking to drive automation and efficiencies in their treasury functions. To achieve this, larger corporates are looking at how they package and process their payments – particularly those through the US Automated Clearing House (ACH) Network – using a single harmonised standard. ISO 20022 has a role to play here.

The importance of ACH payments

The ACH Network remains the beating heart of the payment ecosystem in the US, providing a secure and efficient means of electronically transferring funds between banks – allowing for various transactions, including direct deposits, bill payments, and business-to-business payments. 

The services provided by ACH are improving too, with increased speed, better security, and greater efficiency, which, in turn, is driving growth. In Q1 2024, for example, the ACH Network’s payment volumes recorded a 5.6% increase to 8.2 billion, with a 5.0% year-on-year growth in the value of these payments, equating to ca. USD $20.7 trillion.

As other payment rails in the US look to migrate to ISO 20022, the question is: where does ACH fit into this new era? Despite the uncertainty, there are growing efforts to support an ISO 20022 ACH integration strategy, which will, in turn, support corporate treasury transformations.

A harmonised messaging standard

In today’s fast-paced world, corporate treasuries are looking to streamline their payment processes, with the aim of unlocking greater treasury automation, easier implementation of messaging standards and an improved workflow when they onboard to a bank’s payment services.

To help facilitate these improvements, some treasurers are looking to implement a single messaging standard that can incorporate all their payment flows – from ACH payments and cross-border transactions to real-time payments and wire transfers – into a unified payment file. Generally, the demand for this stems from large corporates that manage a high volume of ACH payments – and foresee long-term efficiency gains from using a single messaging format across all payment types, in all countries where they operate.

This is where ISO 20022 comes in. The granular, structured nature of ISO 20022 messages makes them easy to use with modern technologies and highly accurate , enabling straight-through processing. By transporting more structured data, ISO 20022 messages are also suitable for payment status and account reports. When taken together, these characteristics help to facilitate efficient and automated payment reconciliation.

Integrate ISO and ACH

Leveraging ISO 20022 as part of a corporate’s accounts payable, accounts receivable and treasury functions might appear a no brainer, but integrating the new standard into ACH operations comes with its challenges.

In the US, the ACH Network utilises Nacha ACH formatted payment files, which need to be mapped to support ISO 20022. To facilitate this integration, Nacha which governs the ACH Network in the US, has developed an ISO 20022-to-ACH Mapping Guide and Tool. This will help financial institutions in translating ISO 20022 instructions for their corporate customers into ACH transactions.

In addition, Nacha also partnered with the Federal Reserve Financial Services (FRFS) on a proof-of-concept (PoC) – for which XMLdation served as a key resource – to illustrate the capability of today’s modern ACH Network to simultaneously support payment instructions in an ISO 20022 Payments Clearing and Settlement (pacs) format and a Nacha record specification, including the conversion of each to the other. The PoC found that using ISO 20022 message files within the ACH Network would require significant additional work around aligning the ISO 20022 schema with the ACH use cases.

Navigate mapping

In an attempt to facilitate the move towards the single ISO 20022 messaging standard, banks have launched services to support integrated, mixed, and bulk payables. Payment File Testing solutions play a key role in this process – helping clients to automate payment processes at speed and ensure compliance with Nacha guidelines, while reducing errors and streamlining processes. 

In this way, XMLdation – with its accumulated experience in mapping ISO 20022 and ACH payments – can play an important role in enabling financial institutions to continue to use the ACH Network and ACH format, while incorporating support for ISO 20022 in specific steps of their overall ACH payments process.

If you are interested in learning more, you can listen to a podcast with Tricia Balfe, CEO of XMLdation, Kathy Levin, Nacha Senior Director, Strategic Payments Analyst, and Samantha Carrier, Associate Managing Director, Nacha Consulting.