U.S. banks that send automated clearing house transactions are called "ODFIs," but in Europe, such companies are known as "debtor agents," and they do not even have to be banks.
A wonky banking detail, perhaps, but payments executives around the world will need to settle such linguistic differences and a host of other nitty-gritty technical issues if they hope to make a widely anticipated new ACH format into an important tool for international transactions.
The IAT format for international ACH transactions is set to take effect next month, and bankers and regulators are hammering out now the final touches on a rulebook to make sure payments executives in different countries are all on the same page. The payoff, they hope, will be a new, inexpensive way for corporate customers to send money across borders.
"IAT lays the foundation for U.S. ACH to have a truly global face," said Elizabeth McQuerry, an assistant vice president in the Federal Reserve System's retail payments office. "We have spent a lot of time getting the format right. Now we are finalizing the rules."
McQuerry said Wednesday that testing is to begin next month on dollar-euro transactions, and the goal is to go live in the first quarter, using standards being finalized this week by the International Payments Framework Group, a team of bankers and regulators from four continents that has been tasked with making the IAT specifications easy to use.
Experts do not expect a surge of international money movement when the IAT format takes effect Sept. 18, but they do expect ACH transactions to eventually supplant checks for cross-border payments.
Bankers said in May of last year that they had mapped the IAT format to the data elements used for cross-border payments within the Single Euro Payments Area. Since then, committees within the IPF group have spent months working on the rulebook, a technical implementation guide, governance for the fledgling organization and a marketing plan, McQuerry said.
Along the way, the group wrestled with legal, technical and semantic issues to make a single format work with many different regional and national payments systems, McQuerry said, without "changing the local payment systems on either end."
For example, U.S. rules require a depository financial institution to be at each end of an ACH transaction, McQuerry said. The Federal Reserve Board, through its FedACH International Services unit, is working with a Dutch processor, Equens SE, to send and receive payments to Europe. Equens, is a bank-owned cooperative, but is not a bank, and to comply with U.S. rules, the IPF group had to make sure that Equens was allied with a bank. (She would not name the bank.)
The rulebook also has to clarify some key terms. For example, the person or company that originates an ACH payment in the United States corresponds to what Sepa calls a debtor, and the bank that handles the transaction here, the originating depository financial institution, corresponds to what Sepa calls a debtor agent. "We have some vocabulary lessons we've had to go through," McQuerry said.
James Wills, a senior business executive at Swift, the global cooperative that handles international payments, said the IPF also had to settle on such details as how many individual transactions a single message could contain — they chose 100,000 — and how many characters to put in the amount field — 17. That could be a sign of just how much volume the group expects the IAT format will eventually handle, though initially it "may be an issue if you're sending to Zimbabwe."
