As payments executives mull ways to include invoice details within wire transfers, a trans-Atlantic conflict seems to be brewing over which data standard to use.
Two data formats have emerged as the primary contenders: one developed by The Clearing House Payments Co. LLC and based on an older but well-entrenched payments format, and one based on a more current technology that is gaining traction in Europe but has seen little use in this country.
Observers say that adding invoice information to wires could spur more companies to pay one another electronically, and that the easier it is to set up such a payment, the more businesses are likely to make the shift.
The Federal Reserve banks and The Clearing House said last month that they were backing an effort to add invoice data to wires, and they met again this week to discuss some of the details, though no decision was made.
Some observers say the standard being considered in Europe should have the edge, because it is based on the more modern and more flexible extensible markup language, or XML. Known as the ISO 20022 format, it has been mandated for use in Europe, where Sepa - for Single European Payment Area - is scheduled to be functional by 2008. The financial cooperative Swift plans to test the ISO 20022 format in mid-2007 on its SwiftNet messaging system, and said that at least 15 banks are planning to use it.
But others say that the European-centric standard is too complex for domestic needs and uses terminology that is alien to many American users, who may prefer the EPN STP 820 format, a subset of the venerable EDI format.
Henry C. Farrar, a senior vice president with The Clearing House overseeing its wire transfer unit Clearing House Interbank Payment System, said the decision on which standard to use may not be made for months.
"The Fed and Chips agreeing on a standard is itself unprecedented," Mr. Farrar said. "There are processes we both have to go through." The Clearing House developed the EPN STP 820.
The Clearing House and the Fed collaborated on a joint study released last month that found that more than half of corporate treasurers would be willing to pay more for wire transfers if they could include details about what the payment is for. The strategy holds the promise of enabling more automated, straight-through processing of payments, with greater efficiency for both banks and their corporate clients.
More than 80% of business-to-business payments in the United States are made by check, the study found, and if just 2% of those checks shifted to wires, there would be a 47% increase in wire volumes.
For its part, Swift - the Society for Worldwide Interbank Financial Telecommunication - would prefer to see the global banking industry coalesce around a single standard, said Luc Meurant, the head of its corporate access program.
With more companies doing business all over the world, "there is no point in coming up with a Europe-only standard," Mr. Meurant said. "This is not only for European customers."
Gary M. Bertone, a former New York Fed official who is now the director of market infrastructures in Swift's banking industry division, applauded the efforts by the U.S. wire system operators. "I think it's very complementary to what Swift is trying to do," he said.
Despite the apparent head start of the ISO standard and the apparent benefit of having a single, worldwide standard in an increasingly global marketplace, EPN 820 also has advantages. It is a relatively compact file - containing 10 essential elements from the standard EDI data set - and is most likely more familiar to U.S. corporate treasurers.
Arlene S. Chapman, a senior consultant to the Association for Financial Professionals, a trade group for corporate treasurers, said simplicity and familiarity could give EPN the edge. "The European terminology used in XML is not terminology that a U.S. corporate is used to," Ms. Chapman said. "What is a 'metered service invoice,' and why do I need that data element in my message set?"
By contrast, "EPN 820 is a pretty straightforward set of data elements," she said, "But it's not XML."
Some observers suggested that the two standards might have to coexist.
Nancy Atkinson, a senior analyst at the research and advisory firm Aite Group LLC in Boston, said: "We'll never get to full straight-through processing until we can get to every player. Full-blown EDI is way too much for small businesses."
She predicted that larger banks with more international business would go for the ISO standard, but "EPN will be more embraced by the domestic banks, and there are thousands of them."
Software vendors said that developing software to automatically convert one type of payment file into the other would not be too complex.
Juergen Weiss, a product architect at SAP AG in Walldorf, Germany, said that his company provides the mapping tools to do such a translation and that banks and their corporate clients would probably use both formats. "EDI will not go away. That's for sure," Mr. Weiss said. However, the benefits of the machine-readable XML languages could also push the market toward the ISO standard.
"That is basically SAP's strategic direction," and the company is working with Swift and corporate users on the standard, Mr. Weiss said. "The world is going there."
Swift's Mr. Bertone said there are already applications for translating different types of payment files, and he said that will continue to be the case in the future. "It's up to the bank to make sure the information gets carried over" to the proper formats, he said.
Joseph P. Mazzetti, the executive vice president of corporate development at Fundtech Ltd. in Jersey City, a maker of banking software for corporate cash management and foreign exchange, said decisive action by key players such as the Fed and Chips could stimulate movement by other participants. "The market has got to speak here," he said. "That's part of the problem. At this point, there's not enough market pull."
Susan Feinberg, the research director in the wholesale banking group of TowerGroup in Needham, Mass., a market research unit of MasterCard International, said that even if the Fed and Chips agree to back a single standard, it may not be enough to drive up corporate wire volume.
"The primary reason corporates don't use wires more is not because of the missing remittance information. It's because of the cost," she said.
But companies pursuing electronic payments are apt to be more interested in XML than in the decades-old EDI format, Ms. Feinberg said. "Big companies that are going to be doing this are not investing a lot of money in upgrading their EDI. They're investing in XML."
