The problem, of there not being enough data associated with Wires for recipients to identify exactly what the payment is for, has long been recognised. In 2008, a new FedWire and CHIPS format was announced for implementation in Novermber 2011.
The new Extended Remittance data format includes:
- Remittance Informations which supports up to 9,000 characters, which can be in three formats:
- Unstructured - block of data formatted according to another standard, e.g. ISO 20022, but not edited by FedWire
- Related - used to identify a reference number and location of remittance information if exchanged outside the wire payment
- Structured - specific "tags" edited by FedWire and CHIPS to carry invoice details
- Payment Notification
- Improved cover payments.
The main benefits for companies will be reduced costs, opportunity to automate many more high-dollar payments, and improved remittance processing and posting. However, to achieve these savings both the originating back and receiving bank need to be able to process the new remittance formats.
The Fed and a joint advisory group are recommending that the best practice for using the new remittance standards are:
- Originators and beneficiaries should verify that their respective financial institutions have the ability to process and report extended-character remittance information in one of the common-denominator formats.
- Prior to sending a wire transfer with extended-character remittance information, the originator should verify that the beneficiary can receive extended-character remittance information from its bank.
- Once the originator's bank receives the remittance information from the originator, the bank should translate the data into a common-denominator format before sending a payment order to the next bank in the funds transfer chain.
- After receiving the extended-character remittance information from the originator's bank or from an intermediary bank, the beneficiary's bank should translate the incoming remittance information to a report format agreed upon with the beneficiary.
Eventually, the new Remittance Format will improve Straight-Through Reconciliation rates significantly.
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