Making ISO 20022 compliance more than just a regulatory requirement - The importance of “data standards and data maintenance” for companies/banks

First we will focus on initiatives that are closely related to "data standardization" among companies and banks.

Executives face numerous management challenges. However, data standardization and the subsequent "restructuring of business foundations" and "improving the efficiency of logistics" are particularly relevant to data standardization, which is the focus of this Insight (see Figure 1).

Business foundation restructuring includes divestitures, business transfers, and share exchanges with other companies. M&A is typically how companies grow and expand their business. Global companies engaged in M&A as part of their growth strategy are now using Shard Service Center (SSC) (see Figure 2), and as part of PMI, business integration with acquired companies is considered and implemented for each M&A. At this time, what is important in business integration is what kind of data is managed and how both the acquiring companies and the acquired companies manage their respective data. The larger this gap, the more resources will be spent on business integration.

To improve logistical efficiency, domestic and overseas supply chains rationally select suppliers after considering quality, price, delivery speed, geopolitical risks, and other factors. This is known as "supply chain resilience," and governments around the world see the urgent need to strengthen them (see Figure 3). In Japan, supply chains rely on "affiliates" in which corporate groups conduct business transactions amongst themselves, but now the government is encouraging companies to localize procurement. The current trend is to break away from supply chains, making it necessary to efficiently exchange transaction information with companies outside of the affiliate. Again, what is important here is how the two sides exchange data during their business transactions.

In most cases, companies that conduct M&A and companies that are integrated through M&A have different business practices. Even if the two companies use the same ERP (core system), there are many cases in which there are differences in the work performed outside the ERP, add-on functions, peripheral systems, etc. (see Figure 4).

To integrate operations, they must investigate, examine policies, and integrate business processes, data formats, items to be used, and systems for processing data.

Among our many support achievements, one of the most common consulting tasks is providing assistance in bridging the gap when business processes and data are not unified after an M&A. There are many cases in which the integration of an ERP and peripheral systems are selected, and differences in the granularity of the data and the required items necessitate the creation of migration data and additional development, which takes time and effort (see Figure 5).

In Japan, Electronic Data Interchange (EDI) has individual supply chains centered on large companies, based on industry standards such as distribution BMS^*1 and ECALGA^*2.
However, although industry standards have been established for EDI, each supply chain is not connected. In addition, there are also different billing methods and rules for receipt reconciliation aside from EDI. This makes it difficult to conduct a smooth series of operations, from transactions to settlements, with new business partners (see Figure 6).

The government and others are considering a common EDI^*3 for small and medium-sized enterprises and a next-generation trading platform as a mechanism to eliminate individual supply chains. But according to a survey commissioned by the Ministry of Economy, Trade and Industry^*4, we are only halfway there when compared to overseas systems. In addition, there are cases in which Japanese companies are implementing their own trading practices overseas. These situations are widespread in Japan due to weak enforcement of regulations and weak incentives to respond.

UN/EDIFACT^*5 has become popular overseas as EDI, mainly in Europe and Asia.
Peppol^*6 for invoicing, specific items of ISO 20022 for settlement, Request to pay^*7/Direct Debit, etc. are also used to automate reconciliation. Peppol and ISO 20022 are widely used in Europe and elsewhere because regulations require them.

*1 Distribution BMS: The Distribution Business Message Standard is an EDI standard used in the consumer goods distribution industry to exchange information between manufacturers, wholesalers, and retailers.
*2 ECALGA: Electronic Commerce ALliance for Global Business Activity is an EDI designed to seamlessly connect business processes digitally between companies and improve operational efficiency.
*3 Common EDI for small and medium-sized enterprises: EDI designed for small and medium-sized enterprises for simplicity, convenience, low cost, serving as a new ordering mechanism to replace the fax. Since common EDI for small and medium-sized enterprises EDI is based on UN/EDIFACT, it is flexible enough to handle international transactions. Next-Generation Trading Platform:
https://www.chusho.meti.go.jp/keiei/gijut/digitalization/index.html (Japanese only)
*4 International Economic Research Project for the Establishment of Integrated Economic Growth Strategies at Home and Abroad (Advanced Domestic and Overseas Fact-Finding Survey on One-Stop Operation of Ordering, Billing, and Settlement between Companies): 000711.pdf (meti.go.jp) (Japanese only)
*5 UN/EDIFACT: United Nations/Electronic Data Interchange for Administration, Commerce and Transport is an international standard for EDI. It provides rules, directories, and guidelines for the electronic exchange of structured data between different computer systems.
*6 Peppol: An international standards framework for e-commerce. It allows companies and public institutions to exchange business documents in a standardized format, such as invoices.
*7 Request to pay (Request for pay): In some regions, it is called Request for pay.

The challenges in this chapter are summarized below (see Figure 7).

Banks are under pressure from companies for cheaper and higher-quality services. One of the points of contention is how to increase the proportion of services that do not depend on human resources. This is because parts involving human resources become bottlenecks, and the amount of work that can be handled depends on available human resources. If the number of employees increases, the total labor cost will increase, and if the cost is passed to the product, the price of the product may not match the market price. In addition, it may be difficult to increase the number of employees in places where the population is declining. 

Banks, especially in the fields of settlement and trade finance, continue to improve efficiency through system-based automation (STP, Straight Through Processing) (see Figure 8). The key to this automation is whether companies can pass data as the bank expects.

It is necessary to incorporate STP to achieve operations that do not involve humans, but there are challenges to consider (see Figure 9).

OCR and AI have recently become able to distinguish data. But even if AI analyzes data in an unstructured format, it is still necessary to judge the results manually, making it difficult to automate processing.

Many companies and banks have responded to ISO 20022, and this Insight states that standardizing their own data may allow them to use AI more effectively, automate processing, and transform them into agile organizations.

There are still data formats beyond the examples introduced here that must be standardized by companies and banks. In addition to gaining the ability to utilize existing standard data, it is also important to work with related organizations (including legislation) in areas where standards do not exist.

Companies must standardize their internal business processes and data while complying with the laws of each country and accounting for their own circumstances, as well as those of banks and other companies.

Banks can improve efficiency by requiring companies that request bank services to use data standards. Companies may also benefit from the agility and cost advantages of providing standardized data to banks.

It is important for banks and companies to use data standards to ensure the further growth. To propel these initiatives, it is necessary to have a team with advanced expertise in a wide variety of industries and operations that can bring together companies, banks, related platforms, and other organizations. ABeam Consulting provides comprehensive consulting services such as "IT Due Diligence Support Services," "Business Due Diligence," and "PMI Support for M&A Success" (all Japanese only)to support companies and banks.

If you are working to standardize the data covered in this Insight, please contact us.