In the day-to-day life of a corporate treasurer, the importance of receiving correct and clear account statements cannot be overstated. However, it is even more critical for the large, multinational corporates that act globally and thus depend on transparency and smooth transactions. As the Head of Treasury Operations for Merck – a leading science and technology company – this is one of the challenges I face.

In my continuous efforts to optimise account statements, I had to carefully consider whether (and when) to make a step towards ISO 20022 – the new global payment messaging standard. The implementation of ISO 20022 would introduce a new standard for transferring account statement data – known as the camt.053 message – to replace the MT940 message that is currently used today.

But what exactly are the challenges with the current MT940 standard? What are the benefits of migrating to camt.053? And more specifically, how will Merck approach this transition? Allow me to address all these questions in more detail.

Bank statement processing with MT940

We currently receive account statements from all 140 banking partners worldwide in the MT940 format. These are then converted as required and forwarded to the 40 different financial accounting systems within the Merck Group.

With electronic bank statement processing being rolled out worldwide, many efficiency gains have been achieved, which entail highly automated processing and central data availability. Like other corporates, a common industry-wide challenge that Merck must contend with is the various limitations of the MT940 format:

• Unstructured data;
• Insufficient or no information at all in the remittance text;
• Remittance information limited to 390 characters; and
• Missing sender and recipient details.

As a result, the degree of automation involved in clearing open items is often not satisfactory. With a daily clearance of millions of account statement items, even a small percentage of manual postings can lead to high additional workloads for the relevant departments. The degree of automation depends – to a significant extent – on the data that the bank is sending or able to add, especially in transactions where the sender only inserts a small amount of information in the remittance information text.

To avoid manual rework, country-specific solutions are intensively implemented and used. To allow automation in some countries, separate text files with further transaction information are loaded and processed in the systems.

The structured version of the MT940 standard includes structured information in the remittance text of the transaction. However, this extension is mainly offered by banks that have a clear focus on the European market. This sub-standard contains only a few fields and references, which are still inadequately mapped.

Due to all these limitations and continuously increasing pressure for further automation, a new account statement format is needed to ease the burden of account statement processing.

New possibilities with camt.053

The new camt.053 format aims to remove all the previous limitations of the MT940 format. The information is made available in a structured format. The references that a sender has added and the information on the ordering account, account holder and account-keeping bank are essential. Theoretically, an unlimited number of remittance details can be given. In addition, camt.053 statements may contain account-related details previously not provided in the MT940 format, such as the account-specific credit line amount and the interest rate.

For Merck, the transition to XML account statements in the camt.053 format creates considerable further potential for automation across all subsidiaries and countries. Invoice number, invoice date and numerous other invoice-specific details can be specified for each paid invoice without restrictions. At the same time, better information on business transaction codes makes it easier to identify the payment method, such as cash payment or check.

The client account number is also part of camt.053 – resulting in greater transparency for the Group Finance departments. According to an initial estimate, the transition from MT940 to camt.053 has automation potential that nears 100%. In addition, regulatory tasks can be simplified, since these can be taken over by a shared service center of the Group.

The booking code that the bank adds is important for the automated posting of many standard transactions. In the old MT940 format, a wide variety of code systems are used. The German “BTC” code and the US BAI2 are important for Merck. Many other countries have developed their own code systems. To avoid these variations, some banks have defined their own code system, which only adds to the complexity. One big advantage of camt.053 is the ISO defined business transaction codes, which are independent of the bank and the individual countries. Companies such as Merck use a similar account framework worldwide, which means posting rules can be standardised across countries and banks in the future. This enables a further increase in the automation rate to be achieved.

To leverage the additional data from the camt.053 format as early as possible, the account statements are imported directly into the Treasury Data Warehouse in addition to the Payment Factory. This enables many valuable reports to be created – including liquidity or transaction analysis – in the form of treasury dashboards.

Due to the lack of important information included in the MT940 format, our central compliance department depends almost exclusively on cooperation with the local units. At the same time, there is currently no possibility of automated monitoring of typical money laundering cases, such as overpayment, in which a customer intentionally overpays an outstanding invoice and asks for the overpaid amount to be transferred to another account. In cases like these, it would be necessary to have the ordering party’s account on the account statement to be able to compare it with the recipient’s account. These details are available in camt.053 statements in a structured form, which offers new possibilities for automation and compliance assurances.

If the client account is defined in the customer’s master record, a cash receipt can be digitally assigned directly to a customer in the financial accounting system. This is helpful if only insufficient data is passed in the remittance text.

Another benefit of the camt.053 format is that bulk payments also contain information about sub-transactions. This hierarchy can be applied if the originator of a payment has included details about individual paid invoices in their payment and these are transmitted by the national clearing system, for example US CTX or for credited checks, such as a US lockbox. With the sub-transactions, a direct assignment to customer invoices can be made, which was previously only possible manually or via other reconciliation accounts. This possibility will also significantly increase the automation rate, especially bulk payment posting.

Camt.053 implementation challenges

The transition of account statements from MT940 to camt.053 poses several challenges. The changeover must take place without interrupting day-to-day business to prevent any negative impacts to the business.

At Merck, a total of around 1,200 bank accounts with around 140 banking partners are affected by the changeover. Approximately two-thirds of bank accounts are held with global cash management banks.

The fact that Merck has a very heterogeneous financial accounting system landscape should also be taken into consideration. There are financial accounting systems of different ages, resulting in age-related functional limitations and small systems with system-related functional limitations. The software component for importing the camt.053 is not the only bottleneck. In many cases, the systems are not designed to store the additional information provided by the camt.053 format. This means that many of the financial accounting systems cannot process camt.053 account statements directly. A work-around must be offered for the remaining lifespan of these old financial accounting systems.

To meet these challenges, we have decided to decouple the “external” transition from MT940 to camt.053 from the “internal” transition. Banks can send the same account statement in camt.053 format, in addition to an MT940 account statement. As a result, a step-by-step transition can be carried out internally – either by account, subsidiary, financial accounting system or bank group. The latest payment factory IT systems can import account statements in one format and export them in another format to be sent to the respective financial accounting system. With this approach, the possibility of switching back to the MT940 at any time provides a fallback solution to prevent any business interruptions.

Internally, the transition takes place in different ways:

• camt.053 one-to-one: For the financial accounting systems that are already able to process camt.053, the account statements are forwarded in XML format;
• camt.053 to legacy flat: The export continues to occur in the legacy formats without using the additional information of camt.053;
• camt.053 to legacy enriched: The export in the legacy formats will be enriched with the additional information of camt.053; and
• camt.053 to legacy rebooked: Bulk payments will be cancelled, and individual sub-transactions are added to the exported legacy format. 

Many banks are using version v02 of the camt.053 format, which defines around 1,300 tags. However, some banks are already working with version v06 or v08, which define over 5,000 tags. To avoid constant changes in the payment factory, a corresponding XML parser is used, which uses the versions of the XML formats provided by the banks. For example, it converts camt.053 version v08 to the version v03 format used in the payment factory. This creates forward and backward compatibility, which enables flexible use of the camt.053 formats across different banks.

In addition to the financial accounting systems, all other “account statement consumers”, such as central Treasury Management Systems (TMS), must also be converted to the new format or the new content. The project to transition to camt.053 will involve at least the same effort and resources as the introduction of SEPA. In addition to the changes in the treasury systems, this project is primarily an IT project in the financial accounting systems, even if it is designed to require as few changes as possible. Therefore, the transition at Merck from MT940 account statements to camt.053 is scheduled to be completed by 2024.

Format with potential – it will take some time

It will take some time before the full potential of the new bank statement format can be realised, in part because it will involve a myriad of other changes. XML formats in the form of pain.001 or pain.008 are already being used for Euro payments in the SEPA region – and provide sufficient information to the payee as a result. Outside the SEPA region, proprietary formats are still mostly used. Some of these do not yet contain the required information or local clearing systems may not yet be able to transport the additional information.

A ray of hope is SWIFT’s Transaction Manager (TM) platform, which will maintain complete transaction data centrally. This will enable the full data to be reinstated and propagated end-to-end – even if an intermediary is not yet ISO-compliant.

At the same time, the transition from MT940 to camt.053 on the bank side is still in full swing. Currently, there are no known banks that are able to create “native” camt.053 messages for all their locations worldwide. Instead, in many regions of the world, the MT940 extracts are converted to camt.053. This means that the content available in MT940 files is made available in a structured way, but the additional benefit of a format change is limited as a lot of additional information is missing. Most banks cannot yet say when native camt.053 extracts will be available.

It will take some time before we can really take full advantage of the camt.053 format and there is still a lot of work ahead for all stakeholders, but the gain in transparency, and the possibilities for further automation and efficiencies, are worth the effort. It is exciting to see how the topic of XML and camt.053 will continue to develop.

  by Uwe Reinemer,
  Head of Treasury Operations, MerckBack