Association for Financial Professionals (AFP) Practice Exam

What problem does the ISO 20022 Payment Standard aim to resolve in electronic funds transfers (EFTs)?

1. Automatic matching of receivables against invoices

2. Manual nature of setting up non-repetitive wire transfers

3. Inconsistent funds settlement timing

4. Inability to transmit remittance information with the payment

The correct answer is: Inability to transmit remittance information with the payment

The ISO 20022 Payment Standard primarily aims to resolve the issue of transmitting remittance information alongside the payment. In traditional electronic funds transfers (EFTs), there is often a lack of detailed context regarding the payment, making it difficult for recipients to identify the purpose of the funds. The standard allows for richer data to accompany transactions, offering a structured format that includes essential details such as invoice numbers, payment references, and other relevant identifiers. This enhanced data capability improves overall transparency and facilitates better reconciliation for businesses, helping them to match incoming payments with outstanding invoices more effectively. The other choices address issues that are valid concerns in the payments landscape but do not capture the central focus of ISO 20022. For example, while automatic matching of receivables against invoices is beneficial, it is not the primary intent of this standard. Similarly, while reducing the manual nature of setting up wire transfers and addressing inconsistent settlement timing are important operational improvements, these are not specific objectives targeted by the ISO 20022 framework. Instead, the standard is uniquely positioned to enhance the complexity and richness of the remittance information transmitted with payments.