Visionaries in the payments industry discuss connectivity, cost, standards and efficiency.
By Paul Allen
Automation and efficiency are evergreen topics within the financial services industry. But in the payments sector in Europe these forces are being given extra impetus by the launch in 2010 of the Single European Payments Area (SEPA).
SEPA was hatched in response to demands for a single Europe-wide market where cross-border transactions would be as cheap as they are domestically. But this means banks, corporates and other payments participants are having to introduce automation into their processes wherever possible in order to bring down costs. Add in the normal competitive pressures that face industry players worldwide anyway and the upshot is a huge drive towards automated connectivity and straight-through processing.
In light of this, Windows in Financial Services asked four industry participants from different parts of the value chain what they see as the key issues facing market players at present, and the roles their organizations can play in the environment’s evolution.
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| SWIFT’s Meurant sees industry challenges ranging from compliance, to cost to the need for improved efficiency. |
Luc Meurant, Head of Corporate Access Programme
SWIFT
What do you see as the main challenges facing bank and corporate participants in the payments industry at present?
The need to increase efficiency, for example, to reduce costs and improve the visibility on funds, increasing regulatory requirements, continued market liberalization and overseas growth. All these challenges are complex to manage and can be costly.
What are SWIFT’s primary initiatives in this area?
“SWIFT for Corporates” enables corporates to exchange financial information – payments, securities orders and reporting – with all their financial institutions through a single, standardized communication platform, as opposed to multiple connections. That helps corporates improve automation, streamline operations and gain more visibility of accounts. It also simplifies auditing processes, leading to easier compliance with regulatory requirements such as Sarbanes-Oxley.
A key building block of the offering is the standards that SWIFT offers. Beyond the widely used FIN standards, SWIFT is also supporting corporates and banks in their adoption of the ISO 20022 standards, which can be used for SEPA.
What headline benefits will this bring?
Over 230 corporates have already adopted SWIFT for Corporates, and access now goes beyond blue chip companies as we also see smaller size corporates joining the network.
Customer testimonials from DuPont, Iberia, Novartis, Swiss Re and T-Mobile confirm SWIFT is delivering on its promises. Higher automation, lower operational costs from rationalizing electronic banking systems, and financial gains from better visibility are the main drivers that allowed these corporates to obtain an ROI of 120 to 400 percent. Increased security, control and reliability, while more difficult to quantify, are also key benefits.
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| “From one country to the next there is a different standard for payments, and often where there are standards they are not totally adhered to,” says Clear2Pay’s Hartley. |
Mark Hartley, Vice President Strategy and Marketing
Clear2Pay
What do you see as the main challenges facing bank and corporate participants in the payments industry at present?
The main challenge facing both banks and corporates is standards, particularly at the domestic payment level. From one country to the next there is a different standard for payments, and often where there are standards they are not totally adhered to.
There are issues at the connectivity level as well. Banks around the world have adopted different connections into their infrastructure, ranging from Connect:Direct to virtual private networks (VPNs), and more recently through SWIFTNet adopting firstly the Member Administered Closed User Group (MA-CUG) and latterly the Standardized Corporate Environment (SCORE). But while MA-CUG and SCORE may be the answer for some corporates with large budgets, it remains price prohibitive for the small and medium enterprise market.
Standards also level the playing field. And while banks may seem to support such initiatives, standardizing any environment opens oneself up to competition, something the banks will want to avoid, even if their corporate customers benefit from such an approach.
What advantages does your approach offer users?
Clear2Pay offers two solutions in this area. One is Corporate Payment Hub (CPH), an internal corporate payment solution that allows corporates to manage and rationalize accounts, and route their payments to their preferred banks. All ERP systems at the various corporate offices are connected to the CPH.
The second is Open Payment Framework (OPF), which resides at the bank that provides an enterprise-wide payments engine for the processing of all payment types. The OPF has a number of solution derivatives, including SEPA Credit Transfers, SEPA Direct Debits, International Payments and Domestic Payments, as well as the enterprise-wide bank payment hub.
Both suites comprise a series of business components, one of which is a transformation framework. This means corporates can send payments in any format from the ERP to the CPH, or directly from the ERP to the bank, and the Clear2Pay engines will handle the transformation to ISO 20022. This makes SEPA implementation at the corporate easy.
Sheida Hadji-Ashrafi, Industry Manager Payments
Microsoft Corporation
What do you see as the main challenges facing bank and corporate participants in the payments industry at present?
The industry is being influenced considerably by increasing calls from corporates for standardization and easier connectivity, as they seek increased efficiency and straight-through processing of payment transactions. As in the banking sector, corporates want richer information, reduced error rates, and better reconciliation of financial positions. They are also under increased pressure to minimize the use of working capital.
These factors are driving them to rationalize and automate their financial supply chain, while seeking cost-effective, secure and global means of communicating with their banks. That means more demand for enhanced “treasury window” services such as real-time data and easier access to bank systems or Web-based cash management services that allow clients to initiate all types of payments online. Corporates’ demands are also leading them away from the banks’ proprietary systems, which are the major access point to today’s payment systems.
With payment processing becoming commoditized, how can banks hold onto customers and provide value-added services? And what role can Microsoft play in enhancing industry efficiency?
Commoditization pressures are driving banks to reduce costs while maintaining or increasing the perceived quality of their treasury products. That product innovation means banks must prioritize platform and product flexibility as a long-term strategy for treasury systems implementation.
The Internet in particular enables a cheaper way of providing access to core systems’ functionality to larger groups of users, both inside and outside an organization. Using Microsoft products, banks can offer corporate clients direct access to treasury functions through the Web. This can improve customer satisfaction – as demand for 24/7 access to treasury functions such as reporting, position keeping and trading capability is increasing – and free up human resources within the bank by providing corporate clients with a more self-service approach.
Meanwhile, many banks spend enormous sums developing channels that use proprietary or legacy data formats to communicate with their corporate customers. Yet by leveraging SWIFTNet and SWIFT messaging standards (as they do for interbank communication) they could communicate with their corporate customers in a low-cost and repeatable manner. Likewise, many large and international corporations are demanding use of SWIFTNet to centralize their treasury services and standardize communications. Here Microsoft BizTalk Server and Microsoft BizTalk Accelerator for SWIFT can enable both banks and corporates to build consolidated enterprise financial messaging hubs.
Erkki Poutiainen, Head of Strategy and Infrastructure, Cash Management
Nordea Bank
What do you see as the main challenges facing bank and corporate participants in the payments industry at present?
For the customer, the drivers are the benefits of standardized payment initiation and reporting, reliable and secure connectivity, enabling multi-banking and lower costs to change bank relationships. However, the challenge today remains the countless number of alternatives, and banks providing proprietary solutions.
For banks, the challenge is not in the new channel itself, but linking the underlying services to it. Nordea’s solutions are guided by a connectivity architecture that supports choice of electronic channels, both file-based and interactive. Among them are two standard solutions: SWIFTNet MA-CUG/CAG is already available and a Web service-based solution is in the pipeline. In both solutions our intention is to follow globally-agreed standards and message usage guides.
With payment processing becoming more commoditized, what can you and other banks do to hold on to customers and provide value-added services?
It does benefit the banks to adopt the current trend, especially when it is supported by regulation. The new standard infrastructure and platforms for payments are broadening the opportunities to enhance the value propositions across Europe, and globally. The winner is the one providing the best value to a customer’s own business.
However, the new services for cash management and supply chains demand automated end-to-end processing. This calls for a collaborative approach, where the data flows smoothly and in a timely manner through the connected service provider set-up. E-invoicing is a good example of this, where another ‘SEPA’ design process is required.
What impact are technology providers, such as Microsoft, having on the market?
As banks enhance their service provisions from commodity products, in many cases they are stepping into new, not-so-well-known territories. This calls for new kinds of competencies. But these competencies already exist among technology providers through their deeper engagement with corporate processes. We therefore foresee growing amounts of partnership activity, a good example of which is Microsoft Dynamics. Partnering with the banks and corporates will boost the market to new levels!
www.swift.com
www.nordea.com
www.clear2pay.com