Published on March 15, 2009
A GX S I N S IG HTS ART ICLE Ten Forces Transforming Corporate Banking Connectivity GXS Market Perspective regardless of their country of citizenship and the location of The past five years have witnessed the emergence of a their bank account. As a result, citizens and corporations will number of new operational models, regulatory changes be able to make payments in any Eurozone country as easily and technology paradigms in the corporate treasury and cost-effectively as they could in their home nation. With and banking sector. The result is radical changes to the a harmonised approach to payments across Europe, corpora- structure of treasury functions within multi-national cor- tions will begin to shift their country-specific finance, porations. The changes are also impacting the relation- accounting and treasury functions to broader Pan-European ships between corporations and banks—both the way models. Additionally, selection criteria for banking partners in which banking products are selected and the service and products will evolve as financial institutions expand their level expectations treasury organisations hold for finan- geographic footprint and introduce new, low-cost cross-bor- cial institutions are evolving. There is also a significant der payment services. paradigm shift in the technical approaches used to exchange information between corporations and their 2 Payment Factories—Historically, corporations have main- cash management banks. tained separate Accounts Payable (A/P) organisations in each country to provide the necessary local tax and payment GXS has compiled a list of the ten primary forces trans- expertise. However, there is a growing trend towards central- forming the way in which corporations and banks com- ising A/P functions into shared service centers, otherwise municate electronically. The list is based upon studies known as “payment factories.” The shared service centers of market-leading multi-national corporations based in enable opportunities for higher levels of efficiency in the Western Europe and the United States. The ten forces back-office. Productivity improvements can be gained by are not mutually exclusive, but rather interdependent. eliminating country-level staffing and by embracing best Five of the forces outlined are changes that affect over- practices on a regional level. Further savings can be gained all corporate banking practices—new organisational by relocating A/P functions to either captive or outsourced structures, payment strategies and management mod- service centers in lower cost geographies. Transitions to els. The remaining five are technology developments centralised, payment factories require staffing and procedural that are impacting the electronic communications changes, and standardisation of A/P applications. Many between banks and corporate clients. multi-national corporations are re-evaluating their approach Transforming Corporate Banking to payment processing as they transition to shared service centers. Practices (#1-5) 3 1 Centralised Treasury—In addition to creating shared service Single European Payments Area (SEPA)—Starting in centers for A/P corporations are re-evaluating organisational , the 1990s, the European Union began the SEPA initiative models for the treasury function. Many multi-national enter- to harmonise and simplify payments across the 15 coun- prises are centralising treasury groups on a regional or global tries which have embraced the Euro as the national cur- basis. Historically, corporations allowed each country to rency. The goal of SEPA is to establish a common set of manage its cash needs locally. Centralisation enables a num- regulations, processes, standards and technologies for mak- ber of efficiencies in the areas of cash forecasting, foreign ing payments across the Eurozone. Consumers and corpo- exchange and cross-border payments. However, to realise rations will enjoy consistent pricing and service levels
A GX S I N S IG HTS ART ICLE Ten Forces Transforming Corporate Banking Connectivity • page 2 consolidation and local funding techniques are exam- the benefits, corporate treasury organisations need ples of services provided by an in-house bank. access to real-time information on account balances, investment holdings and securities prices from their 5 financial institution. Consequently, the transition to Consolidation of Banking Relationships—Along with centralised treasury models is driving higher demand centralisation of internal functions, multi-national cor- for straight-through processing of information between porations are also rationalising the number of banking corporations and financial institutions. relationships they maintain. Changing regulations in the US, the European Union and countries such as 4 China have enabled numerous financial institutions to In-House Banking—Many large corporations are estab- develop a global footprint. Consequently, multi-national lishing in-house banks to complement centralised trea- corporations no longer need to establish local banking sury functions. These banks are not officially regulated relationships in each country of operation. Instead, cor- or licensed financial institutions. However, they act porations can consolidate banking providers to the much like a commercial bank by offering payment pro- minimal number appropriate to cover the necessary cessing, liquidity management and collections functions geographic footprint and offer the appropriate product to various subsidiaries of a large, global corporation. features. As part of the consolidation process, corpora- The creation of an in-house bank substantially impacts tions are demanding that financial institutions provide the corporate banking interface. Instead of each operat- lower processing fees, higher service level agreements ing company routing payment transactions directly to a and stronger technical integration. Corporations are local bank, all disbursements are channeled through the mandating a minimal set of technology requirements in-house bank at headquarters. Centralised payment which financial institutions must comply with in order processing applications managed by the treasury group to compete for global banking contracts. are configured to evaluate opportunities to reduce banking fees. Multi-lateral netting, supplier payment Ten Forces Transforming Corporate Banking Connectivity 6 2 3 1 Conversion of CENTRALISED TREASURY PAYMENT ERP SINGLE EUROPEAN Cheques to EFT FACTORIES CONSOLIDATION PAYMENTS AREA Regional Shared Standardised ERP 8 Service Centers Applications RTGS ACH for A/P ISO 20022 XML for Payments and Statements 4 IN-HOUSE BANKS 7 Primary Bank #1 BANK RELATIONSHIP 10 MANAGEMENT SOFTWARE SWIFT Primary Bank #2 CONNECTIVITY 5 SWIFT Network 9 for Routing CONSOLIDATION Large File Transfer MULTI-BANK CASH OF BANKING of Cheque Images REPORTING RELATIONSHIPS
A GX S I N S IG HTS ART ICLE Ten Forces Transforming Corporate Banking Connectivity • page 3 banking standards (e.g., BAI, SWIFT FIN) to exchange Transforming Corporate Banking information with financial institutions. The file formats Connectivity (#6-10) used to send payment instructions and receive account 6 statements vary from bank to bank. In some cases, cor- ERP Consolidation—Most multi-national corporations porations are required to send more than one type of have a project underway to standardise and consolidate file format to different divisions of the same bank. The the various ERP applications being utilised within their UNIFI vision is for corporations to be able to utilise enterprise. Historically, different brands, operating com- one message schema to exchange information with any panies and legal entities have operated autonomously bank in the world. with their own enterprise systems. Fragmentation of ERP platforms prohibits sharing of information across 9 Multi-Bank Cash Reporting—One of the key benefits divisions and with headquarters. Standardisation of achieved from centralising treasury functions is the ERP onto a common platform (e.g., Oracle 11i) enables improved cash management capabilities. Treasury per- consistent business practices across divisions and the sonnel with visibility to all cash positions at bank utilisation of shared service centers for back-office func- accounts worldwide are better equipped to perform tions. As multi-national corporations consolidate and cash forecasting, borrowing and investment activities. standardise their finance, accounting and treasury mod- Treasurers must be able to easily collect account bal- ules, IT organisations are re-evaluating their approach ance information from all bank accounts in all coun- to bank connectivity. tries. Multi-bank reporting applications developed by 7 financial institutions and technology providers offer SWIFT Connectivity—Several hundred large corpora- account aggregation services. The services consolidate tions have registered to participate in SWIFT’s corpo- end-of-day and intra-day balances for all accounts onto rate access programs. SWIFT connectivity can reduce a single web portal or channel the information directly the costs and complexity associated with corporate into a treasury workstation. Corporations armed with banking communications. Corporations utilise a num- enhanced cash visibility can make borrowing or invest- ber of different transmission mechanisms to exchange ing decisions earlier in the day, reduce probability of data with their banks. High volume data transfers typi- overnight idle balances and accelerate the processing cally occur over private lines or Internet-based file of exception items. transfer. In some cases, older technologies such as dial- up connections and fax transmissions are still in use 10 Bank Relationship Management Software— by smaller corporations. Web portals have become an Bank connectivity has become such a complex issue increasingly popular option for bank interfaces recently. for corporations that several ERP vendors have intro- With SWIFT access, corporations can replace the broad duced specialised software modules to simplify integra- mix of connectivity mechanisms with a single standard- tion. SAP recently introduced its “Bank Relationship ised approach. Messages and files can be sent to Management” application. The SAP module offers SWIFT for routing to any of the over 7,000 banks native support for ISO 20022 XML and SWIFT on SWIFTNet reducing cost and complexity. corporate access. Furthermore, the SAP application has seamless integration with the vendor’s treasury and 8 ISO 20022 XML—Otherwise known as the Universal accounting modules thereby lowering the barriers to Financial Industry (UNIFI) standard, ISO 20022 XML straight-through processing with financial institutions. is designed to replace the myriad of local file formats Out-of-the-box support for emerging standards from used for payment processing around the world with a major ERP vendors will accelerate adoption by multi- single, global message schema. T oday, most corporations national corporations. utilise EDI (e.g., EDIFACT, ANSI X12), country-specif- ic ACH formats (e.g., NACHA in the US) or legacy
A GX S I N S IG HTS ART ICLE Ten Forces Transforming Corporate Banking Connectivity • page 4 than with cheques. For large multinationals, the net Additional Forces increase in number of payment messages sent to banks The ten factors listed above are revolutionising the way could be in the millions per year. corporations interface with their cash management banks. The list could be further extended to include technological • Large File Transfer—Corporate treasury groups are forces such as Large File Transfer, conversion from cheques to seeking more information in faster time frames than Electronics Funds Transfer (EFT), and banking innovations ever before. For example, in the US the rapid growth of such as Payments Hubs. image-based cheque substitution is driving demand for copies of cheque images to be distributed to corpora- • Conversion from Cheques to EFT—Corporations are tions. Collections organisations retain the cheque rapidly migrating away from cheques and paper instru- images for customer service, record-keeping and ments to Electronic Funds Transfer (EFT). The most exception processing purposes. T oday, cheque images significant transition is occurring in the US, which his- are burned onto a CD-ROM and shipped via courier torically utilised cheques as the primary B2B and B2C to a corporation. The CD-based distribution is becom- payment instrument. Credit cards, debit cards, online ing too cumbersome and complex for most corpora- bill pay and lockbox-based image conversion are rapidly tions to manage. Consequently, financial institutions are driving B2C payments to EFT. Adoption of EFT in the migrating towards Internet-based file transfer of cheque B2B payments segment has been slower. However, pro- images. However, many banks and corporations lack the curement cards and Automated Clearing House (ACH) technology infrastructure to support such high volumes are quickly becoming the primary payment instruments of data exchange. New low-cost, high-volume services for large corporations. The result is that corporations for Large File Transfer are emerging, promising to fur- must communicate a significantly higher volume of ther simplify corporate banking communications. electronic payment instructions to financial institutions About GXS EUROPE, MIDDLE +44 (0)1932 776047 t GXS is a leading global provider of B2B e-commerce solutions that simplify and enhance business process integration and collaboration among trading partners. Organisations worldwide, including more than 70 +44 (0)1932 776216 f EAST AND AFRICA percent of the Fortune 500, leverage the on-demand services on GXS Trading Grid® to extend supply chain networks, optimise product launches, automate warehouse receiving, manage electronic payments and gain 18 Station Road supply chain visibility. GXS Managed Services, GXS’ B2B outsourcing solution, empowers customers with the www.gxs.co.uk Sunbury-on-Thames expertise, technical infrastructure and program support to conduct B2B e-commerce with trading partners globally. Based in Gaithersburg, Md., GXS has an extensive global network and has local offices in the Middlesex TW16 6SU Americas, Europe and Asia-Pacific regions. GXS can be found on the Web at www.gxs.co.uk. United Kingdom © Copyright 2008 GXS, Inc. All Rights Reserved.
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