Thursday, September 28, 2006

Everything's coming up PE-ACHs

The debate around how many PE-ACHs can Europe sustain when the Single Euro or European Payments Area comes into being, appears to be hotting up. At a recent TWIST event at the BT Tower in London, Eric Sepkes of Citigroup challenged David Deacon of the European Commission's Internal Market and Services DG as to why the EC was not phased by the fact that there could be 25 potential SEPA-compliant ACHs? "SEPA compliant ACHs isn't that a contradiction?" asked Sepkes, adding that the number of ACHs that wanted to be SEPA compliant could cause fragmentation.

Deacon looked somewhat uncomfortable with Sepkes' question. At the launch of the World Payments Report by Capgemini, ABN AMRO bank expressed its interest in seeing consolidation of Europe's myriad ACHs sooner rather than later, saying that the issue was about "reachability" within Europe.

Whilst the Dutch payments provider Interpay may have consolidated its position following its merger with Transaktionsinstitut, UK-based Voca is expected to announce its alliance with a major global bank at Sibos in Sydney. But will that appease its critics or those at the EPC who reportedly take a somewhat dim view of other ACHs within Europe other than the EBA's STEP 2 wanting to become PE-ACHs?

Wednesday, September 27, 2006

Are banks really global and innovative?

Ann Cairns, CEO, transaction banking, ABN AMRO Bank set the scene at the opening session of Eurofinance's International Treasury and Cash Management Conference in Florence by depicting how the role of the treasurer had changed over a period of 15 years.

She spoke about globalisation, the proliferation of the internet and online payment services such as PayPal(which by the way was developed by a non-bank) and how these forces had dramatically transformed cash management. She asked the more than 1000 treasurers present, whether ERP software was giving them what they wanted in terms of visibility into their working capital and payment flows?

One question she failed to omit, however, was are cash management banks giving corporates what they want? The answer was forthcoming in the next session, where in a live poll of delegates, only 7% indicated that bank innovation had had the greatest impact on treasury over the last 15 years. Technology was the biggest influence on treasury operations, gaining 47% of the vote and centralisation and outsourcing garnered 16%.

In a proceeding session on real-time liquidity management, which concluded that there were too many physical barriers to managing liquidity on a real-time basis, Paulo Mueller, corporate treasurer, Logitech International, Switzerland, countered that whilst working with a global bank made global liquidity management more possible, there was no such thing as a truly global bank. "The global banks are not there yet in terms of their back office, harmonisation of structure," he countered. As much as the banks would have us believe they are global, the final say should perhaps go to the treasurer of a company that is 'truly' global as Logitech is in 33 countries and has yet to find a single bank that can service its global liquidity needs.

Consolidation is in the air

In a taxi last night on the way from Florence airport to my hotel, I was chatting with a banking industry analyst who I know, and in between idle chit chat, we were contemplating the future of European cash management banks. Sad, I know! At that time of night our minds perhaps should have been filled with more interesting thoughts (not ones I can share with you here unfortunately).

Anyway, it struck us as we basked in the warm and breezy Florence evening, that although the European banking industry has spoken about consolidation since the introduction of the euro - you know one currency, one European banking provider and all that. Well, that never happened.

But corporate customers of banks are becoming more technologically sophisticated and demanding more from their banks. At the Eurofinance conference in Florence, yet again corporates spoke about rationalising the number of bank accounts they held. I felt a sense of deja vu. It reminded me of a Eurofinance conference a few years ago before the euro was introduced where corporates said the same thing.

There was one company, Swiss dairy co-op Campina, which had set up a single euro cash pool for all of its operating subsidiaries with a single bank. But they tended to be the exception rather than the norm.

It appears that your average corporate treasurer sitting in his 'ivory tower' hankers for the day when all he needs to do is manage a single bank account for each currency. That probably sounds like music to the ears of the global cash management banks, but what about the regional banks? Where do they fit into all of this? Who are going to be the winners and losers from this consolidation everyone is talking about but we haven't witnessed yet.

As our taxi sped through the streets of Florence, the analyst and I mused, 'Could we end up with just a handful of banks dominating the business globally?'. Hardly a revelation, nevertheless we contemplated that as the global custody business had consolidated into the hands of a few providers, would the payments business follow the same trajectory?

It would be a tad premature though for the global banks to start popping the champagne corks and patting themselves on the back, as the banks themselves, even the so-called global banks, need to get their house in order before they can truly call themselves global in every sense of the word.

Monday, September 25, 2006

Blogging Sibos in Sydney

From the Sheraton Hotel in Brussels in May 1978, which was the location for the first ever Sibos conference to the Darling Harbour Convention Centre in Sydney Australia, which will host Sibos 2006, SWIFT's annual user conference has become a premier event on the international banking calendar.

From inauspicious beginnings (the very first conference in Brussels attracted approximately 500 delegates), the annual Sibos conference now attracts thousands of delegates and financial technology vendors from all over the world.

Organised with almost military-style precision, the conference is the wholesale banking industry's own "mini-Olympics" with locations for the annual event being decided four years in advance. Click here for more information on the history of Sibos

As the event and the banking industry becomes more global and SWIFT looks to attract additional traffic to its network from developing economies in China, India and Africa, the question remains, when will these countries play host to one of the banking industry's most premier events?

This year FinancialTech Insider will be blogging the Sibos conference and exhibition, bringing you pictures, analysis and personal insights as to whether SWIFT CEO Leonard Schrank really does have 20:20 vision ( or is it 2010 vision?) Can SWIFT really be everything to everybody: network, solutions, connectivity and messaging provider?

So if you are interested in Sibos coverage with a difference or the personal insights of a jaded hack that has been covering the event off and on for the last 10 years, tune into FinancialTech Insider.

Thursday, September 21, 2006

Show me the way to SOA

I've just gotten off the phone with Ron Mackintosh, chairman of SmartStream, a technology vendor that counts 75 of the world's Top 100 banks as its customers. US-based TA Associates, which has invested in a number of financial technology firms, recently bought UK private equity firm 3i's stake in SmartStream for an undisclosed sum.

Flush with funds, Mackintosh said SmartStream customers could expect business as usual in terms of the company's ongoing commitment to its Transaction Lifecycle Management platform, which he said is flexible enough to deal with emerging challenges around eliminating back office processing inefficiencies in the area of derivatives processing and hedge fund.

The latest buzz in the financial software industry is Software as a Service, but Mackintosh says SmartStream is happy with its current delivery model, WebConnect, which is a browser-based platform. However, at the Sibos conference in Sydney, SmartStream is expected to announce some modifications to its Business Process Management product line as part of its STP Control Architecture Strategy, an Service Oriented Architecture approach to STP, which will see it produce business services that can be used in composite applications.

Mackintosh does not rule out future acquisitions although he says there is nothing currently in the pipeline. Despite consolidation in other software sectors (ERP and accounting software, for example), Mackintosh says there is considerable potential for further consolidation in the financial software sector without compromising customer choice. "Given the vast number of companies servicing these customers [banks], no one has achieved a great deal of consolidation in this sector yet,"he said.

SmartStream has not ruled out a possible flotation on the UK's AIM market, which Mackintosh said may be an attractive option in the next two to three years, but the company would need to "bulk up its revenues" before that happened.

What is SEPA?

Having lambasted banks for their overuse of acronyms, I am about to indulge in a bit of acronymism (if there is such a word). SEPA is a good example of how the prevalence of acronymism only serves to create confusion. SEPA or Single Euro Payments Area was coined by a group of European banks calling themselves the European Payments Council (EPC). The EPC developed the concept of SEPA in response to the European Commission (EC) raking the banks over the coals for charging more for cross-border payments in euro than domestic payments.

In the minds of the regulators, if you have a single currency (the euro) why should a cross-border payment in euros cost five times more than a domestic payment? Shouldn't all payments within the eurozone, whether it is from France to Germany or Italy to Spain, be considered domestic payments with a pricing strategy to reflect that?

The banks response to that was to develop this concept of SEPA, comprising rulebooks for pan-European credit transfers and direct debits. But here is where the language starts getting confusing. The banks, i.e. the EPC has interpreted the 'E' in SEPA to stand for euro. So from 2008, when banks are meant to start offering consumers and corporate customers pan-European direct debits and credit transfers, they will only offer these forms of payment in 12 eurozone countries.

Hang on a minute, say the EC and the corporates. If there is to be a true single market for payments in Europe, why does it only apply to 12 eurozone countries? What about the 28 to 30 countries (including the enlarged EU and accession countries)? "SEPA is the banks'agenda not the EC's agenda," says Chris Skinner of Balatro. According to Skinner, the EC has a "bigger agenda".

The EC and corporates argue that the 'E' in SEPA should stand for European payments area not euro. Just to set the record straight for those banks that may be a little confused what to do with the 'E' in SEPA (and for the rest of us that are just plain confused), David Deacon from the EC's Directorate General, Internal Markets, puts it like this: "SEPA is not just about cross-border payments but about making a fundamental change in the [European payments] landscape. The risk is of a 'mini-SEPA' where everyone keeps their national payment systems and SEPA is just limited to cross-border payments. That would be a failure and is not an option." I hope everyone is clear now what is meant by SEPA.

Wednesday, September 20, 2006

Let's TWIST again

This week in the bowels of the BT Tower in London,TWIST staked its claim to be the standards setting body of the 21st century for financial services. Some of you may remember TWIST as an organisation originally developed by large corporate treasuries such as Royal Dutch Shell to set standards for fostering higher levels of straight-through processing and automation in the area of FX.

Well, TWIST's ambitions these days are not just confined to FX. Ex-SWIFT standards guru Peter Guldentops, now programme director at TWIST, outlined how the organisation's ambitions had grown to include: financial supply chain standards (collaboration, invoicing and shipping finance),SEPA-compliant payments standards,bank billing standards and portability of digital identities.

"More open markets, more open standards," was the mantra espoused by TWIST chairman Tom Buschman. With the whiff of a Thai military coup fresh in my mind, the more I contemplated it,the more I concluded TWIST + ex-SWIFT standards guru + global IP network BT Radianz (who kindly allowed TWIST the use of the BT Tower) = challenge to SWIFT

Put TWIST's"open" standards on BT Radianz's networks (or SWIFT's for that matter) and et voila you have what Buschman terms "plug and play". There is nothing to say these standards could not be used on the SWIFT network, however, as SWIFT is a bank-owned network and also considers itself to be a major standards setting body in the realm of financial services, will it see TWIST's ambitions as a disparate initiative that could cause market fragmentation instead of standardisation?

The message from Buschman is clear; banks' revenues are significantly challenged by what is happening in the payments market, and "there is still a lot of talk and no action", particularly around initiatives such as the Single Euro Payments Area (SEPA). So if banks don't get their act together, corporates working through organisations like TWIST will.

"The Frankenstein's monster of acronyms"

Some of you may remember Tim Lind, a former senior analyst at TowerGroup, who aroused controversy in the banking industry (not a difficult thing to do) when he penned a 2003 report,"A Eulogy for STP and the Asset Manager." In it he described STP as the "Frankenstein's monster of financial acronyms", suggesting that whilst the acronymn had served the industry well in the past, it meant bugger all to asset managers who were more concerned with portfolio returns, client service and the bottom line.

To get the attention of asset managers, Lind said the banking industry needed to articulate how automation would lead to an improvement in portfolio return, client service and the bottom line. Ironically enough, the reason why I have delved into the history books to recount Mr Lind's poignant remarks (which are just as poignant today), is that the industry appears not to have heeded his cautionary tale.

At a fifth anniversary reception in London earlier this year, where members of the post-trade solutions provider OMGEO patted themselves on the back for five years in business,Tim Lind's comments about STP were quoted out of context - something which us journalists are usually accused of.

Interpreting Lind's comments as suggesting that STP was no longer relevant, Omgeo's riposte was that STP was alive and well and that its central trade matching facilities and other post-trade solutions had helped investment managers and broker/dealers reduce costs and manual processing inefficiencies.That may be so, but Lind never suggested that STP was dead - merely that the acronymn had been overused and meant little to investment managers, who everyone blamed for low STP rates.

Unfortunately, whilst there may have been some progress in minimising costly errors from manual processes and automating things like corporate actions, there are still a considerable number of investment managers using faxes and telephones to confirm trades, and that is likely to continue if the industry insists on using acronyms that do not clearly state the business case for moving to STP - STP in and of itself is not something that causes most investment managers to lose sleep at night. The same perhaps could also be said for other acronyms being bandied about; SOA, ESB, etcetera. Come back Tim Lind, all is forgiven!