Banks should talk to procurement

We have all heard about the benefits of electronic invoicing - replacing manually intensive paper-based invoicing with electronic machine-readable invoices could save the industry EUR 100 billion a year. Yet, the reality is that only 2% of total invoices are transmitted electronically.

So why despite the overwhelming business case for e-invoicing are companies dragging their feet when it comes to actual implementation. At the 16th Eurofinance International Cash & Treasury Management Conference in Vienna, Kjell Gunnar Gustafasson, chief purchasing officer, E.ON Sverige AB in Sweden said that what was missing was a total end-to-end e-invoicing solution that was well integrated with companies' back-end systems.

When it comes to e-invoicing, companies like E.ON do not want to see a myriad of proprietary e-invoicing solutions. "We want to see a solution similar to roaming," said Gustafasson, drawing parallels between pan-European e-invoicing solutions and pan-European roaming in the mobile telephone market.

Gustafasson challenged the e-invoicing industry to abandon its proprietary mentality and support standardisation. He also called on the banks to play an enlarged role by developing "inter-banking" arrangements which he said had a better chance of encouraging supplier adoption of e-invoicing rather than single bank solutions.

"I would like to see the banks and bankers learn more about the purchasing process and engage in their customers' every day processes," he said.

"Banks only talk to treasurers," said Patricia Pittomvils, vice president, payments, cash management and cards, TietoEnator UK. "They should also talk to procurement people."

But it appears it is not all bad news for companies trying to establish a business case for e-invoicing. After a slow start, Pittomvils said "The good news is that banks are becoming more interested in e-invoicing." An example of this she said was the European Banking Association's Stakeholder Forum, which is looking at e-invoicing as part of SEPA. Vendors such as TietoEnator are also members of an e-invoicing Interoperability Club.

But it appears vendors and companies are waiting for the banks to fully grasp the enlarged role they can play in e-invoicing by re-using existing banking channels and leveraging banks' "credibility". I posed this question to Marilyn Spearing, global head, trade finance and corporate cash management, Deutsche Bank, who said that while it had invested in its electronic bill presentment and payment solution, it had yet to see significant traction by corporate customers. "The fact that corporates need to change their whole processing has meant slower adoption of e-invoicing," she said.

Surely then it is up to the banks working with vendors to simplify that process.

Making 'bold' SEPA predictions

Just as the banks like to make 'bold' statements about how they are using regulatory imperatives such as SEPA (Single Euro Payments Area) to transform their payments offerings, you can always rely on a consultant to come and put a spanner in the works as it were.

While the major global cash management banks have not been shy about advertising their SEPA-readiness, interestingly not everyone believes they are going to win the lion's share of SEPA payment volumes. Wouter de Ploey, senior partner at McKinsey & Co., Belgium, boldly predicted at Eurofinance's 16th International Cash and Treasury Management Conference in Vienna that smaller regional banks were the most likely to benefit from SEPA.

"I don't think the global banks will be the big winners as they are more sensitive to loss of revenues in their cross-border flows." De Ploey maintains that regional European banks are likely to "move more aggressively" into the corporate banking space as the move to standardised credit transfers and direct debits under SEPA will lower the barriers to entry for these banks to develop pan-European instruments for corporate customers.

Meanwhile, the larger global payment providers' mantra is 'volume, volume, volume' - those that can process the most payment volumes are more likely to deliver the greatest cost savings and efficiencies.

Whether SEPA will force banks to converge towards a single pricing model is uncertain, says de Ploey as banks in different regions derived their payments revenues from different sources. For example, he said some banks generated the bulk of their revenues from the retail banking side and therefore may be less inclined to offer reduced pricing under SEPA to corporates.

De Ploey said the focus on Additional Optional Services (AOSs) by banks looking to make up the billions in revenue that will be lost by standardising payments under SEPA, could result in "non-standardisation" meaning banks could charge more for value-added services as a means of recouping some of their lost revenue.

Anne Boden, head, transaction banking, Europe, ABN AMRO, said that AOSs that meant additional functionality for certain customer or corporate groups with specialist requirements was a good thing. "However, AOSs which are country specific are not in accordance with the objectives of SEPA," she said.

When it comes to migrating to SEPA, de Ploey outlined a number of options including a slow and gradual approach to SEPA adoption, the 'domino effect' and the 'Big Bang' approach. A slow and gradual approach was the least likely, he says, while banks tended to favour a regulatory-mandated 'Big Bang' transition to SEPA, which he said meant they could standardise as little as possible and provide more AOSs at a higher cost.

De Ploey believes the most likely SEPA migration scenario is the 'domino effect' where migration to SEPA starts off slowly and then increases rapidly. Either way he says banks in particular are going to find the transition to SEPA painful because of the "cross-subsidisation" of the payments business within Europe.

Boden of ABN AMRO said the SEPA migration for corporates and banks was complicated and could last well beyond 2011 with no clear end in sight for the switching off of existing national payment systems. Describing the SEPA migration process she said it was "like people deciding to change which side of the road they drove on at different times."

With such uncertainty and complexity surrounding migratinv to SEPA, Boden said it was important all parties kept the end game in sight. "SEPA is a good end game as we will be using the same set of standards across Europe. But getting there is going to be quite complex." Boden said she had every confidence that in the next two to three years the majority of ABN AMRO's clients would convert to SEPA.

WSS to support corporate demands for more streamlined digital identity management

I have been ranting a lot recently about digital signatures and certificates and the demand amongst major corporations such as Merck for a single non-proprietary digital identity managment solution that is interoperable between banks.

Well it now seems that treasury management system vendors are also starting to support their major corporate customers in this area with Wall Street Systems (WSS) announcing at Eurofinance's International Treasury & Cash Management Conference in Vienna that it is looking at incorporating digital signature functionality within its treasury management applications to address a wide range of corporate needs.

While corporates such as Merck have opted for the bank-issued digital identity credentials of IdenTrust, Terry Beadle, executive vice president, WSS said that its approach was not to align itself with a particular vendor. "We will find a generic point of integration and work with multiple vendors," he said. "When you look at it [digital identity] from a technology point of view, our customers are asking for different ways of doing things. We need to develop a [digital identity] solution that fits everybody."

Beadle said this was something it planned to deliver soon, and that it may also need to consider any identity management solution SWIFT devised as more corporates joined SWIFT MA-CUGs and SCORE to communicate with multiple banking providers.

WSS will also more heavily promote existing SWIFT connectivity embedded within its treasury management suite so that corporates can directly connect from their TMS to SWIFT without the need for any middleware.

The treasury management systems vendor also continues to invest heavily in ASP-enabling its applications, with its cross-asset investment and debt management solution, Wallstreet Suite, becoming the latest application to be ASP enabled. "Twenty percent of our customer base is now on ASP," said Beadle adding that its multiple instance ASP model is now the fastest growing part of its business with both top tier corporates such as Adidas and mid-tier corporates opting to have their treasury management functionality hosted by WSS, which provides the hosting in conjunction with network connectivity provider SAVVIS.

WSS maintains that corporate treasurers can save between 25% to 30% of the costs of hosting an application inhouse by outsourcing hosting to an ASP, which it says is a more attractive alternative, particularly for smaller treasury teams without a dedicated in-house IT department. WSS hopes to achieve an even 50/50 split between its ASP and traditional software licensing model.

Unlike 'pure-play' ASPs that provide a single instance of treasury management applications which multiple users connect to, Beadle said its multiple-instance ASP approach provided customers with more flexibility, enabling them to customise the application to suit their individual needs. He said it also lessened the "theoretical risk" of customer data being shared by maintaining separate databases.

Pulling SEPA out of the 'doldrums'

With migration to the Single Euro Payments Area (SEPA) compromising banks' traditional payments revenue (the World Payments Report 2006 estimates banks' direct revenues will be cut by approximately 38% to 62%), Deutsche Bank made the bold move of announcing that it would apply the same pricing to all payment transfers within the eurozone regardless of payment size.

SEPA applies to low value payments within the eurozone below the EUR50,000 threshold. However, at Eurofinance's International Treasury & Cash Management conference at the Austria Centre in Vienna today, Marilyn Spearing, global head, trade finance and cash management, corporates, Deutsche Bank Global Transaction Banking, said they would offer a "common price" for any payment transfer within the eurozone, effectively treating all payments the same and removing the distinction between high value and low value payments.

With the World Payments Report 2007 indicating that public sector organisations and corporates may need regulatory incentives in order for migration to the new SEPA payment instruments to achieve critical mass, Spearing said Deutsche Bank was dangling a 'carrot' in front of corporates and financial institutions in order to drive SEPA adoption.

This is quite a bold move given that other payment processors within Europe have not widely publicised their pricing models post-SEPA. Spearing said the announcement was part of the bank's strategy to establish itself as the dominant SEPA payment provider and to shore up payment volumes from both banks and corporates. "We want to get the maximum benefit from any changes we have invested in," Spearing explained, pointing to Deutsche's investment in its new single payments engine for processing all currencies.

Given that there will be no 'Big Bang' migration to SEPA from January 2008, Spearing said SEPA needed to be dragged out of the "doldrums," and corporates needed to act now in order to realise the gradual payment efficiencies that will come from SEPA.

In an effort to incentivise corporates to support SEPA, Deutsche also announced that it would continue to support existing international payment formats such as iDOC, CSV and EDIFACT, and will convert these formats to SEPA compliant XML formats without companies having to invest in and adopt XML themselves.

Deutsche will also accept SEPA payment transfers from any Deutsche account within the eurozone and the UK eliminating the need for customers to open new accounts to process SEPA payments. It will also "re-convert" BICs and IBANs back to national account numbers to aid reconciliation. "Corporates don't need to change their technology or their account structures," Spearing explains. "We want to make SEPA as simple as possible."

Spearing said by taking a more aggressive stance in driving SEPA adoption it hoped to avoid the need for further regulatory intervention in low value European payments.