Can banks move beyond the limitations of legacy?

Coming to Sibos for the last 10 years it tends to feel like Groundhog Day (weren't banks debating the same issues three or four Siboses ago?), but one good aspect of that is that you are able to pick up on how far the industry and therefore the debate has really moved on.

A good example of that was at this afternoon's corporates forum, where an old Sibos attendee, David Blair, former corporate treasurer at Nokia and now vice president, treasury, Huawei, appeared to adopt a less aggressive stance with the banks than he had at previous Siboses.

The forum's moderator kindly reminded Blair of what he had asked for from banks at Sibos in Singapore six years ago: an 18 character Universal Remittance Identifier (URI) that enabled corporates in the high-tech industry to reconcile an invoice with a payment. Sounds like a simple request, but having become somewhat of a Sibos mainstay myself, I know only too well how slowly banks move when corporates ask them for something.

Blair and other high-tech corporates went on to develop RosettaNet, the 18-character URI themselves, and perhaps if they had waited for the banks to come up with it they would still be debating the nuances of it at Sibos in Hong Kong.

Blair reminded the banks that sometimes their defensive stance means they can misinterpret what corporates are actually asking for and he said contrary to what banks thought, RosettaNet was not trying to replace SWIFT or compete with banks.

Another interesting attendee on the corporate panel was no other than Vipul Shah, senior director and head of financial services at PayPal/eBay; that company that banks spent many a Sibos accusing of stealing their business. Now PayPal is attending Sibos and talking about using SWIFT.

PayPal at Sibos? Well given that SWIFT chairman Yawar Shah said at the opening plenary that companies need to use SWIFT more, the Brussels-based banking co-operative eager to reverse the trend of declining wholesale volumes on its network is contemplating entering the retail space (more on that later).

As a global online payment provider, PayPal has its challenges when it comes to working with multiple clearing systems and banks. "Clearing systems are not able to accommodate a unique remittance identifier," said Shah.

It is not only the clearing systems that have their challenges. I left the corporate forum with the overarching impression that although corporates may demand a lot from their banks, the pace of change is significantly hampered by bank legacy infrastructure and inertia.

Not only are banks still trying to leverage next generation apps on legacy infrastructures that are at least 30 years old, but banks are also failing to uniformly apply standards that exist, which means the experience for the corporate customer is inconsistent from one banking provider to the next.

While we heard that there are opportunities for banks, for example in the cash flow forecasting space, to organise themselves and deliver a range of capabilities in an integrated way, the banks conceded it was not easy; not easy because of their legacy infrastructure which is "disaggregated."

Picking up on the theme that banks' payments and transaction banking infrastructure is outmoded and siloed, a number of software providers at Sibos are touting payment hub solutions or the next generation of payment platforms that integrate both wholesale and retail payments and aim to help banks overcome the limitations of their legacy siloed infrastructure by providing a "unified platform" whereby banks can deploy payments functionality (whether it is credit cards, ACH, cheques, mobile payments, real-time payments) as a service on a single platform using service-oriented architecture.

Citi looks to social networking and YouTube in new banking platform launch

In the aftermath of the current financial crisis it would be easy to write off any innovation coming from transaction banks as most of them for the last few months have been hoarding capital to appease regulators and hunkering down as banking "goes back to basics".

A number of consultant studies also suggest that innovation, at least in the payments space, is more likely to come from companies like Google, Microsoft and WalMart. However, some of the transaction banks exhibiting at Sibos this year are eager to stress that the banks should not be written off yet when it comes to innovation.

One of those banks is Citi, which launched its "next generation collaborative online banking platform", CitiDirect BE (Banking Evolution) at Sibos in Hong Kong today. With Francesco Vanni d'Archirafi, CEO of Citi Global Transaction Services (GTS) describing the bank as a $9 billion technology start-up, Citi has a strong track record of producing award-winning technologies such as its online banking plaftorm CitiDirect, which back in 1999 when it was launched set the benchmark for the many online banking platforms from other providers that followed.

In 2005 Citi also launched its TreasuryVision portal, which combined information with analytics to enable corporate treasurers to gain greater visibility over their cash, risk and global liquidity positions. Despite the well publicised financial difficulties Citi has had in the last 18 months, Gary Greenwald, chief innovation officer, Citi GTS, said that the bank spends more than $1 billion on technology annually and that this year's IT budget was marginally higher than last year's.

Recognising that some aspects of its CitiDirect platform had become commoditised as other transaction banks developed online banking platforms that benefited from subsequent developments in technology, CitiDirect BE is the next incarnation of where Citi believes treasury and payments functionality is headed.

Interestingly, while Citi has historically targeted its solutions at top-tier corporates and other banks, CitiDirect BE will be initially rolled out to the SME market in Poland.It will also be sold as a white-labelled solution to other banks.

CitiDirect BE builds on lessons learned from developing TreasuryVision and embraces the latest in social networking, collaborative and Web 2.0 technologies to provide treasurers of both large companies and SMEs with a more intuitive, customisable interface for doing a whole bunch of things, above and beyond initiating payments, trade finance and FX transactions. CitiDirect BE is built on Microsoft .Net and Microsoft Office SharePoint Server 2007 Enterprise Edition. "SharePoint is a portal which allows us to deliver a new web services architecture," Greenwald explains. "Within the portal, we have a modular platform that allows different back-end technologies to come together at the front end."

Recognising that banks have been sitting on a lot of transaction-related information that they were unable to harness before in a meaninful way and push out to customers, Greenwald said CitiDirect BE builds on the analytics and information contained within its TreasuryVision platform to provide treasurers with data that can help them achieve greater insight into their accounts receivable and collections, as well as data that supports activities such as supply chain financing.

Pushing more data out to treasurers, says Greenwald, is not so much about having a "pretty dashboard" but about normalising and cleansing data from multiple back-ends to provide treasurers with quality and timely data. "We have taken the analytical processing and slice and dice capabilities within TreasuryVision and combined it with different sets of data around payment transactions and account openings," Greenwald explains. "So, for example, if you are running a large shared service centre you can look at the efficiency of your payment processes over time."

CitiDirect BE also incorporates the work Citi has done with major multinationals around Electronic Bank Account Management, combining digital signature technology with the ability to automate the currently manually-intensive process many corporate treasurers with multiple banking relationships face when it comes to changing account signatories and bank mandate management.

But perhaps one of the more unusual features of CitiDirect BE is the degree to which it embraces social networking and collaborative online technologies including a media channel, which Greenwald compares to YouTube, as it allows Citi execs in any country to develop a video library harnessing their expertise. Treasurers can search the video library and pre-register topics of interest. "If you look at social networking sites such as Twitter it took us some time work out how that makes sense in a B2B world," said Greenwald. To take a look at how CitiDirect BE's media channel and other functionlaith within the next generation banking platform works, click here.

Commenting on the launch of CitiDirect BE Jerry Norton, director of strategy, global financial services, Logica, said it was an exciting development, however it masks the complexities that still exist on the back-end in terms of the different interbank market infrastructures for processing cheques, card payments, high value and low value payments.

SEPA back on the menu again for banks looking to grab market share

Two hours into the first day of the Sibos conference in Hong Kong and already I am inspired to blog about something, which is pretty unusual. My first meeting of the day was with Sentenial, a direct debit solutions provider to leading European banks looking to prepare for SEPA.

I know the Single Euro Payments Area (SEPA) is so yesterday's news but Sentential believes that some life is being breathed back into the flagging project by those banks that see SEPA and the looming introduction of SEPA Direct Debits (SDDs) as a means of winning new business. At Sibos last year in Vienna, just before the financial crisis claimed some of its more high profile victims, SEPA moved to the bottom of the agenda as banks focused on shoring up their capital reserves.

This year, the guys at Sentenial claim that the focus is back on SEPA with leading banks like Deutsche setting the standard for others to follow. Brian Hanrahan, executive vice president, sales & product management, Sentenial, said leading banks like Deutsche see SEPA and SDDs as core to its payments business and are not just treating it as a compliance issue."Other banks are playing catch up [with Deutsche]," says Hanrahan, "but they don't necessarily understand the mechanisms they can use to catch up." 

Sean Fitzgerald, CEO, Sentenial, says the aggressive "land grab" by leading cash management banks is forcing Tier 2 and Tier 3 banks to start thinking about SEPA and their SDD strategy. "The more aggressive players see SDDs as an opportunity to gain market share," says Fitzgerald. "Payments makes up a significant portion of their operating profits and the refocus [post-financial crisis] is back on payments."

Although the binding date for reachability for SDDs has been pushed back to November 2010, with the French banks saying they are not going to be ready until then, Sentenial says the leading banks are already well on the way in terms of their preparations and see it as an opportunity to differentiate themselves. These "SEPA pioneers", says Fitzgerald, are likely to force further consolidation in the payments space and are likely to dominate SDD flows once corporate appetite for the new instrument takes hold, which is not likely to happen until after November 2010.

While SEPA Credit Transfers were a new way of doing something that already existed, SDDs or pan-European direct debits are a completely new instrument for corporates and Hanrahan says they are looking for banks that demonstrate leadership on this issue, particularly around direct debit mandate management, which is particularly challenging in terms of moving existing mandates over to the new SEPA standards.