About Me

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I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Thursday, 6 August 2009

UK Billion Pound Banking Bail Out: Will it Work?

14 Oct 2008

The UK government's bail out of the banks was welcomed across the industry as the way to unfreeze the clogged up financial system. But will that be enough?

Last week, the UK government took the plunge and agreed a £400bn three-pronged plan to bail out British banks, following closely on the heels of the Icelandic banking collapse. It has committed to injecting at least £25bn into the banking industry, but could offer as much as another £25bn in order to increase banks' capital. At the same time, the government will offer guarantees over as much of £250bn of new bank debt, effectively adding £100bn to the existing Bank of England short-term loan scheme.

The banks involved are the major high street banks: Abbey, part of the Spanish banking group Santander, Barclays, HBOS, HSBC, Lloyds TSB, The Royal Bank of Scotland (RBS) and Standard Chartered, as well as Nationwide Building Society. This week, the government has agreed to inject up to £37bn of taxpayer cash into RBS, Lloyds TSB and HBOS.

Although there is some debate over the exact amount the UK government has committed with different figures being bandied about, Andrew Gray, UK banking advisory leader at PricewaterhouseCoopers (PwC), told gtnews that it is important to draw distinctions between the two pools of numbers. "There is the amount of money that the government is looking to inject in additional capital - which stands at £37bn as of 14 October - that would effectively sit on the banks' balance sheets. Then there is the separate £400bn plus, depending on the figures, in relation to additional liquidity that could be injected through the Bank of England liquidity arrangements," he explained. "Even now neither of those two numbers are firm in terms of what the banks will actually use - it appears to be an expectation that banks have 8% Tier 1 capital."

The UK government is looking at both capital and liquidity, which marks it out from the US's bail out scheme. On the capital side, the UK government is looking to put in up to £50bn to allow the banks to raise additional capital through that route. "It is uncertain how much capital any one bank would call upon - current market expectations are ranging from £0 for HSBC with RBS requesting £20bn," said Gray. This money would be a cushion to protect them from future losses in line with other banking capital that they have in place. The Special Liquidity Scheme is about ensuring that when banks need to borrow intra-day or over short periods of time, they can fund day-to-day trading activities by accessing thescheme rather than relying on lending and borrowing to each other. "That is what had effectively become more expensive through the current Libor rates which still, despite the announcement last Wednesday [about the reduction in interest rates], remain very high compared to base rates, although these rates appear to be easing following the combined efforts of governments this week," he added.

The US government, on the other hand, is looking to make the US$700bn available to buy bank assets, so it is a different way of looking at the same underlying problem. At first sight, Gray thinks that by giving banks a mechanism to raise additional capital will provide a more comprehensive and longer-term solution to allow banks to become more robust, which is ultimately what everyone is trying to ensure. "I think that it is interesting that a number of other countries are looking at methods of providing additional capital because banks have found it difficult over the past year to raise capital. RBS and HBOS have been able to raise capital on the markets, Barclays managed to raise capital through direct access to funding from sovereign wealth funds, and Goldman Sachs has transformed itself into a bank and raised capital through billionaire investor Warren Buffet; but as a whole it would remain difficult for the banking industry to access large amounts of new capital in a reasonably cost effective way."

ACT Welcomes UK Government Action

This definitive action by the UK government has been applauded across the board from the bankers through to economic analysts, credit ratings agencies and corporate treasurers. The Association of Corporate Treasurers' (ACT) chief executive, Richard Raeburn, said in a recent press statement: "The actions in the UK and the US [new commercial paper (CP) lending facility to jump-start lending for companies] represent sound and stabilising steps to restore the financial markets on which companies depend for their funding; we hope that market participants will now work together to help restore systemic confidence. The initiatives by the authorities should play an important part in shortening the period of necessary adjustment in the wider economy."

Martin O'Donovan, assistant director, policy and technical at the ACT, told gtnews that he believes it is quite an imaginative and helpful package and, in particular, it addresses the specific problems in the financial system. "It comes at it from several angles. One element is to demand that banks top up their capital. Because many of the banks have had to make write-downs and losses, their capital has been whittled away, which limits the amount of business that they can prudently do," he said.

"The other side is the funding and liquidity side - from a corporate treasurer's point of view this is really where the problem has been. All the usual markets that a treasurer likes to use for bank borrowing have dried up, or if they haven't dried up, the liquidity has disappeared from the three-month period and shrunk back to the one-week level. This is all very well but it is not how you want to be managing your short-term borrowing with everything running overnight or needing re-fixing every couple of days," explained O'Donovan. "The UK government is making funding available under the Special Liquidity Scheme, which will allow the banks to fund themselves and, therefore, hopefully start lending to each other and the corporate sector." There is to be further help in the form of a Government guarantee of new or refinanced medium-term bank debt with the intention of reopening the market for medium-term funding.

An additional intention of the authorities is to manage interest rates. "What you have at the moment is that the overnight rate in the market is down near 5%, which actually should have dropped even more now that base rates have gone down. That bit is working - there is liquidity and the rates are broadly being kept at the appropriate level at that maturity. But when you want to access a three-month loan, the rates are still over 6% since there is no activity there and people that do need the money are having to bid the price up," he explained.

The third element is that the government is prepared to guarantee longer term funding up to three years. "Again this is trying to get the inter-bank market moving again. So the banks will be able to fund themselves and they will be able to get going and get back into the business of lending to corporates - it oils the wheels again and gets the liquidity back," said O'Donovan.

There is some concern that the banks may attempt to use the ‘market disruption clause' commonly found in loan agreements to push rates up even higher. This is when the banks can't fund themselves at the Libor rate, so attempt to push the costs onto their corporate clients, which usually borrow at Libor rate plus an agreed credit margin depending on the risk level of the corporate. To O'Donovan's knowledge, this has not happened in western Europe but commented that recently there has been "a lot of debate around this issue". The ACT believes that this should be a last resort and implemented only after certain other steps are taken.

Will the Bail Out be Enough?

Charlie McCreevy, European Commissioner for Internal Market and Services, when addressing the European Parliament Plenary Session on the Lamfalussy process follow-up, stated: "We are in the most serious crisis in living memory. What started as a sub-prime crisis has now moved way beyond this to embrace the whole economy. Fears about the ability to raise financing are creating even greater lack of confidence among all economic actors. Unless there is a rapid unfreezing of lending we face a continued downward spiral with obvious impact on economic activity. One thing we have seen over the past few weeks is that no economy or financial market is immune from what is taking place."

Across the globe, national governments are responding to the crisis through injecting capital into the system. But will this be enough?

The ACT's O'Donovan believes that it should. "We certainly hope these measures will work. They should provide a good deal of hope and help where it is needed, but the markets at the moment are so peculiar that it needs other countries to follow suite and provide the same quite extensive and targeted support packages. Governments have been quite supportive in protecting the retail customer with all their deposit insurance schemes, but moving on to the wider markets and getting the liquidity going will need further co-ordinated action to get everything up and running again." This weekend the G7 nations - which comprises the US, Japan, the UK, Germany, France, Italy and Canada - issued a five-point plan of ‘decisive action' to unfreeze credit markets, after a meeting in Washington. The details of this plan have not been released.

PwC's Gray was similarly cautious about the answer. "Time will tell. [The UK's government's action] is positive in the fact that action was taken when action had to be taken. Until we understand a bit more detail about how the scheme will work and the banks' ability to access and use it properly, it is going to be difficult to understand the full implications of it, although this week markets have so far responded positively," he said. "Clearly the ripple effect around the global economy is likely to become a stronger feature of the overall economic backdrop. The main UK banks with the additional capital look to be reasonably well-placed. I think there will be ongoing challenges, and it really depends on the overall economy and to what extent we do or do not go into recession and how deep it is."

Gray stands by his statement of two weeks ago (UK Financial Industry Predicts Gloomy Outlook for More Than Six Months) that the systemic risk within the UK banking system is being contained. "I think it is still true to say that no retail depositor has lost money. Clearly the government is looking to make arrangements to ensure that that continues to be the case. The government has stated that no retail depositor will lose money. In as much as the statement remains true for retail, then I stand by the statement.

"Clearly there is a risk there, but do I see it resulting in the collapse of the banking system as we know it? The answer is no," he said.

First published on www.gtnews.com 

Optimising Business Value in the New Financial Landscape

19 May 2009

Over 600 representatives from across the payments industry gathered in London last week at IPS 2009 to discuss issues affecting the European payments landscape, such as the PSD and SEPA.

Three-quarters of the participants surveyed at the International Payments Summit (IPS) in London last week felt optimistic regarding the fate of global transaction banking (GTB), and payments in particular, in 2009, with the results rising to 92.6% when looking at 2010 and beyond. Over 600 representatives from across the payments industry heard how GTB is now ‘sexy’ because it is a strong income generator for banks and a provider of liquidity for corporates.

In a straw poll of the participants, the value of transaction banking today was seen by 32.7% as a stable source of revenue and profit, 23% see it as a source of liquidity and an equal amount saying that it provides infrastructure, while 25% said that it anchors products for clients.

Peter Hazou, head of strategy, GTB for cash management, trade finance and supply chain at Unicredit, says that although the business cycle had hit a snag, the industry wasn’t falling off the cliff. “GTB is sexy. There has been a fundamental shift in the relevance of transaction banking to its customers. These are glory days for GTB because there is money to be invested in system infrastructures and operating models. Banks need to invest in GTB because it is deeply relevant for today’s environment.”

“The danger is that ‘back to basics’ is seen just as the flavour of month, but it’s not,” he adds. Participants were polled to see what ‘back to basics’ meant to them: over half (57.1%) saw it as core products, while 27.3% thought it meant a client focus and 9.1% thought credit and risk management. Only 5.2% thought it meant cost cutting, with 1.3% identifying ‘back to basics’ with a lack of innovation.

The New Financial Landscape

Paul Camp, global head of cash management, financial institutions, Deutsche Bank GTB, opened the IPS conference on a sombre note, pointing out that world payments and trade flows are down 30%, while China exports are down 25.7%. However, he predicts that the worst of the financial crisis is over. “There is a silver lining,” he says, “as the unprecedented government policy response will lead us out of the crisis in the near future. I am optimistic because even though we are suffering now, we can use the pain to reassess our business. The challenge is not to focus on the pain of the past eight months, but make hard decisions about our business that isn’t made in the good times.”

The majority (57.6%) of the audience surveyed believes that the global economy will improve by mid or late 2010; only 12.1% thought it would happen this year.

The sentiment that the global economy could now see the light at the end of the tunnel was reiterated by a number of speakers, including Stéphane Garelli, professor at the International Institute for Management Development (IMD) and University of Lausanne, who likens the world economic situation today to a blue screen on a computer: it is “time to re-boot” the system, he says.

The audience agreed - a survey found that over a third (38.2%) were focussing on new revenue in 2009, while meeting regulatory requirements (22.4%) and risk management (19.7%) were less of a priority. The results for 2010 changed significantly: 82.9% predicted that growing new revenue streams was going to be their top priority, with only 5.3% choosing regulatory requirements and 4% risk management. The optimism of the audience shone through with only close to 4% focusing on survival either now or in the future.

In his speech, Bertrand Lavayssière, managing director at Capgemini Global Financial Services, drilled down into what the current conjuncture meant to GTB, highlighting the strengths and weaknesses of the banking division: “The good news is that the fundamental growth volumes are still there. The bad news is the market conditions, the volumes are down, and the regulatory pressures, such as the PSD [Payment Services Directive], SEPA [single euro payments area] and the G20 regulations that are yet to come, are putting pressure on the banks,” he says.

PSD and SEPA: What Happens Next?

The IPS conference was very much focussed on the drive towards harmonisation and standardisation in the European payments industry and the imminent impact of the new regulations, particularly the PSD and SEPA. Interestingly, the almost half of the audience (42.4%) saw SEPA as an opportunity for GTB; yet only 11.9% thought the PSD offers the same potential.

Daniela Umstätter, national expert, retail issues, consumer policy & payment systems, internal market, European Commission (EC), reminded the summit participants that the PSD was asked for by the payments industry because it needed a legal framework for harmonisation and standardisation of payments. “The good news is that the PSD in on track, with the exception of Sweden that has said it will be late in implementation,” she says. Both the PSD and SEPA Direct Debit (SDD) schemes are to be implemented on 1 November this year.

But there are a number of outstanding issues that will affect whether or not the PSD succeeds in its aim of harmonisation, not least because that each country can transpose the directive with different interpretations. It is well accepted that the PSD will protect some legacy payment products. Approximately two-thirds of the participants did not believe that the PSD would be homogenous across Europe. How to manage this complexity was the subject of much debate during the summit.

Gerard Hartsink, chairman of the European Payments Council (EPC), was pragmatic regarding this issue: “We can’t embed everything into the rulebooks. The majority’s best interest has to be looked at and we should avoid importing all specifics from the local situation.”

Gianfranco Tabasso, co-ordinator of the European Association of Corporate Treasurers (EACT), said he was curious to see how different options - such as the classification of microentities - is taken up by different countries. He warned that these issues must be cleared up in the next few months or the 1 November deadline won’t be met. The other issues, such as value dating, execution times, direct debit refund timescales, and transaction reporting demands, also need quick resolution in order for banks, corporates and SMEs, and public administrators to complete their change programmes.

The PSD deadline is not the only one under threat - there are concerns that the deadline for the SDD schemes will also slip. Already France’s National SEPA Committee has announced that it won’t be ready with SDDs until November 2010. Although Wiebe Ruttenberg, head of the market, integration division at the European Central Bank (ECB), tried to paint this decision in a good light by saying it was a positive sign that the French have committed strongly, EC’s Umstätter said that although they respect the decision, it was an “unfortunate” signal to the market. “Legally speaking, they must be reachable by 1 November 2010,” she says.

She is referring to the European Parliament’s approved proposal extending the provisions of Regulation 2560/2001 on cross-border payments in euro, whereby banks are not permitted to impose different charges for domestic and cross-border payments. Main changes include: the extension of price parity requirements to direct debits, rules on multilateral interchange fees for direct debits and mandatory reachability for SDD collections in the euro area from 1 November 2010.

Debate still rages within the payments industry about the SEPA migration end date, i.e. when legacy instruments must be switched off. This is despite the fact that the European Parliament has called on the EC to set a clear, appropriate and binding end date, which should be no later than 31 December 2012. Ruttenberg, as well as many other speakers, points out: “There is no start date without an end date.”

EACT’s Tabasso says: “The industry as a whole is not ready and won’t be until the end date is decided and all the legacy systems are switched off. We won’t even know until August how the legacy systems are changed by SEPA. Banks are not providing information to their customers because they are waiting to see what happens. My hope is that an end date won’t be mandated without consultation with end users.”

Umstätter states that running two parallel systems is costly and therefore a SEPA end date has to be set “as soon as possible to avoid a long dual period but as long as possible to coincide with technology investment cycles.” The EC is developing a SEPA Action Plan that should be published in the summer and the roadmap will tackle the question of the end date. This will include a paper for consultation.

Massimo Battistella, manager of accounts receivable, administration services, Telecom Italia, is one who argues for two end dates - one for SEPA Credit Transfers (SCT) and one for SDD. Mario de Lorenzo, director of payment systems at SIA-SSB, agrees that two end dates are needed in order for the industry to keep the forward momentum.

De Lorenzo makes the point that SEPA is a reality, so doing nothing is not an option. “The train has left the station and we are on the right train. SEPA gives the end users ground for asking their banks for new services. We need to be developing processes beneficial to all users,” he says.

What Should a Bank do if it Hasn’t Started its SDD Project?

With six months left until the deadline, time is very tight if a bank hasn’t started its SDD implementation project. Two solutions were launched at IPS to directly address this need, one by Deutsche Bank and Logica and the other by SIA-SSB.

Deutsche Bank's GTB division and Logica launched an outsourced SDD solution that combines a new SEPA Connector offering with Deutsche Bank’s SEPA processing solutions to provide its financial institution clients with low-cost 'plug and play' SEPA functionality. The SEPA Connector will initially be targeted at debtor banks requiring a solution for complying with mandatory SDD reachability requirements in readiness for the November 2010 deadline, but also supports SCT.

Michael Mueller, managing director of wholesale solutions, GTB at Deutsche Bank, says: "This solution is aimed at all banks that need to be reachable by the 2010 deadline but don’t want to invest in SEPA infrastructure in the short-term. This will give them the ability to buy some time and still be compliant.”

SIA-SSB has launched two SEPA solutions. Smart SDD is a hosted solution aimed at banks looking for cost reduction as well as SDD adherence. With this solution, SIA-SSB manages the payment data, and stores, converts and validates it before sending to the STEP2 clearing system. It does the same processing in the opposite direction, from STEP2 to the bank.

The centralised solution has two distinct characteristics:

1.Proximity to STEP2 - makes it competitive in terms of the cost of interconnectivity and processing efficiency. In the medium to long term it is important because the PSD is focussed on processing time.
2.Independent processor - independence is an important feature for small financial institutions.
The second SEPA service is an interface for manual processing, not straight-through processing (STP) as such. The main target for this tactical solution are banks that are not ready in their back office and don’t want to invest in revamping it. So SIA-SSB takes charge of the SDD processing for the bank through a web interface, which allows the bank to connect to SIA-SSB’s system and download payment information. There is no cost for integration because it is solely a web connection.

Mario de Lorenzo, director of payment systems at SIA-SSB, says: “The banks that want this service are playing a passive role with regards to SEPA. If banks are under customer pressure for SDD but won’t make the deadline then this service allows them to upload payment info and we send to the pan-European automated clearing house (PE-ACH).” He claims that there are 10 banks presently trialling the solution that are expected to go live for the November deadline.

Supply Chain Finance and Financial Supply Chain Management

When the audience was asked if the credit crisis created an increased focus on supply chain finance (SCF), it was split down the middle between yes, the focus is on the lack of finance to supply chain partners, and no, corporates were still concerned more with their own working capital. Interestingly, 71.4% thought that optimal SCF could only be achieved once the financial supply chain management (FCSM) has been optimised, while only 20% of the participants were sure of the difference between the two.

John Gleason, EMEA regional treasurer at Dell, participating in a strategy roundtable, listed what were the pressing issues for him:

1.Compression of the cash conversion cycle.
2.Days sales of inventory (DSI) to increase.
3.Renewed focus on working capital: senior executives - CFO, CEO - involved in the Working Capital Council.
4.Trade finance: letters of credit in the emerging markets.
5.Credit crisis: concerned receivables reserves; structured financial supply chain; reverse factoring.
6.Alternative payment methods, giropay, Paypal.
7.Technology infrastructure: looking at SWIFT and diversifying banking partner, as well as automation in countries underserved.
Gleason says that within the supply chain there are big crises brewing. “Our customers are stretching us longer, while our suppliers are also squeezing us. Where do we push back? We need to make structures work, including information flows, risk management, and liquidity flows.”

Roque Damacela, head of trade finance, EMEA at Citi, adds: “The industry is in an adjustment phase to deal with the crisis. But when will things normalise? There is a drive for liquidity by corporates and banks need to look beyond balance sheet towards the positives of a company.”

In an earlier session discussing how payments fit into the cash and liquidity landscape, Tanveer Yaqoob, senior treasury accountant at Vodafone, made the point that today corporates need basic levels of services done very well - more efficiently than before. “We need transparency in payments. We don’t want funds tied up in clearing systems. It is hard for banks to deliver what corporates want because of constraints in the marketplace. This reveals the weaknesses in banks’ payment systems. Banks need to get back to basics - and corporates can have valuable input into the discussion. Cash management and payments are both growth areas for banks.”

Case Study - HP

Hedi Ezzouaoui, worldwide director, financial markets at HP, illustrated how HP had worked both with its banks, bank clients and suppliers in order re-define its strategy in the economic crisis:

•With our banking relationships, we re-visited our assessment of counterparty risk and took steps to mitigate this risk.
•HP has 400 bank customers that the company supplies with technology and services. As the credit crunch hit, the financial supply chain experienced a moment of panic as banks lost market capitalisation and some went out of business. The banks needed to assess their strategy and the main issue became cost elimination, not just cost reduction. Bank clients looked at fixed costs and variable costs in terms of IT and business operations. We saw that high fixed IT costs were a real problem for our customers, so we started to discuss different possibilities with our bank clients, for example shared services utility, and re-examined leasing conditions. We amended our sales strategy to help banking customers navigate out of the crisis.
•There was a severe liquidity challenge in the overall supply chain, plus high credit and counterparty risk in terms of our suppliers. We needed to mitigate all the different types of risk on the supplier side to protect out business. We started to run stress test scenarios in order to identify points of possible failure in our supply chain. We assessed failure impacts and proactively prepared for supplier help. We needed to put in place a mechanism so that we knew if they were in trouble, there was something we could do. It was important to engage with the supplier through a consultation process so that we could understand our priorities and develop back-up plans.
•In terms of supplier financing, we pushed supplier payment conditions to 45 days. Then we offered to pay our bills faster in exchange for a discount to provide liquidity to our suppliers; we could do this because we are a cash rich company and have good oversight of our cash.

First published on www.gtnews.com 

Only a Quarter of Firms Use SEPA Processes

19 Aug 2008

Over six months after the adoption of the single euro payments area (SEPA) credit transfers, only 4% of firms are using SEPA schemes for both incoming and outgoing payments, while 22% use SEPA schemes for either incoming or outgoing payments, according to a survey of its clients by investment bank Dresdner Kleinwort. These are mainly large companies with a turnover of between €500m and €5bn. Almost 75% of those companies surveyed are not yet using the new schemes.

The slow uptake of SEPA has occurred despite the fact that two-thirds of all companies surveyed see benefits in adopting the schemes. From the 4% of companies already using SEPA for all payments, almost nine out of ten gave lower transaction costs for cross-border payments as the reason for implementing the new schemes.

The survey results also showed:

•Only slightly over 20% of companies were considering implementing the new formats and processes within the next six months.
•50% of companies are only willing to migrate when it becomes mandatory.
•Companies with a turnover of up to €100m or less than 10,000 payment transactions per year are particularly cautious about adopting the SEPA schemes.
•Companies see required changes to ERP systems as less of a challenge (36%) than the number of different formats in Europe (56%) and obtaining IBAN. Many also raised concerns about obtaining IBAN and BIC information from their business partners (47%).
•For companies already actively using the SEPA schemes, obtaining IBAN and BIC information is proving more difficult in practice than expected (78%), whereas changes to ERP systems (11%) and the different SEPA formats (25%) are rated less challenging.
In an interview with gtnews, Arne Borkowski, director, global cash management sales team at Dresdner Kleinwort, said that most firms have been hesitant to make the SEPA transition because SEPA is still incomplete. "We have the credit transfer but not the direct debit and most of the companies want to have both instruments in place before they embark on a change project. For many firms that do a lot of direct debits, it does not seem in their best interest to change to a half completed payments transaction package." SEPA direct debit is to be introduced in November 2009.

He said that most firms had high expectations that cross-border payments fees would be reduced but that is not the only aspect they look at when attempting to build a business case. "There are huge investments needed to migrate to SEPA and therefore it depends whether they can build a business case to do it. Banks had to do it because they had to be ready on 28 January this year, but companies don't have to be ready - they can wait for their business case."

Borkowski believes that an impetus for SEPA adoption will come from the public sector. "When a bigger part of the public sector is SEPA-ready, then this will have a big impact on all others that follow them. Because if the public sector is SEPA-ready, then they will request their counterparties to be SEPA-ready - and they have the power to do so," he said.

First published on www.gtnews.com 

SEPA: Lost in Transposition?

27 Jan 2009

SEPA implementation is still moving forward, if a little slowly. What obstacles stand in the way of payments harmonisation across the eurozone?

One year after the introduction of the single euro payments area (SEPA) Credit Transfer (SCT) scheme and SEPA Cards Framework, there still is much work to be done, including the more challenging implementation of the SEPA Direct Debit (SDD) scheme in November this year. It is important at this point not only to survey what has happened during the past year, but also to step back and remind ourselves of SEPA's main objective: to increase payment harmonisation across the eurozone.

Paul Taylor, managing director Europe at VocaLink, points out that SEPA is a political initiative to make the eurozone more competitive holistically than having a number of countries operating independently of each other. "Having achieved the miracle on the single currency, bringing the banking industry in line was an obvious next step," he says.

To that end, the payment industry came together to create industry bodies, such as the European Payments Council (EPC), to allow the industry to self-regulate. "This meant that the industry could respond to different challenges, be proactive and decide its preferred outcome. It came up with SEPA, put a vision in place backed by core principles and rulebooks," explains Taylor.

Taylor says that the launch of SCT on 28 January 2008 was a success, but that many in the industry felt a little deflated by the lack of reaction and uptake from the market. "I remember going to the SEPA launch meeting in Brussels last year and observing the different stakeholders all pointing at each other in regards to what was needed to happen in order to make SEPA successful," he says. "The corporates were pointing to the banks saying that they haven't delivered any products so why should they be interested; the banks were pointing to the governments saying that they haven't regulated this or made it mandatory for people to use it, so why should any of their customers want it; and the governments were pointing back to the corporates and asking why they weren't demanding it?"

This split between stakeholders has to be overcome in order to increase SEPA's uptake. In his article SEPA Migration Needs Commitment from All Stakeholders, SIA-SSB's Mario de Lorenzo argues that there are still a number of issues to be solved in terms of regulation and new instrument features before all the stakeholders will come to the table. Among the main issues are: SDD mandate management and migration and the multilateral interchange fee (MIF) structure; the extent of the Payment Service Directive (PSD) transposition in November 2009, which is subject to different national interpretations by the 30 countries (EU27 + European Economic Area); corporates requests and complaints about their inadequate involvement in SEPA's product definitions; and finally, the thorny issue of the commitment level of public authorities.

De Lorenzo adds: "Obviously, completing SEPA migration requires the commitment of all the stakeholders. Promoting the use of new SEPA services and setting a deadline for the migration as soon as possible can facilitate this process."

VocaLink's Taylor believes that the fact that there isn't an end date is a proxy for the fact that the industry as a whole hasn't been able to establish any discernible value from implementing SEPA. "No one can guarantee that there will be a mandate [to turn off legacy payments]. But it is far better to be proactive and take the opportunity created by SEPA to develop new products and services that add customer value and healthy new return for the banks. The lack of an end date is effectively a lack of confidence."

SEPA Direct Debits: In the Home Stretch?
Citi's Rajesh Mehta agrees that SCTs has made some progress in the past year, and believes that will improve with the launch of a new version of SCT next month, which embeds optional fields that will enhance reconciliation and straight-through processing (STP) levels for corporate users. In his article SEPA: Challenges and Opportunities for 2009, he also agrees that SEPA is still far from being a reality and says that it will be "necessary for some time for large pan-European corporates to be able to pay and receive via national legacy channels and payment systems, as well as moving initial volumes where possible onto SEPA products."

He highlights some of the issues still to be dealt with in terms of SDDs. "From a corporate client perspective, one of the chief priorities is that a way is found to migrate existing 'legacy' direct debit mandates in each eurozone country over to the SDD scheme in a way that ensures their ongoing legal validity, thereby avoiding the costly exercise of requiring debtors to sign fresh mandates," he says. "It is clear that resolving this issue will require different approaches in different countries - in some cases a legal solution will be necessary while in others a contractual solution might be feasible."

As a payment instrument, a direct debit is more complex in its construction than a credit transfer. Whereas a credit transfer is a push payment, where a company decides to send money to another entity, a direct debit is a pull payment where a company or person effectively gives another entity permission to go into their account and take money on a predictable basis. This requires common standards and a significant legal framework, particularly if this is to be done across markets.

VocaLink's Taylor says that this has created a greater level of concern within the banks around how the SDD process will work – and this is coupled with the concern that the market is not all that interested. "If there is no market demand and no government regulation to force the banks to do it, and if the proposed solutions that the industry is looking at will run into the millions, while the implementation will tie up the IT team for months and there is no guarantee of business at the end of it, then it makes it difficult for banks to feel compelled to do it," he says.

Guillaume de Longeaux at AND'co, in his article How to Build Confidence for a Successful SDD Appropriation, believes that it has already been widely advertised that creditors will face a heavy adaptation effort, only to be followed by a heavier daily management burden. His article presents a few practical examples from Germany to illustrate local best practices that already allow German payers to easily dispute direct debits.

James Clark at Pegasytems points out one concern that hasn't been widely publicised around the introduction of the SDD scheme - debit fraud risk - in SEPA Direct Debit: Meeting the Challenge. However, he makes the case that SDD offers benefits to all participants (creditors, debtors and their respective banks) in terms of lower cost, higher STP rates and reduced risk.

Clark says that corporate treasurers need to decide whether they wish to participate in the SEPA scheme from a pre-determined date and that this decision should be undertaken in close collaboration with several banking partners. "The reason for this is straightforward and pragmatic, as the unprecedented volatility of today's financial markets means that the risk of 'putting all one's eggs in one bank's basket' is a much tougher decision than might have been the case just 12 months ago," he says. "At the same time, corporate treasurers will want to understand the pricing impacts in each case, to ensure that the attractive headline of being 'able to do international business at a national price' will in reality deliver the savings indicated."

Payment Services Directive
In his article, 2009: A Good Year for Corporate Users of Payment Services, Tom Buschman from TWIST, the Transaction Workflow Innovation Standards Team which focuses on XML standards, says that the SEPA project has reached the point of no return with the driving force of the PSD, which will be also transposed into national law on 1 November. He says that there is a lot to be learned from other similar initiatives, such as the highly collaborative Australian roadmap for low value payments.

Buschman argues that corporate customers need to proactively ask for harmonised and PSD-updated services in tenders for payment services. "How can they ensure they ask for the right thing and do not push banks towards proprietary and expensive offerings? A good starting point can be a joint review with individual bank providers of the Australian list of high-level requirements. This list covers many of the items embedded in the PSD and points to fairly common requirements across the globe," he says. "Service providers must listen to their corporate clients. In 2009, banks in 29 European countries need to start proactively responding to long-standing corporate customer demands."

Impact of the Credit Crisis
George Ravich, chief marketing officer at Fundtech, made the point in an interview with gtnews that SEPA is "lost in conversation" because a more important conversation is happening – the one about survival. "In good times, there was time to talk about such things as how to get the best out of new regulations, but now there is another conversation happening," he says. He believes that some banks have done a little to make the changes needed for SEPA implementation, but most haven't done enough.

Simon Shephard at ING looks at SEPA and PSD from the perspective of the banks in his article The Impact of the Credit Crisis on SEPA Implementation – and how these new regulations will effectively cost a lot of money to roll out while at the same time cutting revenue across the payments business. "The extra compliance and regulatory pressure will create problems for a number of financial institutions because in order to adapt they will need to invest. But many banks will not want to invest at this time as their margins are being squeezed. At the end of the day, they will be forced to invest in regulatory compliance because it is mandatory, and therefore some investment will be tied up in compliance rather than investing in building the systems and infrastructure they need in order to grow," says Shepard.

He argues that now is the time for banks to reconsider their business model and look to outsource what is not core to their business to other providers. "Many of the smaller banks will be looking at an alternative, such as using a major provider as an agent to handle payments. They will save money by discontinuing investment in their legacy systems and also have a future-proof solution by outsourcing the problem to someone else. A larger bank has the critical mass in terms of volume and, although there will still be the pressure on its margins, getting a greater market share will compensate for reduced margins because it effectively reduces costs per item," he says.

Shephard believes that the payments landscape will not change dramatically in 2009, but that the year will see a continuance of the 'wait and see' approach, until a few financial institutions take the plunge and outsource their payments to another institution.

In his article Carpe Diem: the Business Case for SEPA and the PSD During an Economic Slowdown, Slava Gnevko at AlphaNostrum argues that the business case for both SEPA and PSD must be reviewed because the business cases have evolved under the changing economic conditions. He believes that the deterioration in the European and world economy and decline in the financial services markets can jeopardise the timeline and level of investment in SEPA and PSD.

"It is time for the European Commission and European Central Bank to reinforce the efforts of the national regulators with establishing a strong centre for co-ordination of the pan-European migration," says Gnevko. "The question we all face now is: would regulators be able to pick up the reigns of power and maintain the pace and benefits of migration for SEPA and PSD?"

Conclusion: The Challenges in 2009
As SEPA migration in some countries looks like it may be lapsing due to economic conditions, Paul Styles at ACI Worldwide outlines four main areas that need to be addressed to help SEPA regain some momentum in his article Is Outside Regulation the Answer to a Stagnating SEPA?. He calls on the EPC to bring together all stakeholders in order to move SEPA to the next critical stage; raises the need to set the end date for the retirement of the legacy payment instruments; raises the need for a discussion on how the basic SEPA product can be enhanced without creating market fragmentation; and lastly says that banks need to collaborate with each other more if SEPA is to be a success.

Styles believes that appropriate levels of regulation, administered perhaps by a body such as SWIFT, might just be the right ingredient to ensure that SEPA delivers on its promises. Citi's Mehta also believes that a focussed regulatory and market push, combined with a growing awareness of SEPA benefits among key clients including public sector entities, has the potential to have a significant impact on the pace of SEPA adoption during 2009 and into 2010.

At a time when Charlie McCreevy, European Commissioner for Internal Market and Services, speaking at the EP Committee on Internal Market and Consumer Protection (IMCO) on tackling the crisis, said point blank: "My message to you today is that ... the single market is one of Europe's 'most valuable assets'", the push to make SEPA a reality is top of the political agenda.

In the case of both SEPA products, the key to success is attaching the capabilities that have been created to some customer value. "The industry has not yet got its head around what is the customer proposition is or the customer problem that we are trying to solve," says VocaLink's Taylor. "Rather than starting from a political agenda, we need to move to situation where standardisation on this scale could lead to corporates having visibility of their cash management or liquidity, not country-by-country, but actually pan-European visibility, which would vastly improve their ability to predict their creditworthiness and liquidity and reduce the cost of banking for corporates who wouldn't be forced to operate separate bank accounts and separate infrastructures in separate countries."

First published on www.gtnews.com 

Emerging Markets Look "Rosy" But for How Long?

24 Jun 2008

For the past nine months, the emerging markets (EMs) overall have withstood the turmoil in the financial markets and the downturn in the US economy, which led Fitch Ratings group managing director of sovereigns David Riley to say that things were looking "rosy in the emerging markets' gardens". At Fitch Ratings' Emerging Markets 2008 event in London, Riley pointed to the steady improvement in sovereign ratings, with Brazil being the last of the Brazil, Russia, India and China (BRICs) to receive an investment grade rating in May.

But there are some storm clouds ahead, specifically around the threat of inflation. Brian Coulton, head of EMEA sovereigns and global economics, sovereign group, Fitch Ratings, London, said that there were growing concerns regarding inflation in terms of credit and the possible economic impact (see figure below).

Coulton explained that inflation affects credit ratings because:

•High and volatile inflation undermines macroeconomic stability;
•It renders public finances more vulnerable to shocks;
•It reduces sovereign debt tolerance; and
•It creates an elevated risk of exchange rate crises and an elevated risk of banking crises.
Inflation also has an impact on EM local currency (LC) government debt markets: LC investors become more focused on domestic interest rate risk and it becomes harder for governments to sell long-term domestic bonds increasing market risk.

On a positive note, Coulton pointed out that domestic investment will drive the EMs' economies through 2008 and 2009. Most EMs are experiencing consumer spending dynamism. The macro economic picture also seems to be holding up with the commodity price rises and improving income levels. He agreed that the average EM credit rating continues to improve with an upward trend in the level of ratings, but revealed that this picture is changing: in 2008, Fitch oversaw 10 positive rating actions and 10 negative rating actions compared to a ratio of four positive to one negative in 2007.

Coulton likened the monetary policy in the EMs to US/UK policy in the 1970s in terms of the way that EMs responses are lagging today. He said that domestic overheating is starting to affect emerging Europe, while the Gulf Cooperation Council (GCC) monetary conditions and effective exchange rates are going the wrong way. "There has been an increase in soft exchange rate pegs in the last few years. This attracts concern because these pegs have yet to be tested in volatile markets. Plus inflation targets are being blown out of the water - in some cases, the gap is bigger than the target rate," said Coulton (see Figure 2). The top three most vulnerable EMs are Jamaica, Ukraine and Kazakhstan (see Figure 3).

Brazil, on the other hand, is experiencing heady days, particularly since the discovery of new oil deposits. Individuals, followed strongly by lending to SMEs, have led the loan growth in the country. Market turmoil has led to increased domestic demand from the corporate sector, which had been borrowing in international capital markets, leading to loan portfolio diversification. "The outlook in 2008 calls for some moderation," said Peter Shaw, managing director, financial Institutions at Fitch Ratings, "but banks are still predicting growth north of 20%, with resurgent corporate demand supporting this growth. So the outlook for 2008 is good, sustained by continued loan growth; and beyond 2008 - credit costs are key." He pointed out that funding for Brazilian banks is largely Brazilian; foreign investment is less than 10%, although it is still the biggest percentage in Latin America.

China, another of the BRIC nations, is expected to maintain its economic growth at around 10% in 2008/9. There are some problems: corruption within the development model is creating tension; the asset price bubble could generate social discontent; and increasing social inequalities and environment problems could also foster unrest. Overall, the long-term fundamentals are good, according to Frederic Gits, senior director, Tokyo at Fitch Ratings. "The race, or craze, to acquire land bank has weakened the financial structure of many companies. Government intervention is attempting to cool down the overheated property market and restrict speculation. These crises could lead to weaker players going under. The raw material price hike has mainly affected steel industry, airlines, auto manufacturing, refiners, as well as light manufacturing industries. Because China is a net importer of raw materials, Chinese companies are hungry for acquisitions in order to buy up raw material assets."

Gits said that the strong growth in China has lifted the performance of all corporates, even the poorly managed ones, but warned, "Although a rising tide lifts all boats, the problem is when the tide turns."

First published on www.gtnews.com 

UK Financial Industry Predicts Gloomy Outlook for More Than Six Months

07 Oct 2008

A vast majority of UK financial services firms (99%) do not expect to see normal conditions return to the financial markets within six months, according to a recent survey by Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC), implying that disruption will persist well into next year. John Cridland, CBI deputy director-general, said that the general view is that financial firms need to roll with the punches and look to the second half of 2009 because the first half will be difficult.

Underpinning everything is the slowing economy, which is cooling so fast that growth estimates for 2009 have more than halved since June, according to the Economist. Andrew Gray, UK banking advisory leader at PwC, denied that there was systemic risk within the UK banking system. "There is stress and strain, but no, I do not believe that there is systemic risk. Northern Rock is the closest we have come to a run on a bank, but no retail depositor has lost money up to this point."

The CBI/PwC research found that the slowdown has become more entrenched and the downturn in commercial business first reported in June again emerges as a key factor of the current survey. Business sentiment fell sharply again, as a balance of 59% said they are less optimistic about the overall business situation in the financial services sector than they were in June.

Profitability is coming under intense pressure, with aggregate figures for the industry the most negative ever recorded by the survey, which started in December 1989. The report identifies two main concerns regarding profitability: the first - and most immediate - is the continuing threat of credit impairments; and the second factor is slowing revenue streams. Market spending and capital investment are being strongly cut back, and more than half of the respondents now expect to employ fewer staff by the end of the year.

Business volumes have also taken a record plunge. Only 10% of firms said they had risen, while 61% said they had dropped. The resulting balance of -51% was much worse than expected, and was the weakest result since the survey started. Volumes are expected to fall again over the coming three months, but at a slower rate (-31%).

Total operating cost growth stabilised (a balance of +3%) and a drop is now expected over the coming three months. Average operating costs have remained flat over the last quarter and are expected to fall over the next quarter mainly because of job losses, which are expected to rise sharply over the coming three months affecting a minimum of 12,000 out of a workforce of one million.

The steepest drop in confidence was seen with fund managers, which now feel uniformly pessimistic about their business situation. Customer activity has plunged with the balance statistic for business volumes swinging from +93% in June to -100% in the current survey.

Robert Mellor, financial services tax leader at PwC, said: "Fund managers thought that the way out was to look overseas for investors. The last quarter's trend was 'spend your way out', but that customer base has departed. Fund managers are becoming increasingly resigned to a long downturn, and are responding accordingly but the sector needs to consider how it can profit from increasing levels of risk aversion among investors." He added that the fund management area is now looking at job losses for the first time.

In an indication that credit continues to become more expensive, average spreads, which mark the difference between the rates at which money is borrowed and lent, widened for a third quarter running, although a gentler increase is predicted in the next three months.

"The survey paints an increasingly bleak picture of the [financial services] sector, but the dramatic turbulence across the world of finance over the past fortnight, and the renewed paralysis in interbank markets, will only have depressed market confidence even further," said CBI's Cridland. "Difficulties in this crucial sector will have huge implications for the rest of the UK economy."

First published on www.gtnews.com 

Fundtech Appoints Gadot as Managing Director for Asia-Pacific

19 Aug 2008

Fundtech has appointed Gil Gadot as managing director of Fundtech Asia-Pacific. Gadot is a co-founder of the company and most recently held the position of executive vice president and chief technology officer (CTO). He will oversee Fundtech's expansion in the region.

Speaking to gtnews, Gadot outlined three trends that have encouraged Fundtech's decision to expand its operations in the Asia-Pacific region. First, as Asian corporations have become more international and sophisticated in their expansion into other regions of the world, domestic banks are feeling the pressure to follow suit. "As domestic clients conduct business abroad, the banks have difficulties in continuing to service them in other geographies. Now they must start offering international business operations to these clients," said Gadot.

Second, there are now more western companies operating in Asia that are used to a certain level of service and sophistication from their home market banks. These companies are also demanding this service level from local banks. And third, large global banks, such as HSBC, Citi or Barclays, are bringing sophisticated tools and instruments into these countries and if local banks are to compete they need to upgrade their systems to offer the same products and services that global banks offer.

Gadot sees a market-readiness in Asia-Pacific that hasn't been there previously. "Seven years ago the Asian market was ready for localised solutions but not a global offering. Today the market is more mature."

At SIBOS, SWIFT's user conference in September, the company plans to launch a new product for the Asian market called Global Cash Plus, a cash management product. Based on TransactCentral, the new product will be equipped with global features and rules engine, as well as a financial supply chain component. "It is what we call 'end-to-end squared' - it is an end-to-end-to-end offering going all the way from the bank to the corporate through to the corporate's trade partners, whether suppliers or buyers. It is an offering that doesn't yet exist in Asia - a truly global cash management product that can service the bank and all its market segments," claims Gadot.

As part of its expansion strategy, Fundtech will continue to focus on countries where it has already established a presence, such as India, Singapore, Japan, Thailand, Malaysia, Philippines and Australia, but plans to keep an eye on China, which it believes is a strategic country. It has already partnered with a Chinese company, Digital China Financial Solutions, to sell its products in the country.

First published on www.gtnews.com 

Faster Payments Service Passes £200m Mark

03 Jun 2008

APACS, the UK payments association, has announced that within the first three days of operation the new Faster Payments Service (FPS) processed 318,405 faster payments to a value of £200,127,682.03. This equates to around 90,000 payments a day, 3,750 payments an hour - one every second - with an average value of over £625 per payment.

The FPS, which went live on 27 May, enables banks to process one-off payments made over the Internet or by phone within hours, not days, benefiting customers by speeding up the clearing of their payments.

Seven banks - Barclays, Citi, Clydesdale and Yorkshire Banks (National Australia Group), HSBC, Lloyds TSB, Northern Bank (Danske Bank) and Royal Bank of Scotland Group (including NatWest and Ulster) - are now sending and receiving phone and Internet payments, and Alliance & Leicester, HBOS, Nationwide Building Society and Northern Rock are receiving these payments. Abbey and the Co-operative Bank have not yet phased in the service.

The 13 founding member banks, which together account for over 97% of all payments made in the UK, have planned a phased approach to implement the facility to send or receive payments processed through the new system, which was developed by UK payments infrastructure provider VocaLink. APACS expects another two banks to come on-stream within the next six weeks to three months. By the end of the year, the majority of the UK's Internet, phone and standing order payments are expected to be made using the new system. Any payment that is not processed through the new service will continue to be made using the existing Bacs three-day service.

There is a maximum limit placed on the value of each payment sent through the FPS, with the maximum value for Internet and phone payments set at £10,000 and standing orders at £100,000. As part of the phased rollout, some financial institutions are placing lower initial limits on the value of payments that can be sent.

Driven by personal client online banking demands, the FPS is currently of limited use to corporates because of the maximum limit. As a spokesperson from the National Australia Group pointed out, a significant number of corporate payments would not be covered by the framework, which is one of the reasons why the bank has not rolled the service out to its corporate clients at present.

Sandra Quinn, director of communications at APACS, said that although the upper limit will change in the future, she does not expect it to happen within the first year of operations. But, she argued, banks are already beginning to raise awareness about the service among their corporate clients.

"I have already seen letters that some individual banks have been sending out to their business customers and their corporates," said Quinn. "For most of the [FPS] members, their target was to roll out the new service to themselves, and then they will target their own financial customers, the large corporates, to make sure they have access as well. There is no doubt that corporates will gain access - because if you are a large firm the ability to move money around and get it back quickly puts a whole new complexion on how you manage your finances. If you are a small business who has difficulty getting payments paid, which most small business do, obviously a service that is simple and accessible has a potentially revolutionary capacity."

She added that another big difference between FPS and the payments services that have come before is that it will operate 24/7, 365 days per year, so that corporates can benefit from receiving their money on the weekend.

First published on www.gtnews.com 

Virgin Media Uses CheckFree Within Financial Shared Services Centre

29 Jul 2008

Virgin Media has implemented CheckFree’s reconciliation and exception management solution to consolidate and automate reconciliation of customer revenue related accounts and improve efficiency, accuracy and visibility of financial operations.

The six-month implementation project followed a full review of legacy systems in place throughout the organisation and the subsequent need for a best-of-breed solution for Virgin Media’s financial shared services centre (FSSC), located in Bradford, UK.

The FSSC, initially established in 2000 for the legacy Telewest business, is responsible for processing the core financial transactions for the Virgin Media group and includes: accounts payable, accounts receivable, bank reconciliation, general ledger reconciliation, payroll and financial accounting and reporting activities. When Virgin Media launched in February 2007, it had a number of legacy systems that it wanted to review and integrate that involved standardisation, centralisation and consolidation of its core financial processes.

By consolidating its legacy reconciliation programs into a single platform, Virgin Media has streamlined its transaction matching, reporting and performance management processes while improving the efficiency of its operations. The new reconciliation system has reduced the time required to complete the month-end close process, eliminated spreadsheet-based reconciliation tools and other manual elements and reduced the need to re-code transactions to ensure comparability in core data. Virgin Media is also able to link bank statement interfaces into its reconciliation system, allowing the team to access and integrate critical information faster.

In an interview with gtnews, Beverley Booth, head of finance and payroll services at Virgin Media, said: “We operate in a high volume environment with a high degree of complexity. An automated reconciliation platform reduces the likelihood of operational error. By allowing us greater visibility into our operations, we can monitor processes and the status of accounts and also make sure that we’re offering support and training when and where required.”

First published on www.gtnews.com 

Israel Discount Bank Expands e-Banking Channels for Corporates and SMEs

09 Sep 2008

Israel Discount Bank (IDB) has selected Finacle e-banking solution to help expand the bank's Internet and mobile channels aimed at its corporate, small and medium enterprises (SME) and retail banking business. The platform will form a component of the bank's portalisation strategy, which is the ability to offer a single window to all its services on the Internet, and will be offered as a portal-enabled solution on IBM technology.

Over the past two years, IDB had been focused on a transformation of its core banking system but has now decided to ramp up its e-banking offering. Previously, the bank used its retail Internet banking solution to serve its corporate and SME clients, but found that it was no longer up to the mark of a best-of-breed solution needed to leapfrog its competition. The bank needed faster time-to-market for launching new features and products for its SME and retail banking operations, previously managed on software applications developed in-house.

With the Finacle solution, IDB corporate, retail and SME customers will be able to make enquiries and transactions through Internet and mobile banking, which also includes making payments to beneficiaries and third party service providers. The solution will be rolled out in stages: first to corporate and SME customers within 12-14 months; and second to retail clients within 12 months after the first implementation.

The bank will also implement MConnect, which is a device agnostic, context-aware, real-time transaction mobile middleware. The solution provides a unique user interface on each hand-held device and will enable the bank to offer differentiated mobile banking services in the local market.

Infosys beat competitor Corillian, a US-based Internet banking specialist, after an 18-month consultation process. In an interview with gtnews, Amit Dua, associate vice president and head of Finacle EMEA, said that IDB chose Finacle because the solution is based on J2EE, while Corillian is based on Microsoft .Net technology. Also, the bank was convinced of Infosys' delivery capability.

Shai Vardi, deputy director of operation and IT division at the bank, said: "Our present market environment required a radical transformation in our e-banking infrastructure to improve our performance and enhance the channel experience for our customers. We chose Finacle for its proven new generation solution and delivery track record."

As mandated by IDB, Infosys will partner with a local technology services firm, Taldor, for implementation. Infosys chose Taldor because of the strength of its credentials as one of the top three systems integrators in Israel.

First published on www.gtnews.com 

Banks Need to Unite Payment Silos, but Uncertain About Payments Hub

26 Aug 2008

The vast majority (85%) of bank executives responsible for managing payment systems agree that they are struggling to get information consistently out of multiple payment silos, according to Checkfree's survey of 60 of its customers at its user conference in July. Other payments processing concerns voiced by the respondents, in order of importance, included: international ACH transaction (IAT) compliance, rising electronic payment exception volume, cross-channel payment adjustments and exceptions, remote deposit capture, and changes in services offered by the Federal Reserve Bank.

Yet there was no consensus on when and how 'payments hub' technology will be ready to meet the challenge of managing and reporting on all payments across those different channels. Differing definitions of a payments hub also caused some confusion among the respondents.

Twenty-five percent of survey respondents agreed with the statement that a payments hub is "a solution whose time has come", while 15% viewed it as "an appealing idea, but the technology is not yet available". The largest group - 45% - said they wanted to learn more before commenting on the promise of payment hubs.

Over half (55%) of the respondents said they were familiar with the concept of a payments hub, and yet they disagreed on the definition: 60% of the bankers surveyed said it's a fully integrated common platform for managing all payments processes; 20% view a payments hub as a reporting tool that overlays existing payment systems; while 10% believe it entails using disparate technologies within one staffing centre. The remaining 15% had yet other definitions.

"One thing that is interesting about the 60% is they believe the payment hub is a 'fully integrated common platform for managing all payments processes'. We would take exception in that definition to the word 'all'. We define a payments hub as a tool that can solve the pain of pulling that information out of the different payment silos and allow the banks to manage those payments silos at least to some degree," said Bert Harkins, vice president, global strategic marketing at CheckFree, in an interview with gtnews.

"Some companies will talk about a payments hub in terms of a 'rip and replace' strategy - remove the different payments silos and replace all of those operating models with some gigantic payments hub. While that certainly solves the pain that the banks are reporting, there is a huge risk involved in taking such a dramatic step. A proper definition of a hub will certainly help manage some aspects of those payments silos holistically and centrally, but without that rip and replace strategy," he continued.

First published on www.gtnews.com 

Over a Third of Companies Abandoned Business Change Projects in Last Three Years

21 Oct 2008

Over a third (37%) of company executives surveyed said they had abandoned a major business change project in the past three years, according to research by Logica Management Consulting and the Economist Intelligence Unit (EIU). The researchers estimate that global companies are losing up to £7.8bn a year.

Some of the main barriers to effective business process improvement were found to be:

•Pressures of day-to-day business (48%).
•Lack of dedicated resources (38%).
•Lack of alignment between functions (38%).
•Lack of support from senior management (15%).
•Poor planning (16.3%).
•Lack of necessary IT/ infrastructure/applications (22%).
•Lack of expertise in business process design and/or change management (21%).

In a survey of 380 executives in western Europe, the key drivers for change management include improving financial performance (66%), improving customer focus (45%) and reacting to competitive pressures (32%); in practice, a worrying performance gap means this is unlikely to actually happen.

While 70% of the firms surveyed said they spent as much as 1-6% of their revenue every year on business change projects, nearly one third of business process changes fall short of expected benefits. Surprisingly, almost one fifth (18%) of organisations do not assess the achievement of specific goals against the original business case, such as ROI.

In an interview with gtnews, James Campbell, management consultant at Logica Management Consulting, said that this lack of evaluation around a project's success is a real problem. "One of the issues that we have identified with our clients is the ability to measure success. You need to start off with the business case and track the benefit realisation throughout the whole programme. Typically a lot of clients develop a business case and then they don't actually track it through, so there is no idea about how well they are doing and whether it is really giving them the return that they expected." Only 29% of the companies surveyed have specific systems in place to assess the impact of change projects on process performance.

The survey also found that:

•Successful changers are more ambitious. They undertake more cross-departmental projects and far more cross-regional projects (respectively 90% versus 85% and 81% versus 68%) than less successful changers.
•Collaboration with suppliers, customers and partners is not yet common practice, with only 24% of the companies surveyed reporting that they work highly collaboratively with suppliers, 27% with customers and 31% with business partners. Successful changers have a more open relationship with both customers and business partners.
•The top three most important business process changes over the past three years were the introduction of new technology, outsourcing and integration over different regions. For the next three years, automating processes replaces outsourcing in this top three. Future challenges for European executives consist of integrating locations and realising the benefits of earlier initiatives, including outsourcing.

First published on www.gtnews.com 

Banks Look to Consolidate Payments, Cash and Trade Silos

17 Sep 2008

More than three quarters of the banks surveyed in the recent survey from Misys and Finextra Research said they were looking to consolidate payments, cash and trade into a single function under the banner of transaction banking, but the delivery of a joined-up service is not there yet. According to the research, which polled over 100 banks in 32 countries, respondents were looking to provide a more efficient service to its corporate clients by breaking down these legacy silos.

The research found that a majority (57%) have already taken steps to restructure their organisations, bringing together trade services, cash management and payments services as a single offering. A further 19% have plans in place for specific transaction banking units within the next 12 months.

Despite these changes, 45% of respondents - including half of those who have already restructured - believe existing customers rate their services as no better than average, suggesting either that the new structures have yet to bed in or that other difficulties prevent them from reaching their potential. "It is still early days in terms of the consolidation of these disparate silos," said Edward Taylor, global head of public relations at Misys, in an interview with gtnews. "But the pressure is on because corporate clients are demanding more from their banks. Corporates are not seeing enough improvement in this service offering."

IT complexity is seen as the biggest obstacle to transaction banking plans ahead of 'domination of global banks', cited by 55% and 40% of respondents respectively. At the top of the list of technical problems that banks say their customers want them to solve are greater integration with corporate systems and delivery of cross-border, multi-currency cash pooling services.

Adding new products and services to satisfy existing customers and widening their appeal to the smaller customers are the top priorities for 39% and 33% of respondents, respectively. Offering new cash pooling offerings are particularly effective, with banks already seeing an average 14.4% increase in business as a result.

Although nearly half of banks in the survey said their overall 2009 IT budgets had been frozen, average spending on development of cash management systems and services is expected to increase by 8%. As the primary delivery platform for new services, the online channel is the main focus of IT spending. Cash forecasting, invoice and payment reconciliation and real-time payment tracking feature prominently in online investment plans of a third of respondents in the next 12 months.

In other news, Misys has launched a global cash pooling solution so banks can offer advanced cross-border cash management services at a low cost. The solution enables banks to offer international cash pooling services to corporate and institutional customers, across multiple currencies, borders, banks and time zones.

David Shilling, business analyst, core banking at Misys, explained to gtnews that this product was designed to address three problems faced by corporate treasurers of multinational firms: tracking cash in multiple accounts in multiple countries; automating money transfer according to rules defined by the corporate; and allowing the bank to offer a virtual account so that the money does not have to physically move.

Designed to co-exist with other back-office systems, the solution delivers the flexibility banks need to both define innovative pooling products and operate in multiple regulatory jurisdictions, whilst minimising operational costs the company says. Misys Global Cash Pooling uses a rules-based approach for processing standard SWIFT format statement messages, applied to a hierarchy of shadow accounts, to construct a full picture of balances and movements between accounts in the cash pool - either within one bank or across different banks.

Working with an international bank that was the sole pilot, Misys took three years to develop this product. "The previous version was only for domestic cash pooling, which is much simpler since it is possible to treat the cash as one lump sum. An international scope is much more complicated because there are many different regulations, for example tax restrictions, and complex calculations that companies face when cash moves cross-border," said Shilling.

First published on www.gtnews.com 

Credit Crunch Heightens the Chief Procurement Officer's FSC Role

22 Jul 2008

The impact of the 2008 economic slowdown has led to several problems within the financial supply chain (FSC), such as rising financing costs and less available credit, particularly in the form of long-term capital, plus an overall increase in pressure to maintain margins for shareholders. The pressure to cut costs has extended further into the organisation than ever before and now impacts the activities of the chief procurement officer (CPO). The CPO must be brought into the realm of FSC management in order to address these issues, argued Wolfgang Steck, vice president and head of procurement solutions and supply chain UK at global management consulting firm AT Kearney, speaking at the Financial Services Club's Supply Chain Forum last week.

Focusing on the question, 'Are actual solutions good enough for your clients?', Steck highlighted the importance of effective supplier relationship management and efficient operating process management in the global sourcing of supplies. He pointed out that the extensive market changes have made it even more difficult for CPOs to achieve their savings target, listing barriers to success such as talent availability, sustainability, interest rates, inflation, currency risk, regulatory issues, commodity scarcity, and supply continuity risks. He added that procurement departments must change - they must be collaborative and build trusting relationships throughout the supply chain, doing away with "bully buying" tactics.

To address these issues raised by the economic turmoil, FSC management has to include CPOs, argued Steck. He said that recognised leaders in procurement have embraced FSC management. "CPOs must tap into FSC management. Automation is a must. They must be part of supply chain finance and actively look at how to help their suppliers," argued Steck. "FSC management requires multi-lateral relations and collaboration between buyers, suppliers and financial institutions. Banks have an opportunity to work with a range of suppliers up and down the supply chain."

Eric Sepkes, chairman of the Supply Chain Forum and ex-Citi vice president, questioned whether banks understand what CPOs need. "Most banks don't know who the corporate's CPO is. We [Citi] always thought that our client was the treasurer in the company, but I think that may be changing," he said. "Each corporate must look at the procure-to-pay (P2P) costs because what is needed is something that helps the company decrease working capital throughout the whole FSC." But during the discussion, a representative from a bank stated that "most CPOs don't know what working capital is - and they should."

Steck at AT KEarney contended that CPOs need to be sitting at the board level in order to achieve the level of integration needed for a corporate to get a complete overview of its supply chain. He outlined the three benefits corporates and CPOs will gain by integrating CPOs into FSC management:

1.Within processes: decreased paperwork, increased staff productivity, a link between the FSC and physical supply chain (PSC), increased collaboration, and decreased invoice exceptions.
2.Within financing: decreased financing costs, increased control over cash flow and better risk management.
3.Within the supply base: decreased cost of goods, access to new suppliers, attractive financing option, increased loyalty of supplier and an enhanced relationship, as well as connecting players in the supply chain.

First published on www.gtnews.com 

Sibos 2008 - SIBOS Delegates Called Home to Fight Lehman Fires

18 Sep 2008

SIBOS is overshadowed by external economic shocks. Joy Macknight, Section editor at gtnews, explores the reactions of the delegates and attends the session on what keeps CEOs awake at night.

On the third day of SIBOS, there was a subdued air about the conference as delegates digested the latest news of the financial crisis following Lehman Brothers' rapid demise on Monday. Wednesday saw the Federal Reserves US$85bn bail out of American International Group (AIG) and Barclays' bargain basement acquisition of pieces of Lehman Brothers, including its New York head office. In addition, there have been an increasing number of large bank tie-ups, in order to stay afloat in the turbulent market, such as Lloyds TSB's acquisition of HBOS. Morgan Stanley is also earmarked for an acquisition bid by another major international bank.

As one Australian delegate said on the morning coach to the conference hall: "It's very hard to figure out what to make of it all. On day two, they were saying that the days of investment banking are over; and then the next day they are saying everything is not as bad as it seems." But most analysts are admitting that it is the worst financial crisis since the 1920s.

The conference floor was decidedly less crowded as many executive-level bankers were called back home to find out what risk exposure they have in terms of Lehman's. Some, it was rumoured, flew in Sunday night just to get the first flight back on Monday. This seismic sea change opens up new risks for all financial institutions and, of course, new opportunities, and the banks want their key decision makers back in the office.

This, in turn, has meant a lot of work for SWIFT as it had to scramble to replace its keynote speakers. SWIFT's CEO Lázaro Campos tried to put a positive spin on it by saying that it proves that SIBOS attracts only highest calibre speakers.

Commenting on the latest events in an interview with gtnews, Mark Hale, director at PricewaterhouseCoopers and head of the new transaction banking team, said that he was not surprised by recent events in the financial system because market fragility has been building up for a number of years with the increase in personal debt and mortgage debt and a misunderstanding of the risk involved. "Also, there has been a systematic underinvestment in payments infrastructure, with the industry more focusing on 'keeping the lights on' and compliance rather than modernising. Now the problems stemming from underinvestment are coming home to roost in a crisis." He believes that the crisis has resulted from a lack of leadership from all parties involved and leaders, regulators and shareholders must stake responsibility for what happened.

Hale is also worried about the possibility of draconian regulations being brought in which won't address the fundamentals of how things went wrong, and, in particular, if form takes precedence over substance, or process displaces experienced judgment.

The 'big issue' debate, What keeps CEOs awake at night?, was pertinent as the meltdown of the financial system meant that most weren't getting much sleep at all. The panel consisted of June Felix, general manager, global banking and financial markets, IBM; Hans Van der Noordaa, member of the executive board, ING Group; S. Ramadorai, CEO and managing director, Tata Consultancy Services; Karen Fawcett, global head of transaction banking, Standard Chartered; Brian Stevenson, chief executive, global transaction services, The Royal Bank of Scotland; and Timothy Ryan, president and CEO, Securities Industry and Financial Markets Association (SIFMA). Almost all the participants talked about the importance of talent and getting the right people to make the right decisions, plus efficient and transparent internal processes, to weather the financial storm.

SIFMA's Ryan called on the industry as a whole to raise its hand and admit what has happened. He made a number of proposals for change: the credit rating process has to be modified to give it more transparency to that investors have an understanding about what information has been used to develop the rating; a process, such as asset pricing, has to be put in place to increase confidence for investors; and all components of risk management must be better integrated and monitored. "We have to change the focus to getting the future fixed instead of just fighting fires. It looks messy right now, but we shall get through it," he said with conviction.

Ralph Silva, research director, Europe, at TowerGroup, told gtnews that he believes the financial industry is at least 12 months from end of the crisis and the global economy may be looking at seven to 10 years of slow growth. This environment will have a dramatic effect on the treasury function. "There is a systemic lack of business; treasuries have to revise their forecasts which assumed a continuing growth rate of 5%. Treasury will see a halt of new investment and innovation will become a four-letter word. Corporates will focus their attention on the need to keep the lights on."

He predicts that the major banks will lose between 10-12% of their staff in treasury. He believes that the decrease will not hamper the banks' ability to supply products but there will be less focus on innovation and new product development. In an economic downturn, he points out, what corporates need is basic value. "Banks are trying to add on and sell complex services when really in this climate they should be lowering the price and offer the basics. Treasury services prices are increasing but this won't be accepted by the customer base."

First published on www.gtnews.com 

Mazda Motor Logistics Implements Wallstreet Treasury

28 Oct 2008

Mazda Motor Logistics Europe (MLE), the European logistics and financial services subsidiary of Mazda Motor Corporation, has selected Wall Street Systems to centralise its treasury processes, improve cash visibility and develop efficient forecasting capabilities. The firm is implementing Wallstreet Treasury ASP (application service provider) solution at its central treasury in Belgium in a two-stage project.

According to the company, the benefits of the Wallstreet Treasury ASP solution include a lower total cost of ownership (typically by 30% to 40%) with no hardware or software costs and limited IT support requirements, global accessibility, advanced security and strong disaster recovery services.

"We selected Wallstreet because of its understanding of our needs, the functionality of Wallstreet Treasury ASP and its ability to show quantifiable and significant value to the business," said José Jimenez, European treasury manager, MLE. "We benefit from best practice treasury practices and external help to improve treasury productivity. The ASP model means that upgrades are managed and rolled out by Wallstreet, while data hosting is Sarbanes-Oxley (SOX) compliant."

This follows on from the recent announcement that Wallstreet has launched its treasury software as a software as a service (SaaS) model at a fixed monthly subscription.

Aimed at the mid-sized corporate market, the core Wallstreet Treasury service costs US$800 per user per month, giving mid-tier corporate users access to best practice functionality at a competitive rate. Test marketed this year in the US from March, over 90% of new clients have chosen to subscribe to the service, instead of purchasing and running it in-house. Wallstreet clients that have selected the subscription service include National Express Group, adidas, Mazda and Six Continents.

Under this new model, clients will be able to add to the core Wallstreet Treasury solution by choosing options from Wallstreet's integrated partner network, therefore only paying for the services they need for each user while ensuring all aspects of their treasury requirements are met through one supplier. Partners available at launch are:

•Fides Treasury Services, developed by Credit Suisse as an alternative to traditional bank interfaces and workstations, providing off-the-shelf connectivity to more than 850 banks and allowing integrated payment and statement services.
•Speranza Systems, which enables automated, real-time bank relationship management, providing full transparency of signing privileges and accounts, as well as electronic document exchange.
•Reval, which provides multi-asset hedge accounting solutions.
Wallstreet will be adding to its partner network over time, linking with complementary treasury solutions providers to offer a full 'treasurer's desktop' to its clients.

Paul Wheeler, managing director of Wallstreet Treasury at Wall Street Systems, told gtnews: "There are many barriers for mid-sized corporates when embarking on treasury transformations, particularly the prohibitive costs of IT whether in implementation or upkeep. The ASP delivery model means that clients can access these services and pay for what they use. In today's economic climate, we believe that there will be an accelerated adoption of the hosted service model."

Wallstreet also offers a 'try before you buy' concept, where corporates can implement the solution for a month before finalising the contract. Wheeler explains that the knowledge gained through the month trial is grandfathered into the implementation process. "The trial period drives discovery early - the corporate can see how the solution fits into their system and processes and it also means they can give feedback to us," said Wheeler.

First published on www.gtnews.com