09 Jul 10
Financial industry leaders see the creation of the single euro payments area (SEPA) Council, which met for the first time on 7 June and released a statement of intent, as a signal of a firm political commitment from the European Commission (EC) and the European Central Bank (ECB).
At a recent Financial Services Club meeting in London, two senior bankers closely involved in the SEPA and Payment Services Directive (PSD) process saw this development as a political step forward in giving a more public face to the European payments harmonisation initiative.
The new SEPA Council is composed of five high-level representatives from both the demand and supply sides of the market. Members from the demand side include consumers, retailers, businesses/corporates, small and medium-sized companies, and national public administrations. On the supply side it includes the European Payments Council (EPC), co-operative banks, saving banks, commercial banks, and payment institutions. In addition, four national central banks board members represent the eurosystem.
"This is a demonstration of endorsement from the ECB and EC and a tangible commitment to a political vision. Plus, there is buy-in from stakeholders," said one senior payments strategist. "Although the declaration is mainly symbolic, it is also a positive sign."
In addition to discussing other issues - such as the end date for legacy payment instruments, countries that have still to transpose the PSD and the possibility of a PSD II in 2012 - the Financial Services Club deliberated the entry of new competitors in the market via a PSD-created legal entity called a payment institution (PI). A PI is defined as "a legal person (i.e. must be incorporated - sole traders cannot be authorised) that has been granted authorisation in accordance with Article 10 of the Directive to provide and execute payment services throughout the European Community."
This development allows for non-bank entities that have traditionally played on the perimeter of the payments arena to compete with banks head-to-head. As of mid-March, five months after the PSD's launch, the number of entities that have been authorised as PIs is very patchy across European countries - for example, many countries have had just one application, while there has been close to 50 in the UK. "[The number] has a direct correlation to how mature the financial services market is in each country," said the other industry expert. Once a PI has been approved in one country, it can passport its services to other countries in Europe.
This is a space to watch in the near future as banks face new challenges to their old business models.
First published on www.gtnews.com
About Me
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- Joy Macknight
- Freelancer of the Year at Aviva Investors Sustainability Media Awards 2025. I am a former editor of The Banker, a Financial Times publication. I joined the publication in August 2015 as transaction banking and technology editor, was promoted to deputy editor in September 2016 and then to managing editor in April 2019. The crowning glory was my appointment as editor in March 2021, the first female editor in the publication's history. Previously I was features editor at Profit&Loss, editorial director of Treasury Today and 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.
Sunday, 11 July 2010
Debunking the SWIFT Myth
06 Jul 2010
SWIFT offers a single, secure connection to multiple banks, but it is still only used by a minority of corporates. This article, part of the gtnews buyer's guide to SWIFT service bureaus, examines how SWIFT fits the needs of today's corporate treasury.
The financial crisis has ramped up pressure on corporate treasury to increase efficiency and straight-through processing (STP), as well as improve cash visibility, reporting and payment reconciliation. There is now a much greater focus on working capital and the cash conversion cycle. Treasury needs to centralise its operations by consolidating and rationalising connectivity to its banking partners in order to reduce inefficiencies, streamline processes and save money.
Counterparty risk has also gained an importance not seen before the crisis as some ‘too big to fail’ banks did actually fail and others were eaten up in the mêlée. After years of treasurers trying to reduce the number of banking partners and centralise treasury operations, having all the eggs in one basket no longer seems such a good idea, particularly if a company is locked into a bank’s proprietary electronic banking (ebanking) solution.
“Corporates want easy access to multiple banks,” says Elie Lasker, head of corporate market, SWIFT. “Plus, in order to mitigate counterparty risk, they need to have a flexible channel in case they need to quickly switch or add banks.”
By providing a single, standardised and secure channel, SWIFTNet can help corporates:
•Optimise cash and liquidity management.
•Reduce operational and counterparty risk.
•Improve security.
•Improve STP and systems integration.
•Reduce costs.
Marilyn Spearing, global head of trade finance and cash management corporates, Deutsche Bank, and chair of SWIFT’s Corporate Access Group, says: “The first thing is STP, the second is the ease of switching, and then the final thing is the anticipation of added-value services, so an enriched linkage over time.”
So if SWIFTNet holds the promise of making life a lot easier for corporate treasurers, why aren’t there more corporates signing up? To date, there are just over 600 corporates with direct access to SWIFT, out of a pool of possibly 20,000. Although this represents a steady increase from 108 in 2005, the tipping point for corporate adoption is far off.
Removing Barriers to Adoption
Historically, most corporates perceived SWIFT as an inter-bank club with select mega-corporates, such as Microsoft, General Electric (GE) and DuPont, invited to join the party. Most still see SWIFTNet as expensive to run, over-complicated, difficult to access and maintain, and needing specialised knowledge.
However, in recent years, SWIFT, banks, technology vendors and service bureaus have developed business propositions specifically aimed at corporates, which has changed the SWIFT corporate community’s demographics. It is no longer solely the domain of the largest multinational corporates, now that smaller corporates - i.e. with less than €1bn annual turnover - and even domestic players are looking to SWIFTNet connectivity for efficiency gains.
SWIFT
As part of the strategy to expand its user community, SWIFT has made a number of changes to make access easier for corporates. In June 2009, SWIFT widened the eligibility criteria so that any corporate will be eligible to join the Standardised Corporate Environment (SCORE), provided that it is recommended by an existing SCORE bank located in a Financial Action Task Force (FATF) member country (see Box 1). Before that corporates had to be listed on a regulated stock exchange, effectively barring entry to privately-owned multinationals such as Ikea and Cargill.
BOX 1: SWIFT Membership Schemes
A corporate can join one, several or all of these membership schemes.
Treasury Counterparty (launched in 1998)
The Treasury Counterparty (TRCO) model allows a corporate to exchange treasury deals confirmations (e.g. spots, forwards, currency options, money markets) with any financial institution on SWIFT (for example there is no need to register in a closed user group). This model can be used by both listed and non-listed companies. To register for this scheme, the corporate needs to be sponsored by eight financial institutions which are members of SWIFT. Note that the TRCO model does not cater for business needs other than treasury confirmations, for example sending payment instructions, receiving statements, buying and selling securities.
MA-CUG (2001)
The Member Administered Closed User Group (MA-CUG) is a bank-administered scheme where a corporate can communicate with its bank via SWIFT. In this scheme a company would contact each of its banks separately to establish a SWIFT relationship. In this scheme the company’s access to the SWIFT network iscontrolled by the bank. Each bank defines and operates its own service over SWIFT. Corporates may join multiple MA-CUGs.
SCORE (2007)
In a Standardised Corporate Environment (SCORE) scheme, a single relationship with SWIFT is established which provides the link to many banks - it is in effect a many-to-many closed user group (CUG) administered by SWIFT. Corporates and banks join one CUG. It is for the exchange of single transactions and/or batches (files) of transactions. This scheme supports financial messaging for payments and reporting between eligible corporates and their banks or other financial institutions. Any corporate can now join the network, provided it is recommended by a bank located in a Financial Action Task Force (FATF) member country.
BOX ENDS
Earlier in 2009, SWIFT released a shortened version of the SCORE agreement, which made the whole legal process of onboarding banks much simpler. John Ballantyne, UK sales manager at SMA Financial, a UK-based SWIFT service bureau, explains that one of the major issues for a corporate joining SWIFT is the legal documentation. “This is something that is a necessary evil but it’s nevertheless quite time-consuming and I would always flag it up as a key risk because it is quite an onerous process,” he says. In December 2009, SWIFT announced a revised version of the service level agreement template to improve the quality of cross-border payments services.
Importantly, SWIFT has taken steps to address the biggest barrier to corporate uptake - the cost. In September 2008, SWIFT launched Alliance Lite, touted as ‘SWIFT access on a USB stick’, which is a low-cost, plug-and-play solution (see Box 2). According to Lasker, 30% of corporates that joined last year chose to connect through Alliance Lite.
BOX 2: SWIFT on a USB Stick
Direct, low-cost access to SWIFTNet.
Alliance Lite is SWIFT’s internet-based connectivity product that provides direct, low-cost access to its network. Lite is a much less expensive way to connect in terms of its pricing model and the technology investment needed to connect.
SWIFT established a new pricing model for Lite in which everything is included: the software, bank identifier code (BIC), SWIFT membership, SWIFT user handbook, online training, PKI certificates, standard support, and built-in reference data. Customers can choose between two models: a flat fee or pay-as-you-go.
•A monthly flat fee standard pricing is €850 per month, or €10,200 per year, which includes up to 4,000 items sent or received per month. Above that, it is €1 per additional item sent or received.
•For pay-as-you-go customers, SWIFT charges a flat fee of €200 per month for the service and €1 for every item. Alliance Lite is accessible over the internet through a USB token, which is an identity token containing certificates issued by the SWIFT certification authority. The certificate supports basic public key infrastructure (PKI) principle scenarios.
BOX ENDS
And lastly, SWIFT is also looking at additional services such as:
•Exceptions and investigations.
•Trade finance.
•Secure e-mail.
•SWIFT Secure Signature Key (3SKey).
•Electronic bank account management (eBAM).
•Electronic invoicing (e-invoicing).
“Everybody is talking about electronic bank account management and e-invoicing - in other words really expanding what can be done through the same channel,” says Spearing.
Banks
Banks are beginning to take a different attitude towards SWIFT for corporates, particularly those involved with the Corporate Access Group, which Spearing chairs.
Speaking from a Deutsche Bank perspective, she says: “Historically, Deutsche Bank was agnostic on the channel - whether a corporate chose SWIFT or the bank’s proprietary channel was the corporate’s choice. But now we promote SWIFT access. If a corporate is changing its environment, whether the enterprise resource planning (ERP) system or treasury management system (TMS), etc, we think that it should join SWIFTNet because this is the way everything will move in the future.”
But won’t many banks hesitate before abandoning hugely expensive proprietary ebanking systems? “You can sense a concern - and some banks are questioning whether it is a good idea to endorse SWIFT, particularly some of the major players with large installations,” says Spearing. “But on the other hand, everyone is saying that we have to make it easier and do what we can do to communicate better.”
Franklin Van Weezendonk, senior vice president, Axletree Solutions, a US-based SWIFT service bureau, agrees that banks’ attitudes are changing. “Previously, a bank liked having its proprietary platform because it helps to create a sticky relationship. But now banks realise that SWIFT has a value for corporates and they can’t remain on the sidelines from a competitive standpoint, particularly the larger banks.”
Technology vendors
SWIFT has reached out to the vendor community, particularly ERP and TMS solution providers, to develop standards that will help to drive adoption and make it easier for corporates. These vendors are also finding benefits for themselves.
“TMS providers are actually supportive of systems limitations in their own right,” says SMA Financial’s Ballantyne. “Integrating an application with the SWIFT gateway, rather than five or six electronic banking platforms, actually reduces the complexity on the TMS side and within the corporate back office, and also reduces cost.”
SWIFT service bureaus
SWIFT service bureaus offer SWIFT connectivity on an outsourced basis so that corporates do not have to make major investments in technology, infrastructure and specialist personnel. Lasker estimates that about 70% of corporate users are connected via a service bureau instead of maintaining the SWIFT infrastructure in-house.
Van Weezendonk highlights another benefit: “With a service bureau, a corporate doesn’t have to reinvent the wheel - a service bureau will have the resources in terms of hands-on experience, expertise and certified technicians.” Such experience is crucial when onboarding banks and also when upgrades are made available for SWIFTNet.
Deutsche Bank’s Spearing believes that developing service bureaus will be an opening point for greater corporate adoption of SWIFT, mainly because this will be a cost-effective alternative for most corporates. “The first companies were major corporates that spend a lot of money on treasury technology, but the average corporate doesn’t. It costs a lot of money to operate an in-house platform, if you take into account hardware investment, software investment, personnel, etc.
“A service bureau already provides the whole package, as well as value-adds, and almost at a pay-as-you-go price. Plus, a service bureau will be able to get a corporate up and running much faster and more efficiently,” she adds.
Please click here to download the free buyer's guide to SWIFT service bureaus.
First published on www.gtnews.com
SWIFT offers a single, secure connection to multiple banks, but it is still only used by a minority of corporates. This article, part of the gtnews buyer's guide to SWIFT service bureaus, examines how SWIFT fits the needs of today's corporate treasury.
The financial crisis has ramped up pressure on corporate treasury to increase efficiency and straight-through processing (STP), as well as improve cash visibility, reporting and payment reconciliation. There is now a much greater focus on working capital and the cash conversion cycle. Treasury needs to centralise its operations by consolidating and rationalising connectivity to its banking partners in order to reduce inefficiencies, streamline processes and save money.
Counterparty risk has also gained an importance not seen before the crisis as some ‘too big to fail’ banks did actually fail and others were eaten up in the mêlée. After years of treasurers trying to reduce the number of banking partners and centralise treasury operations, having all the eggs in one basket no longer seems such a good idea, particularly if a company is locked into a bank’s proprietary electronic banking (ebanking) solution.
“Corporates want easy access to multiple banks,” says Elie Lasker, head of corporate market, SWIFT. “Plus, in order to mitigate counterparty risk, they need to have a flexible channel in case they need to quickly switch or add banks.”
By providing a single, standardised and secure channel, SWIFTNet can help corporates:
•Optimise cash and liquidity management.
•Reduce operational and counterparty risk.
•Improve security.
•Improve STP and systems integration.
•Reduce costs.
Marilyn Spearing, global head of trade finance and cash management corporates, Deutsche Bank, and chair of SWIFT’s Corporate Access Group, says: “The first thing is STP, the second is the ease of switching, and then the final thing is the anticipation of added-value services, so an enriched linkage over time.”
So if SWIFTNet holds the promise of making life a lot easier for corporate treasurers, why aren’t there more corporates signing up? To date, there are just over 600 corporates with direct access to SWIFT, out of a pool of possibly 20,000. Although this represents a steady increase from 108 in 2005, the tipping point for corporate adoption is far off.
Removing Barriers to Adoption
Historically, most corporates perceived SWIFT as an inter-bank club with select mega-corporates, such as Microsoft, General Electric (GE) and DuPont, invited to join the party. Most still see SWIFTNet as expensive to run, over-complicated, difficult to access and maintain, and needing specialised knowledge.
However, in recent years, SWIFT, banks, technology vendors and service bureaus have developed business propositions specifically aimed at corporates, which has changed the SWIFT corporate community’s demographics. It is no longer solely the domain of the largest multinational corporates, now that smaller corporates - i.e. with less than €1bn annual turnover - and even domestic players are looking to SWIFTNet connectivity for efficiency gains.
SWIFT
As part of the strategy to expand its user community, SWIFT has made a number of changes to make access easier for corporates. In June 2009, SWIFT widened the eligibility criteria so that any corporate will be eligible to join the Standardised Corporate Environment (SCORE), provided that it is recommended by an existing SCORE bank located in a Financial Action Task Force (FATF) member country (see Box 1). Before that corporates had to be listed on a regulated stock exchange, effectively barring entry to privately-owned multinationals such as Ikea and Cargill.
BOX 1: SWIFT Membership Schemes
A corporate can join one, several or all of these membership schemes.
Treasury Counterparty (launched in 1998)
The Treasury Counterparty (TRCO) model allows a corporate to exchange treasury deals confirmations (e.g. spots, forwards, currency options, money markets) with any financial institution on SWIFT (for example there is no need to register in a closed user group). This model can be used by both listed and non-listed companies. To register for this scheme, the corporate needs to be sponsored by eight financial institutions which are members of SWIFT. Note that the TRCO model does not cater for business needs other than treasury confirmations, for example sending payment instructions, receiving statements, buying and selling securities.
MA-CUG (2001)
The Member Administered Closed User Group (MA-CUG) is a bank-administered scheme where a corporate can communicate with its bank via SWIFT. In this scheme a company would contact each of its banks separately to establish a SWIFT relationship. In this scheme the company’s access to the SWIFT network iscontrolled by the bank. Each bank defines and operates its own service over SWIFT. Corporates may join multiple MA-CUGs.
SCORE (2007)
In a Standardised Corporate Environment (SCORE) scheme, a single relationship with SWIFT is established which provides the link to many banks - it is in effect a many-to-many closed user group (CUG) administered by SWIFT. Corporates and banks join one CUG. It is for the exchange of single transactions and/or batches (files) of transactions. This scheme supports financial messaging for payments and reporting between eligible corporates and their banks or other financial institutions. Any corporate can now join the network, provided it is recommended by a bank located in a Financial Action Task Force (FATF) member country.
BOX ENDS
Earlier in 2009, SWIFT released a shortened version of the SCORE agreement, which made the whole legal process of onboarding banks much simpler. John Ballantyne, UK sales manager at SMA Financial, a UK-based SWIFT service bureau, explains that one of the major issues for a corporate joining SWIFT is the legal documentation. “This is something that is a necessary evil but it’s nevertheless quite time-consuming and I would always flag it up as a key risk because it is quite an onerous process,” he says. In December 2009, SWIFT announced a revised version of the service level agreement template to improve the quality of cross-border payments services.
Importantly, SWIFT has taken steps to address the biggest barrier to corporate uptake - the cost. In September 2008, SWIFT launched Alliance Lite, touted as ‘SWIFT access on a USB stick’, which is a low-cost, plug-and-play solution (see Box 2). According to Lasker, 30% of corporates that joined last year chose to connect through Alliance Lite.
BOX 2: SWIFT on a USB Stick
Direct, low-cost access to SWIFTNet.
Alliance Lite is SWIFT’s internet-based connectivity product that provides direct, low-cost access to its network. Lite is a much less expensive way to connect in terms of its pricing model and the technology investment needed to connect.
SWIFT established a new pricing model for Lite in which everything is included: the software, bank identifier code (BIC), SWIFT membership, SWIFT user handbook, online training, PKI certificates, standard support, and built-in reference data. Customers can choose between two models: a flat fee or pay-as-you-go.
•A monthly flat fee standard pricing is €850 per month, or €10,200 per year, which includes up to 4,000 items sent or received per month. Above that, it is €1 per additional item sent or received.
•For pay-as-you-go customers, SWIFT charges a flat fee of €200 per month for the service and €1 for every item. Alliance Lite is accessible over the internet through a USB token, which is an identity token containing certificates issued by the SWIFT certification authority. The certificate supports basic public key infrastructure (PKI) principle scenarios.
BOX ENDS
And lastly, SWIFT is also looking at additional services such as:
•Exceptions and investigations.
•Trade finance.
•Secure e-mail.
•SWIFT Secure Signature Key (3SKey).
•Electronic bank account management (eBAM).
•Electronic invoicing (e-invoicing).
“Everybody is talking about electronic bank account management and e-invoicing - in other words really expanding what can be done through the same channel,” says Spearing.
Banks
Banks are beginning to take a different attitude towards SWIFT for corporates, particularly those involved with the Corporate Access Group, which Spearing chairs.
Speaking from a Deutsche Bank perspective, she says: “Historically, Deutsche Bank was agnostic on the channel - whether a corporate chose SWIFT or the bank’s proprietary channel was the corporate’s choice. But now we promote SWIFT access. If a corporate is changing its environment, whether the enterprise resource planning (ERP) system or treasury management system (TMS), etc, we think that it should join SWIFTNet because this is the way everything will move in the future.”
But won’t many banks hesitate before abandoning hugely expensive proprietary ebanking systems? “You can sense a concern - and some banks are questioning whether it is a good idea to endorse SWIFT, particularly some of the major players with large installations,” says Spearing. “But on the other hand, everyone is saying that we have to make it easier and do what we can do to communicate better.”
Franklin Van Weezendonk, senior vice president, Axletree Solutions, a US-based SWIFT service bureau, agrees that banks’ attitudes are changing. “Previously, a bank liked having its proprietary platform because it helps to create a sticky relationship. But now banks realise that SWIFT has a value for corporates and they can’t remain on the sidelines from a competitive standpoint, particularly the larger banks.”
Technology vendors
SWIFT has reached out to the vendor community, particularly ERP and TMS solution providers, to develop standards that will help to drive adoption and make it easier for corporates. These vendors are also finding benefits for themselves.
“TMS providers are actually supportive of systems limitations in their own right,” says SMA Financial’s Ballantyne. “Integrating an application with the SWIFT gateway, rather than five or six electronic banking platforms, actually reduces the complexity on the TMS side and within the corporate back office, and also reduces cost.”
SWIFT service bureaus
SWIFT service bureaus offer SWIFT connectivity on an outsourced basis so that corporates do not have to make major investments in technology, infrastructure and specialist personnel. Lasker estimates that about 70% of corporate users are connected via a service bureau instead of maintaining the SWIFT infrastructure in-house.
Van Weezendonk highlights another benefit: “With a service bureau, a corporate doesn’t have to reinvent the wheel - a service bureau will have the resources in terms of hands-on experience, expertise and certified technicians.” Such experience is crucial when onboarding banks and also when upgrades are made available for SWIFTNet.
Deutsche Bank’s Spearing believes that developing service bureaus will be an opening point for greater corporate adoption of SWIFT, mainly because this will be a cost-effective alternative for most corporates. “The first companies were major corporates that spend a lot of money on treasury technology, but the average corporate doesn’t. It costs a lot of money to operate an in-house platform, if you take into account hardware investment, software investment, personnel, etc.
“A service bureau already provides the whole package, as well as value-adds, and almost at a pay-as-you-go price. Plus, a service bureau will be able to get a corporate up and running much faster and more efficiently,” she adds.
Please click here to download the free buyer's guide to SWIFT service bureaus.
First published on www.gtnews.com
Friday, 21 May 2010
Mid-market CFOs Gain Importance in Boardroom but Face Tough Challenges
11 May 10
Chief financial officers (CFOs) of mid-sized businesses are more frequently being called into top-level discussions around demand and price pressures, business model changes, information strategy and resource allocation. Additionally, over 75% say they have an advisory or decision-making role on the entire company agenda, as opposed to having no role or being an informer, according to IBM's Global CFO Study.
Many mid-market CFOs are now seen as the 'right hand' of the chief executive officer (CEO). "The recession has sealed the fact that the finances are the crux of the organisation because there is no company or business if you can't get your finances right - so everyone is increasingly looking to the CFO," said Alison Curran, a business transformation consultant from IBM Global Business Services in an interview with gtnews.
Clive Lewis, head of small and medium-sized enterprise (SME) Issues at the Institute of Chartered Accountants in England and Wales (ICAEW), agreed: "The recession has brought finances right to the fore and it is now a much more integrated part of management, which makes more demands on CFOs. If you can't get the cashflow and profitability right, then you may not have a future as a company. More people are asking more questions then they ever did before and finance has got to respond in a meaningful, relevant and timely manner. At the beginning of the recession, the CFO probably got involved in cost reduction - the gut reaction to the downturn - and now it has moved on to cashflow management, re-financing where necessary, etc."
Despite the CFOs' elevated decision-making role, the vast majority of those surveyed pointed to a significant gap between the importance of key CFO agenda items and their effectiveness in execution. The largest gaps were found in driving integration of information (32%), talent development (28%), advising on corporate strategy (27%), and managing and mitigating company risk (24%).
"I think CFOs are feeling the strain," added Curran. "Talent is one of their key concerns: they need to make sure they have the right skills and people to help them support the business in making the right decisions."
Challenges
The top challenges facing midmarket CFOs are the pressure to reduce costs, the need for faster decision-making, and the demand for financial transparency.
Midmarket CFOs believe that external pressures (economic, industry, regulatory) will increase over the next three years, while 51% believe that they must make major changes to respond.
Other key findings of the survey were:
* Nearly 60% are not satisfied with their operational planning/forecasting analytical capability.
* Over 40% produce financial metrics manually.
* 50% lack a common planning platform; 36% lack a common reporting platform.
* 47% are poor to average at anticipating external forces.
Value Integrators
Detailed analysis from the study showed that one group of finance organisations, called 'value integrators', were found to consistently outperform their peers in key financial metrics by driving two main qualities across their organisation:
1. Finance efficiency - the degree of common process and data standards across the organisation.
2. Business insight - the maturity level of finance talent, technology and analytical capabilities dedicated to providing business optimisation, planning and strategic insights.
Curran said: "If you combine strong business insight with strong financial efficiency then you become what we have termed a 'value integrator'. It is not just about having the right tools in place, but also having the capabilities in a much wider sense, such as talent and skills, to interpret the data and improve your forecasting and planning capabilities, which in the current environment have become much more important. The ability to predict not just what may or may not happen, but to be able to react more quickly to what happens. The turbulent world has created an increased need for that."
First published on www.gtnews.com
Chief financial officers (CFOs) of mid-sized businesses are more frequently being called into top-level discussions around demand and price pressures, business model changes, information strategy and resource allocation. Additionally, over 75% say they have an advisory or decision-making role on the entire company agenda, as opposed to having no role or being an informer, according to IBM's Global CFO Study.
Many mid-market CFOs are now seen as the 'right hand' of the chief executive officer (CEO). "The recession has sealed the fact that the finances are the crux of the organisation because there is no company or business if you can't get your finances right - so everyone is increasingly looking to the CFO," said Alison Curran, a business transformation consultant from IBM Global Business Services in an interview with gtnews.
Clive Lewis, head of small and medium-sized enterprise (SME) Issues at the Institute of Chartered Accountants in England and Wales (ICAEW), agreed: "The recession has brought finances right to the fore and it is now a much more integrated part of management, which makes more demands on CFOs. If you can't get the cashflow and profitability right, then you may not have a future as a company. More people are asking more questions then they ever did before and finance has got to respond in a meaningful, relevant and timely manner. At the beginning of the recession, the CFO probably got involved in cost reduction - the gut reaction to the downturn - and now it has moved on to cashflow management, re-financing where necessary, etc."
Despite the CFOs' elevated decision-making role, the vast majority of those surveyed pointed to a significant gap between the importance of key CFO agenda items and their effectiveness in execution. The largest gaps were found in driving integration of information (32%), talent development (28%), advising on corporate strategy (27%), and managing and mitigating company risk (24%).
"I think CFOs are feeling the strain," added Curran. "Talent is one of their key concerns: they need to make sure they have the right skills and people to help them support the business in making the right decisions."
Challenges
The top challenges facing midmarket CFOs are the pressure to reduce costs, the need for faster decision-making, and the demand for financial transparency.
Midmarket CFOs believe that external pressures (economic, industry, regulatory) will increase over the next three years, while 51% believe that they must make major changes to respond.
Other key findings of the survey were:
* Nearly 60% are not satisfied with their operational planning/forecasting analytical capability.
* Over 40% produce financial metrics manually.
* 50% lack a common planning platform; 36% lack a common reporting platform.
* 47% are poor to average at anticipating external forces.
Value Integrators
Detailed analysis from the study showed that one group of finance organisations, called 'value integrators', were found to consistently outperform their peers in key financial metrics by driving two main qualities across their organisation:
1. Finance efficiency - the degree of common process and data standards across the organisation.
2. Business insight - the maturity level of finance talent, technology and analytical capabilities dedicated to providing business optimisation, planning and strategic insights.
Curran said: "If you combine strong business insight with strong financial efficiency then you become what we have termed a 'value integrator'. It is not just about having the right tools in place, but also having the capabilities in a much wider sense, such as talent and skills, to interpret the data and improve your forecasting and planning capabilities, which in the current environment have become much more important. The ability to predict not just what may or may not happen, but to be able to react more quickly to what happens. The turbulent world has created an increased need for that."
First published on www.gtnews.com
Credit Remains Top-of-mind for Treasurers
27 Apr 2010
On the eve of the Association of Corporate Treasurers annual conference, the Financial Services Club hosted a panel discussion in London to discuss what corporate treasurers are worried about. One issue came out on top: credit.
Tight credit remains the dominant issue for most corporate treasurers, according to a Financial Services Club panel discussion focusing on ‘What do Bank’s Corporate Customers Think?’.
Held last week, on the eve of the Association of Corporate Treasurers (ACT) annual conference, the panel - consisting of two ex-treasurers and one global transaction banking executive - also identified regulations, risk and the need to cut costs as key concerns for treasurers. The two-day ACT conference starts today in Manchester.
When asked if the banks are still refusing to lend, one ex-treasurer explained that a FTSE 100 corporate in good health doesn’t have a problem accessing credit and now the price of credit is starting to come down; even a FTSE 100 company in bad condition will get help from its banks to guarantee its survival. However, smaller corporates are not getting access to credit.
The bank executive said that his bank had always maintained a cautious outlook that allowed it to continue to lend throughout the crisis - although he admitted that the bank’s risk appetite was more constrained in the current conditions. “There has been a move away from easy money. But just as the growth out of recession is slow paced, so is the loosening of credit,” he said.
The other ex-treasurer added that the treasurer’s focus is now on optimising internal sources of liquidity. “What many cash-rich companies are realising is that the traditional way of managing working capital by squeezing suppliers doesn’t work,” she said. “They are now looking at the end-to-end supply chain cost and exploring ways of using cash on a dynamic basis, for example offering suppliers early payment for discount. This creates a risk-free enhanced return and ultimately a win-win for all.”
“The trend is also towards establishing relationships with strong banking partners,” she added. “But it is hard for banks to commit to all emerging markets, which makes it difficult for a global corporate to have just one bank. Therefore, corporates still maintain a multi-banking environment.”
When asked what banks should focus on other than service, there was much agreement across the panel:
* Straight-talking - honesty/openness from banking partners as to whether they can deliver what a corporate needs.
* Sorting out the mess in their legacy systems, so that banks can react quicker to corporate needs.
* Breaking down organisational silos in banks, so that corporates don’t have to deal with multiple business units separately.
* Harmonise technology, so that corporates can connect to many banks in an agnostic way.
The banking representative put forward the final point on IT harmonisation, saying that the industry had to work toward this goal. “It is patchy across the industry but it has to go in that direction - whether a bank is pulled kicking and screaming or whether it is leading the pack, everyone will have to do it,” he said.
First published on www.gtnews.com
On the eve of the Association of Corporate Treasurers annual conference, the Financial Services Club hosted a panel discussion in London to discuss what corporate treasurers are worried about. One issue came out on top: credit.
Tight credit remains the dominant issue for most corporate treasurers, according to a Financial Services Club panel discussion focusing on ‘What do Bank’s Corporate Customers Think?’.
Held last week, on the eve of the Association of Corporate Treasurers (ACT) annual conference, the panel - consisting of two ex-treasurers and one global transaction banking executive - also identified regulations, risk and the need to cut costs as key concerns for treasurers. The two-day ACT conference starts today in Manchester.
When asked if the banks are still refusing to lend, one ex-treasurer explained that a FTSE 100 corporate in good health doesn’t have a problem accessing credit and now the price of credit is starting to come down; even a FTSE 100 company in bad condition will get help from its banks to guarantee its survival. However, smaller corporates are not getting access to credit.
The bank executive said that his bank had always maintained a cautious outlook that allowed it to continue to lend throughout the crisis - although he admitted that the bank’s risk appetite was more constrained in the current conditions. “There has been a move away from easy money. But just as the growth out of recession is slow paced, so is the loosening of credit,” he said.
The other ex-treasurer added that the treasurer’s focus is now on optimising internal sources of liquidity. “What many cash-rich companies are realising is that the traditional way of managing working capital by squeezing suppliers doesn’t work,” she said. “They are now looking at the end-to-end supply chain cost and exploring ways of using cash on a dynamic basis, for example offering suppliers early payment for discount. This creates a risk-free enhanced return and ultimately a win-win for all.”
“The trend is also towards establishing relationships with strong banking partners,” she added. “But it is hard for banks to commit to all emerging markets, which makes it difficult for a global corporate to have just one bank. Therefore, corporates still maintain a multi-banking environment.”
When asked what banks should focus on other than service, there was much agreement across the panel:
* Straight-talking - honesty/openness from banking partners as to whether they can deliver what a corporate needs.
* Sorting out the mess in their legacy systems, so that banks can react quicker to corporate needs.
* Breaking down organisational silos in banks, so that corporates don’t have to deal with multiple business units separately.
* Harmonise technology, so that corporates can connect to many banks in an agnostic way.
The banking representative put forward the final point on IT harmonisation, saying that the industry had to work toward this goal. “It is patchy across the industry but it has to go in that direction - whether a bank is pulled kicking and screaming or whether it is leading the pack, everyone will have to do it,” he said.
First published on www.gtnews.com
SWIFT Connectivity: A Villeroy & Boch Case Study
27 Apr 2010
In September 2007, Villeroy & Boch, a leading European lifestyle brand, outsourced parts of its bank connectivity and payments messaging to Broadridge's SWIFT service bureau. In this Q&A, Dr Markus Warncke, treasurer at Villeroy & Boch, explains the reasons behind this move and how it has benefited the company.
Q (gtnews): What made you decide to switch over to SWIFT connectivity?
A (Dr Markus Warncke, treasurer, Villeroy & Boch): We use SWIFT for bank and dealer confirmations for all types of financial transactions, for example foreign exchange (FX) hedges, short-term borrowing or deposits, etc, and also for all types of payment transactions.
Previously, we used fax or email for treasury confirmations, which then had to be manually matched in our back office. In moving to SWIFT connectivity, we now have an automatic tool connected with SWIFT to match all the parameters of a treasury deal. As a result, we have reliable confirmation matching in a short time span. No matter whether it was executed via a web-based platform or by phone, both our counterparty and us know that the deal has been done and both sides have the same information recorded in their books.
We used to use our banks’ electronic banking platforms for transaction authorisations and also file transfer. Similar to most corporates, we have a number of different banks that we deal with, which translated into a multitude of applications. With the conversion to SWIFT, we now have just one IT platform, which means we only pay for maintenance cost on one platform. In addition, SWIFT delivers the highest security level available. Those are the main reasons we changed connectivity.
Q (gtnews): Were there specific market drivers?
A (Warncke): We began the project in 2007 when I took over the treasury. My previous employer transacted via SWIFT and I brought that experience to my new role. I decided that it was strategically important to move from multiple electronic banking platforms to a more homogenous standardised system.
The drivers are not so much from outside the company but more internal - different electronic banking platforms means more maintenance, which is costly, and greater complexity also means higher risk because there are different parallel processes. With one system, you can harmonise the processes and reduce risk.
Q (gtnews): Why did you outsource the connectivity to Broadridge’s service bureau?
A (Warncke): The IT department made that decision. In the end, it was a cost issue because it is not just the investment in hardware but also staff training in terms of SWIFT-specific expertise. They decided it would be more cost effective to outsource the connectivity to a service provider, following the example of most corporates and a number of banks.
Q (gtnews): What size is your IT department?
A (Warncke): It’s quite big - 90 people. The IT department looks after the enterprise resource planning (ERP) system, and customises and maintains the worldwide IT systems out of Germany. It could have been possible to do it ourselves, but the resource and cost issues led us to outsource.
Q (gtnews): What are the advantages to connecting via Standardised Corporate Environment (SCORE) over a Member Administered Closed User Group (MA-CUG) or Alliance Lite, for example?
A (Warncke): At first, the company was only a treasury counterparty (TRCO) member, with one contractual connectivity channel. When we decided to switch connectivity channels, there was the opportunity to use either a MA-CUG with each bank or SCORE, which became available at the beginning of 2007 and allows connectivity to many banks. SWIFT only recently opened a channel for corporates without a bank’s partnership or mentoring, which is the MA-CUG model.
We qualified for SCORE under the rules set out by SWIFT: a company has to be public listed, with a certain turnover, and must operate in a certain number of countries, etc. Also, from our point of view, it was bit of an image thing to be a SCORE partner, rather than part of a MA-CUG. But the main benefit was one standardised contract for all banks, which is what we wanted.
In reality, the standard contract was not that standard after all but different for each bank. There are a lot of standardised parts but there are differences, so we had to read every contract and discuss every change. But basically it was more standard than a MA-CUG contract.
Alliance Lite was not available in 2007 when we made the decision, but I'm not sure that it would suit us anyway since it targets mostly smaller financial institutions and corporates, whereas we have a high volume of payment transactions.
Q (gtnews): What benefits have you gained from implementing SWIFT connectivity?
A (Warncke): The benefits are higher security, reduction in IT complexity and higher visibility of incoming and outgoing funds, because alongside the SWIFT project we centralised payment transactions within treasury. Before 2007, many subsidiaries made their own payments; now, they have to transact through central treasury. In addition, it also improves compliance because we know where the funds are going and we are better able to monitor our cash flow. If it is done locally, it’s a step removed and central treasury does not have a direct grip on the cash flow.
We also streamlined our internal processes and through that discovered that some suppliers have different payment terms with companies within the group. Therefore treasury, together with group purchasing, began a project to harmonise payment terms in our favour. Although this development cannot be directly attributed to SWIFT connectivity, the SWIFT project was an enabler in looking at other processes.
Q (gtnews): How long did it take to go live?
A (Warncke): We adopted a two-stage approach: first to become a TRCO and then a SCORE member. Setting up the TRCO channel and connectivity took about four months. Connecting via SCORE, which included doing the contractual homework, setting up the systems and testing, took about six months. And we did it with our own IT and treasury resources with Broadridge’s help.
Q (gtnews): Were there specific hurdles that had to be overcome?
A (Warncke): Yes, the contractual agreements were a hurdle. Even though there is a standard SCORE contract that has to be initiated with each bank, there are also differences. Each one has to be reviewed and agreed. Additionally, in 2008 when we started the payment transfer, we felt that the banks were also learning how to connect corporates via SWIFT. It wasn’t just a plug and play exercise for the banks - I felt that they didn’t have much experience. So it was a learning process on both sides.
Q (gtnews): How many banks do you deal with? Did you try to consolidate the number of banks during the project?
A (Warncke): Yes, bank consolidation was part of the project. Within Europe we have two banks for outgoing payments, e.g. bulk payments, the supply payments, human resources (HR) payments, etc. However, as a treasury counterparty, we transact with as many as 15-20 banks.
With all of them, we exchange not only deal confirmations but also payments. This is done via FIN message MT 101. But for bulk payments, we use a FileAct payment message with just two banks within Europe, so there was a reduction in the number of bank accounts and banks.
Q (gtnews): What is the impact of the single euro payments area (SEPA)/Payment Services Directive (PSD) on your business? Does SWIFT connectivity help or hinder this?
A (Warncke): I think that SWIFT connectivity is a benefit because we had already centralised the transaction channel. In addition, because we did it - SWIFT and SEPA - together, that made it easier.
Overall, the harmonisation of the European payments landscape due to SEPA and the PSD is a huge benefit. Before there were certain countries that had lower bank transaction fees, such as Belgium, Luxembourg, the Netherlands and Germany, while other countries, such as Italy and Spain, had very high transaction fees. For example, it cost €0.02 for a payment transaction in Germany, while in Italy the cost was up to €2 - 100 times more. So we have moved our payment transaction operations to Germany/Benelux area. This creates a significant savings every year - plus every bank account and cash concentration system that we close down is also a saving. Fundamentally, we could do this more easily because our IT system is standardised.
Q (gtnews): Do you have any future plans?
A (Warncke): Yes, we have future plans for cash management. At the beginning of next year, we will switch to cheaper direct debits - SEPA Direct Debits (SDDs). We have already started the project because there is some homework to do in terms of new mandates, etc.
Another SWIFT-specific implementation concerns letters of credit (LCs), which we use with an export customer where we don’t establish a customer credit limit. The LC is drafted by a foreign bank and usually goes via a domestic bank that gets the information via SWIFT - but then they print it off and send it to us by mail. This is a break in the connectivity and straight-through processing (STP). So we have started a project with two banks here in Germany so that when they get information from a foreign bank, they can route it directly to us.
First published on www.gtnews.com
In September 2007, Villeroy & Boch, a leading European lifestyle brand, outsourced parts of its bank connectivity and payments messaging to Broadridge's SWIFT service bureau. In this Q&A, Dr Markus Warncke, treasurer at Villeroy & Boch, explains the reasons behind this move and how it has benefited the company.
Q (gtnews): What made you decide to switch over to SWIFT connectivity?
A (Dr Markus Warncke, treasurer, Villeroy & Boch): We use SWIFT for bank and dealer confirmations for all types of financial transactions, for example foreign exchange (FX) hedges, short-term borrowing or deposits, etc, and also for all types of payment transactions.
Previously, we used fax or email for treasury confirmations, which then had to be manually matched in our back office. In moving to SWIFT connectivity, we now have an automatic tool connected with SWIFT to match all the parameters of a treasury deal. As a result, we have reliable confirmation matching in a short time span. No matter whether it was executed via a web-based platform or by phone, both our counterparty and us know that the deal has been done and both sides have the same information recorded in their books.
We used to use our banks’ electronic banking platforms for transaction authorisations and also file transfer. Similar to most corporates, we have a number of different banks that we deal with, which translated into a multitude of applications. With the conversion to SWIFT, we now have just one IT platform, which means we only pay for maintenance cost on one platform. In addition, SWIFT delivers the highest security level available. Those are the main reasons we changed connectivity.
Q (gtnews): Were there specific market drivers?
A (Warncke): We began the project in 2007 when I took over the treasury. My previous employer transacted via SWIFT and I brought that experience to my new role. I decided that it was strategically important to move from multiple electronic banking platforms to a more homogenous standardised system.
The drivers are not so much from outside the company but more internal - different electronic banking platforms means more maintenance, which is costly, and greater complexity also means higher risk because there are different parallel processes. With one system, you can harmonise the processes and reduce risk.
Q (gtnews): Why did you outsource the connectivity to Broadridge’s service bureau?
A (Warncke): The IT department made that decision. In the end, it was a cost issue because it is not just the investment in hardware but also staff training in terms of SWIFT-specific expertise. They decided it would be more cost effective to outsource the connectivity to a service provider, following the example of most corporates and a number of banks.
Q (gtnews): What size is your IT department?
A (Warncke): It’s quite big - 90 people. The IT department looks after the enterprise resource planning (ERP) system, and customises and maintains the worldwide IT systems out of Germany. It could have been possible to do it ourselves, but the resource and cost issues led us to outsource.
Q (gtnews): What are the advantages to connecting via Standardised Corporate Environment (SCORE) over a Member Administered Closed User Group (MA-CUG) or Alliance Lite, for example?
A (Warncke): At first, the company was only a treasury counterparty (TRCO) member, with one contractual connectivity channel. When we decided to switch connectivity channels, there was the opportunity to use either a MA-CUG with each bank or SCORE, which became available at the beginning of 2007 and allows connectivity to many banks. SWIFT only recently opened a channel for corporates without a bank’s partnership or mentoring, which is the MA-CUG model.
We qualified for SCORE under the rules set out by SWIFT: a company has to be public listed, with a certain turnover, and must operate in a certain number of countries, etc. Also, from our point of view, it was bit of an image thing to be a SCORE partner, rather than part of a MA-CUG. But the main benefit was one standardised contract for all banks, which is what we wanted.
In reality, the standard contract was not that standard after all but different for each bank. There are a lot of standardised parts but there are differences, so we had to read every contract and discuss every change. But basically it was more standard than a MA-CUG contract.
Alliance Lite was not available in 2007 when we made the decision, but I'm not sure that it would suit us anyway since it targets mostly smaller financial institutions and corporates, whereas we have a high volume of payment transactions.
Q (gtnews): What benefits have you gained from implementing SWIFT connectivity?
A (Warncke): The benefits are higher security, reduction in IT complexity and higher visibility of incoming and outgoing funds, because alongside the SWIFT project we centralised payment transactions within treasury. Before 2007, many subsidiaries made their own payments; now, they have to transact through central treasury. In addition, it also improves compliance because we know where the funds are going and we are better able to monitor our cash flow. If it is done locally, it’s a step removed and central treasury does not have a direct grip on the cash flow.
We also streamlined our internal processes and through that discovered that some suppliers have different payment terms with companies within the group. Therefore treasury, together with group purchasing, began a project to harmonise payment terms in our favour. Although this development cannot be directly attributed to SWIFT connectivity, the SWIFT project was an enabler in looking at other processes.
Q (gtnews): How long did it take to go live?
A (Warncke): We adopted a two-stage approach: first to become a TRCO and then a SCORE member. Setting up the TRCO channel and connectivity took about four months. Connecting via SCORE, which included doing the contractual homework, setting up the systems and testing, took about six months. And we did it with our own IT and treasury resources with Broadridge’s help.
Q (gtnews): Were there specific hurdles that had to be overcome?
A (Warncke): Yes, the contractual agreements were a hurdle. Even though there is a standard SCORE contract that has to be initiated with each bank, there are also differences. Each one has to be reviewed and agreed. Additionally, in 2008 when we started the payment transfer, we felt that the banks were also learning how to connect corporates via SWIFT. It wasn’t just a plug and play exercise for the banks - I felt that they didn’t have much experience. So it was a learning process on both sides.
Q (gtnews): How many banks do you deal with? Did you try to consolidate the number of banks during the project?
A (Warncke): Yes, bank consolidation was part of the project. Within Europe we have two banks for outgoing payments, e.g. bulk payments, the supply payments, human resources (HR) payments, etc. However, as a treasury counterparty, we transact with as many as 15-20 banks.
With all of them, we exchange not only deal confirmations but also payments. This is done via FIN message MT 101. But for bulk payments, we use a FileAct payment message with just two banks within Europe, so there was a reduction in the number of bank accounts and banks.
Q (gtnews): What is the impact of the single euro payments area (SEPA)/Payment Services Directive (PSD) on your business? Does SWIFT connectivity help or hinder this?
A (Warncke): I think that SWIFT connectivity is a benefit because we had already centralised the transaction channel. In addition, because we did it - SWIFT and SEPA - together, that made it easier.
Overall, the harmonisation of the European payments landscape due to SEPA and the PSD is a huge benefit. Before there were certain countries that had lower bank transaction fees, such as Belgium, Luxembourg, the Netherlands and Germany, while other countries, such as Italy and Spain, had very high transaction fees. For example, it cost €0.02 for a payment transaction in Germany, while in Italy the cost was up to €2 - 100 times more. So we have moved our payment transaction operations to Germany/Benelux area. This creates a significant savings every year - plus every bank account and cash concentration system that we close down is also a saving. Fundamentally, we could do this more easily because our IT system is standardised.
Q (gtnews): Do you have any future plans?
A (Warncke): Yes, we have future plans for cash management. At the beginning of next year, we will switch to cheaper direct debits - SEPA Direct Debits (SDDs). We have already started the project because there is some homework to do in terms of new mandates, etc.
Another SWIFT-specific implementation concerns letters of credit (LCs), which we use with an export customer where we don’t establish a customer credit limit. The LC is drafted by a foreign bank and usually goes via a domestic bank that gets the information via SWIFT - but then they print it off and send it to us by mail. This is a break in the connectivity and straight-through processing (STP). So we have started a project with two banks here in Germany so that when they get information from a foreign bank, they can route it directly to us.
First published on www.gtnews.com
90% of UK Banks Believe Incoming Regulation Will Hamper Growth
30 Mar 10
Nine out of 10 UK banks polled believe that incoming regulation is likely to limit business expansion over the coming 12 months, while all banking respondents said that they anticipate spending more on regulatory compliance over the next year relative to the past one, according to the latest CBI/PwC Financial Services Survey.
Across the UK financial service sector, a record high percentage (74%) of the 80 companies polled say they are concerned about the impact of statutory legislation and regulation on their ability to expand in the next 12 months. In addition, the proportion of firms fearing the UK is losing its competitiveness as a financial centre rose again to 85% (from 79% in December).
Despite these fears, and the fact that lending to industrial and commercial companies continued to fall (-9%), confidence has risen, with slightly fewer firms (55%) think the likelihood of further deterioration in financial markets is low compared with December (58%). Also, the highest balance of firms since March 1999 (+34%) expects profitability to increase in the next three months.
Ian McCafferty, CBI chief economic adviser, said: "Financial firms are more optimistic in terms of business performance for the fourth consecutive survey. They have seen an improvement in profitability and there are expectations of further growth. This survey sees the highest number of firms expecting profitability to increase since March 1999 - these are signs of a bounce back.
"Financial services companies hope lending will grow across their customer base over the coming quarter, lifting business volumes and helping profitability. Fears that regulation will hamper growth prospects in the year ahead have reached a record high, however, with companies expecting to have to ratchet up spending on compliance sharply," he said.
Looking specifically at the UK banking industry, Andrew Gray, UK banking advisory leader, PricewaterhouseCoopers (PwC), added: "Banks' confidence is continuing to rise amid predictions that business volumes will show the sharpest increase for three years. Commercial business has been weak during the quarter, but for the first time in two years activity is now expected to pick up and demand from financial and overseas customers is also predicted to be an area of growth. However, retail activity remains an area of concern as growth predictions remain hesitant. Staffing levels are also expected to continue to be an area of constraint, with further reductions predicted for the coming quarter."
Overall, activity in the sector was broadly stable over the past three months, somewhat better than expected, and firms hope to see much better growth in the next three months. The profitability of financial services businesses improved for the third quarter running, and is expected to increase further in the coming three months.
Asked how their business volumes fared in the three months to March, 43% said that volumes rose and 42% said they fell. The resulting balance of +1% is better than the expected -13%. In the next three months, a balance of 48% of firms expects a rise in business volumes, which is the most positive expectation since March 2006 (+58%).
Other key findings of the survey:
* Against expectations, the value of fee, commission and premium income rose (a balance of +14% versus an expectation of -20%). The value of net interest, investment and trading income also rose (+7 is the highest balance since June 2007). In the coming quarter, firms also expect both these types of income will grow.
* Total operating costs (excluding costs of funds) fell, but at the slowest pace since September 2008. Average operating costs per transaction also fell (-28%), and in the coming three months these are expected to come down at a similar rate (-24%).
* Spreads narrowed slightly, with a balance of -11% the most negative figure since December 2007 (-15%). This followed the sharpest widening of spreads in the previous quarter since June 2008, however.
* The trend in cost reduction, combined with increases in fee income and the previous widening of spreads contributed to the third successive quarterly rise in profitability.
* Firms' investment plans for information technology over the coming year are positive again (a balance of +25%), while those planning to spend more on marketing in the next 12 months has risen to a balance +47, which is the highest for 10 years.
* The level of demand is thought to be less of a factor likely to limit expansion in the coming 12 months than it has been since September 2008. The ability to raise funds is also less of an issue for firms, back in line with the survey average.
First published on www.gtnews.com
Nine out of 10 UK banks polled believe that incoming regulation is likely to limit business expansion over the coming 12 months, while all banking respondents said that they anticipate spending more on regulatory compliance over the next year relative to the past one, according to the latest CBI/PwC Financial Services Survey.
Across the UK financial service sector, a record high percentage (74%) of the 80 companies polled say they are concerned about the impact of statutory legislation and regulation on their ability to expand in the next 12 months. In addition, the proportion of firms fearing the UK is losing its competitiveness as a financial centre rose again to 85% (from 79% in December).
Despite these fears, and the fact that lending to industrial and commercial companies continued to fall (-9%), confidence has risen, with slightly fewer firms (55%) think the likelihood of further deterioration in financial markets is low compared with December (58%). Also, the highest balance of firms since March 1999 (+34%) expects profitability to increase in the next three months.
Ian McCafferty, CBI chief economic adviser, said: "Financial firms are more optimistic in terms of business performance for the fourth consecutive survey. They have seen an improvement in profitability and there are expectations of further growth. This survey sees the highest number of firms expecting profitability to increase since March 1999 - these are signs of a bounce back.
"Financial services companies hope lending will grow across their customer base over the coming quarter, lifting business volumes and helping profitability. Fears that regulation will hamper growth prospects in the year ahead have reached a record high, however, with companies expecting to have to ratchet up spending on compliance sharply," he said.
Looking specifically at the UK banking industry, Andrew Gray, UK banking advisory leader, PricewaterhouseCoopers (PwC), added: "Banks' confidence is continuing to rise amid predictions that business volumes will show the sharpest increase for three years. Commercial business has been weak during the quarter, but for the first time in two years activity is now expected to pick up and demand from financial and overseas customers is also predicted to be an area of growth. However, retail activity remains an area of concern as growth predictions remain hesitant. Staffing levels are also expected to continue to be an area of constraint, with further reductions predicted for the coming quarter."
Overall, activity in the sector was broadly stable over the past three months, somewhat better than expected, and firms hope to see much better growth in the next three months. The profitability of financial services businesses improved for the third quarter running, and is expected to increase further in the coming three months.
Asked how their business volumes fared in the three months to March, 43% said that volumes rose and 42% said they fell. The resulting balance of +1% is better than the expected -13%. In the next three months, a balance of 48% of firms expects a rise in business volumes, which is the most positive expectation since March 2006 (+58%).
Other key findings of the survey:
* Against expectations, the value of fee, commission and premium income rose (a balance of +14% versus an expectation of -20%). The value of net interest, investment and trading income also rose (+7 is the highest balance since June 2007). In the coming quarter, firms also expect both these types of income will grow.
* Total operating costs (excluding costs of funds) fell, but at the slowest pace since September 2008. Average operating costs per transaction also fell (-28%), and in the coming three months these are expected to come down at a similar rate (-24%).
* Spreads narrowed slightly, with a balance of -11% the most negative figure since December 2007 (-15%). This followed the sharpest widening of spreads in the previous quarter since June 2008, however.
* The trend in cost reduction, combined with increases in fee income and the previous widening of spreads contributed to the third successive quarterly rise in profitability.
* Firms' investment plans for information technology over the coming year are positive again (a balance of +25%), while those planning to spend more on marketing in the next 12 months has risen to a balance +47, which is the highest for 10 years.
* The level of demand is thought to be less of a factor likely to limit expansion in the coming 12 months than it has been since September 2008. The ability to raise funds is also less of an issue for firms, back in line with the survey average.
First published on www.gtnews.com
Survey Finds 45% of Respondents Unconvinced of European Payments Harmonisation
23 Mar 10
Almost half (45%) of respondents to Travelex's Payments Survey do not believe that harmonisation of European payments is a reality, despite the Payment Services Directive coming into law in November 2009 and the launch of the single euro payments area (SEPA) Direct Debit scheme at the same time. According to the survey, which polled 226 decision makers in banking finance, three in 10 believe that harmonisation is a reality, while 26% are not sure whether it is or not.
"I think it is quite amazing that 30% actually think [harmonisation] is a reality," said David Sear, divisional managing director for Travelex Global Business Payments, in an interview with gtnews. "It proves to me that they haven't recently made a payment. The simple fact is payment services haven't really moved on. Although there has been some progress made in the basic services under SEPA, there isn't a great deal of consumer awareness and, to be honest, I am not sure that there is consumer or business relevance being attached to it."
The survey found the respondents were divided on whether the PSD creates greater value for businesses. Of those who expressed an opinion, 51% agreed this was the case, while 49% disagreed.
When asked to what extent they felt the PSD would facilitate the growth of payment institutions in Europe, 49% of respondents said they felt it was at least likely to facilitate growth, compared to 35% who said it was unlikely to. Almost one in five (17%) stated they were unsure.
The survey also found:
* Just over a quarter of respondents (26%) expected PayPal to continue to have a major influence in more than five years time. Seven percent felt that it would only have a majority share for the next year, perhaps suggesting that they think PayPal is not a popular payment method, or that there are other payment services on the horizon that could soon take a market share from PayPal.
* Two-thirds of financial decision makers felt that it was unlikely that mobile payments will become the main form of payment and card payments obsolete.
* Around three-quarters of respondents (74%) thought it was unlikely that payment technology would be an investment priority for their company in 2010.
"Despite many banks saying they are returning to core banking, it is surprising that such a high percentage of respondents are not investing in payment technology," said Sear. "With the PSD comes a regulatory environment which encourages new entrants and yet banks are not willing or able to invest. There are technology companies and payment institutions that are innovating in this space, and there is a gap created by the larger banks' inability to invest in this kind of technology and capability."
First published on www.gtnews.com
Almost half (45%) of respondents to Travelex's Payments Survey do not believe that harmonisation of European payments is a reality, despite the Payment Services Directive coming into law in November 2009 and the launch of the single euro payments area (SEPA) Direct Debit scheme at the same time. According to the survey, which polled 226 decision makers in banking finance, three in 10 believe that harmonisation is a reality, while 26% are not sure whether it is or not.
"I think it is quite amazing that 30% actually think [harmonisation] is a reality," said David Sear, divisional managing director for Travelex Global Business Payments, in an interview with gtnews. "It proves to me that they haven't recently made a payment. The simple fact is payment services haven't really moved on. Although there has been some progress made in the basic services under SEPA, there isn't a great deal of consumer awareness and, to be honest, I am not sure that there is consumer or business relevance being attached to it."
The survey found the respondents were divided on whether the PSD creates greater value for businesses. Of those who expressed an opinion, 51% agreed this was the case, while 49% disagreed.
When asked to what extent they felt the PSD would facilitate the growth of payment institutions in Europe, 49% of respondents said they felt it was at least likely to facilitate growth, compared to 35% who said it was unlikely to. Almost one in five (17%) stated they were unsure.
The survey also found:
* Just over a quarter of respondents (26%) expected PayPal to continue to have a major influence in more than five years time. Seven percent felt that it would only have a majority share for the next year, perhaps suggesting that they think PayPal is not a popular payment method, or that there are other payment services on the horizon that could soon take a market share from PayPal.
* Two-thirds of financial decision makers felt that it was unlikely that mobile payments will become the main form of payment and card payments obsolete.
* Around three-quarters of respondents (74%) thought it was unlikely that payment technology would be an investment priority for their company in 2010.
"Despite many banks saying they are returning to core banking, it is surprising that such a high percentage of respondents are not investing in payment technology," said Sear. "With the PSD comes a regulatory environment which encourages new entrants and yet banks are not willing or able to invest. There are technology companies and payment institutions that are innovating in this space, and there is a gap created by the larger banks' inability to invest in this kind of technology and capability."
First published on www.gtnews.com
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