With mounting pressure to improve efficiency and visibility by streamlining the end-to-end flow of information, treasurers are increasingly looking for ways to conduct business electronically. In this Business Briefing we look at how corporate connectivity is being standardised through developments in SWIFT and the adoption of ISO 20022. We also examine how growing confidence in the use of technology has led to increased demand for interactive electronic banking platforms.

Overview

Corporate treasurers have long sought more effective ways to conduct business electronically with their banking partners. In the case of larger, more complex organisations, the array of ERP systems, combined with the business requirement to utilise services from several banking partners, has accentuated the need for streamlining the end-to-end information flow to ensure adequate visibility and control. This has in turn driven focus on straight through processing (STP) and standardisation as the means towards that end.

These standardisation efforts can be categorised in two distinct areas, as outlined below:

Standardisation of connectivity infrastructure

The use of SWIFT by corporates as a means to enable connectivity to multiple banks has seen steady growth in recent years. Rather than requiring an individual connection to each bank, which in practical terms usually means two connections to each bank (one for regular use and one for contingency purposes), SWIFT offers a single connection to multiple SWIFT member banks. This connection is more reliable and secure than the internet as it is a members-only, closed network and therefore less prone to security breaches.

As SWIFT has evolved from a bank-to-bank platform to a corporate-to-bank platform, initially through Member Administered-Closed User Groups (MA-CUGs) and then through the Standardised Corporate Environment (SCORE), its processes, protocols and requirements have been streamlined. In addition, SCORE membership will now be available to a wider population of corporates with new membership criteria meaning that any corporate with the recommendation of a bank active in the SWIFT for Corporates environment may now join.

Even with all this work, the integration process still has a degree of complexity which has given rise to the increasing usage of service bureaus. By using service bureaus, corporates can access SWIFT and avoid the capital investment and technological expertise required for setting up the infrastructure and its ongoing maintenance. The service bureau sector has also matured, and the landscape is now dominated by larger companies that are global in scope.

The role of banks

Banks have also played an important part in enabling this move towards SWIFT. They have taken the prevailing bank-to-bank model and adapted it to suit the needs of corporate customers. Manish Jain, Global Head, Electronic Channels, Global Transaction Services explains, “At Citi we have taken it to the next level by providing a complete infrastructure to support the corporates through offerings such as the Citi SWIFT Xchange.

Through a single Bank Identifier Code (BIC) model corporates are able to transact with any of Citi’s branches worldwide via a local BIC. Citi leverages its global network infrastructure to automatically route to the correct destination within its own branches. This provides true STP and significant reduction in SWIFT messaging costs as all the SWIFT messages from the corporate to Citi are local and not international.”

Standardisation of instruction formats

In the absence of truly interoperable industry standards, banks and corporates created the standardised XML format — ISO 20022. However, the adoption of this standard has not yet gained the desired momentum, despite the obvious benefits, which include:

• Provision of a consistent model which reduces the complexity and number of system interfaces.

• Increased ease of automation of business processes.

• Standardisation of all areas of financial activity within the business.

• Facilitation of a homogenous set of security standards.

• Promotion of more efficient and effective cash management with real-time data availability.

These benefits all lead to opportunities to improve the working capital cycle, enable economies of scale, open up a wider choice of service providers and reduce the need for manual intervention in financial processing activities.

For some corporates, the treasury optimisation process has evolved beyond the initial STP objectives. To a large extent, there has been an automation of the data-gathering process. This has resulted in a reduction in the need for human intervention and therefore the management role tends to be exception-based.

The most pressing challenge facing treasurers in this area is achieving straight through reconciliation. Some of the necessary information required to achieve straight through reconciliation is readily available. However, much valuable information is often lost during complex transaction flows in the processing cycle within the corporate, bank and market infrastructures, such as clearing houses.

The result is that, while companies might have the necessary data on the initiated instructions, they are often missing key information on the statements to reconcile them properly. Consequently, effective or straightforward reconciliation is impossible because crucial information has been lost or is in the incorrect format.

The use of ISO 20022 as a standard for payments initiation has many obvious benefits for corporates, some of which are mentioned above. However, the advantages it also provides for reconciliation may not be so immediately apparent. ISO 20022, with its built-in structure and interoperability, has the potential to help ease some day-to-day reconciliation issues with the capture of critical data, such as the end-to-end ID. The end-to-end ID is a payment reference generated by the originator. It is carried through the end-to-end payment chain and reported to the creditor. It may be used by a beneficiary as a basis to investigate the payment transaction.

The move to ISO XML may not be that simple for a large number of corporates, however. “It is here that Citi is working on ways of helping corporates address this need by innovative solutions that utilise a variety of information received from corporates with their payments instructions and intelligently reconnecting with the accounting transactions generated as a result of execution,” explains Jain.

Online banking expands

Traditionally, online banking has been used by treasurers simply as a tool for transaction initiation. Electronic banking systems have had limited flexibility built into them, allowing users only basic preferences such as use of local language and payment templates. In the imminent future, online banking is set to undergo radical change with a much greater degree of personalisation and customisation.

Instead of simply changing one or two elements of an online banking platform, it will be possible to rearrange the nature of the platform and simplify the workflow of applications associated with it to meet specific clients’ needs. More importantly, there has been a shift in opinion towards online banking offerings.

The challenge

Jabil was making several thousand payments each month without a centralised cash management structure. Following rapid expansion by acquisition, Jabil wanted to increase central control of payments. The company also wanted to lower costs, increase efficiency by reducing manual processes and enhance risk management and compliance.

In 2006, as part of a new ERP system rollout, Jabil decided to integrate its operations in India, Malaysia, Singapore, Japan, Vietnam and Taiwan through a single delivery channel. The company also wanted to integrate China, where it has ten entities, despite the challenges associated with centralising local Chinese payments from an offshore location.

The solution

Citi won an RFP in October 2006 on the strength of its Asian branch network and the technical capabilities of its Citi^® File Xchange (CFX) and CitiDirect^® Online Banking offerings. CitiDirect^® was able to offer real-time visibility and control over Jabil’s bank accounts in Asia and enable automated report generation.

The offering also manages reconciliation and reporting. CFX provides a seamless local connection and enables straight through processing by translating files generated by Jabil’s ERP system and acting as a gateway for host-to-host connectivity.

Jabil’s ERP system uses a Latin alphabet database, so for local currency payments in China (which require Chinese characters) Citi devised abbreviated codes, which are then enriched with bank information to become regular payment files. In order to accommodate local documentation requirements relating to FX payments, such as sales contracts and local approvals, Citi offered to check documentation onsite for Jabil.

The result

An implementation team was established in May 2007, with Malaysia as the first country to have been chosen for the ERP rollout and China as the second. The ERP system is now fully implemented, and the integration of Jabil’s Asian operations into a single delivery channel (each country took around two months) is complete.

Implementation went smoothly and Jabil has gained the control it sought over local payments and enjoyed substantial efficiency savings. “Citi has local people throughout Asia who know the regulations and concerns,” says Hantai Qin, Treasury Manager, Asia-Pacific region at Jabil. “At the same time, Citi’s Asia people co-ordinated the project and really focused on the big picture.”

They are no longer seen as external to the corporate environment, they are considered an integral part of the corporates’ processes. A properly integrated solution can act as an enabler to further streamline the corporate workflow and make it more efficient. These changes will ensure improved integration with clients’ workflow, thereby enhancing productivity and efficiency.

One of the key areas of interest for most corporates is an electronic bank account management (eBAM) offering that covers all aspects from account opening or closing to ‘regular signer’ management which can be embedded into the client work process. In other words, the new online offerings should function as a virtual branch with a comprehensive list of services being provided electronically.

This will allow corporates easy access to a wide range of functions that typically required a call or follow-up with a service desk, such as initiating service requests for transaction investigations and exceptions. It will also allow corporates to better manage their banking needs and provide complete transparency, visibility and control.

This change in electronic banking has become possible for two main reasons. Firstly, because the underlying technological infrastructure has become more robust, as well as increasingly capable of handling more complex tasks and granular information. Platforms today are quite simply better than they were, and can be more effectively integrated with other aspects of a corporate’s business process components, such as ERP systems or service bureaus, in order to improve STP rates.

Secondly, confidence in using more complex electronic banking technologies has increased in recent years. Most internet users are now familiar with interactive Web 2.0 technologies and social networking applications. Understandably, users want the same level of interactivity from their electronic banking platform as they do from other internet applications. They also want to be able to customise their electronic banking platform as they would any other software to facilitate more effective multitasking. Moreover, treasury users now see banking as another one of their core activities and therefore expect it to be integrated with their other functions.

Conclusion

Ultimately, electronic banking platforms will become information platforms, rather than solely transaction platforms. New generation electronic platforms will combine regulatory information and market data with expert opinions and powerful analytical tools that help to drive treasury decisions. The latest online offerings that are being developed and launched by banks will persist in pushing the limits in this area.

“For example,” says Jain, “Citi’s next-generation electronic banking platform called CitiDirect^® BE (Banking Evolution) is designed to significantly change the way corporates access Citi’s global banking services – the result will be a huge transformation in what clients can achieve using this new banking platform. With a completely redesigned offering centred on enabling the corporate’s work processes, it can improve the user experience and also facilitate further integration into the client’s environment.”

Citi’s experience as a trusted partner

For more than 100 years, Citi has been successfully serving our satisfied customers in more than 100 countries. Working with Citi means you benefit fully from our extensive product capabilities, geographic reach and our local market expertise.

We have implemented over 5,000 global liquidity structures globally, therefore Citi is well-positioned to help you understand and address local as well as cross-border operations and regulatory requirements when designing a liquidity solution that meets your geographical and organisational requirements. Our dedicated in-country professional team can assist in advising on the best-in-class solution that fits your liquidity needs, whilst a designated project manager will ensure you experience a smooth implementation process.

Citi’s Global Liquidity and Investments team prides itself in being an industry leader through continuous product innovations and sound investments in technology and people. We do this as our focus is to help you add more value to your enterprise.

Contact details:

Manish Jain

Global Head, Electronic Channels

Global Transaction Services

manish.jain@citi.com

www.transactionservices.citi.com

Bobby Carney

EMEA Head, Information Services

Global Transaction Services

bobby.carney@citi.com

www.transactionservices.citi.com