With a focus on helping developing countries meet basic human needs, the OPEC Fund for International Development needed a bank agnostic payments system to match its large scale, geographical spread and the critical importance of its mission and mandate.
When it comes to the reach of a global payments operation and the diversity of currencies used, few organisations can match the OPEC Fund for International Development (OFID). OFID is a collective channel for the distribution of aid to emerging nations worldwide, aiming to stimulate economic growth and alleviate poverty in disadvantaged regions of the world. Its focus areas are poverty eradication, energy, transportation, agriculture, water and sanitation, education, health, telecommunications, industry and financial services.
It conducts payments transactions in 134 countries worldwide and, because local regulations often mean contracts are denominated in local currencies, it uses more than 120 currencies, including many smaller currencies that are not easily tradeable or convertible. If OFID lends to a country to build an airport, for example, because these are often long-term relationships it will frequently become part of the procurement process, paying directly to local contractors, either in US dollars or local currency. Because of local regulations, around 80% of the time contracts are denominated in the local currency; when it comes to making disbursements, there can be challenges when these currencies are not traded on international markets. Also, because OFID places no restrictions on which countries it operates in, there may be international sanctions or other regulations in place to further complicate matters.
In the past, OFID relied on short-term fixes to work around these challenges, using a mix of global, local, intermediary and correspondent banking relationships around the world (about 85 in total) to handle payments. In fact, about 60% of its payments go through various banks’ proprietary online banking platforms, with around 30% being managed manually through faxes and simple IT tools such as Microsoft Excel and Access database exchanges. In recent years it had found that the costs of taking this approach were increasing rapidly, explains Jacobs Edo, OFID’s SAP Systems Coordinator. “Essentially, we had a treasury system where the costs of payments and other ancillary operations were rising by the day, and where we didn’t have complete visibility into our cash position,” he says. “We decided we had to take a new approach.”
Building a blueprint
The journey to improve efficiency, and reduce complexity, cost and risk within the existing operational processes and technology started back in 2006 at senior management levels. However, Edo explains that the real momentum started to build from 2009, when OFID began to implement new technologies across many areas of its operations including defining new procurement systems and processes, and testing greater automation in its accounting and human resources functions.
In 2012 OFID launched a comprehensive blueprinting exercise looking at the entire sweep of loan management and treasury processes – including banking, payments and communication with counterparties – mapping out the infrastructure, processes and workflow for possible reengineering, with a keen eye on future-proofing. By the time this re-modelling process had reached the payments space, OFID could see that radical changes were necessary, having uncovered a number of challenges in its existing solution and in the way it dealt with its many beneficiaries and the necessary banking relationships appended to these payments. The constantly shifting regulatory environment was a particular pain point for Edo and his team.
“We understand technology is an enabler for change,” says Edo. “When we looked at payments, there were four key things that we wanted to address through technology.” He lists these as financial risk management; bank communication management with straight-through processing (STP); governance, risk and compliance (GRC) requirements and standardisation; and integrating treasury data within OFID’s core operational enterprise data framework. “We decided to have one bank-agnostic system; of course the capital outlay would be quite high initially but in the long run we would have the flexibility to talk to any bank, anytime, anywhere,” he notes. That flexibility means OFID is not tied to any particular bank so at any point it feels it needs to change or add a provider, it can do so without hindrance. And because OFID had already decided to use SAP as its core enterprise system, it decided to go with a new way to connect to SWIFT which Edo explains would connect the existing SAP ERP “out of the box” to the SWIFT network.
Building the solution
By 2014 OFID was ready to reinvigorate its treasury and payments functions, based on two principles. All transactions would be unified via a single enterprise system, and SWIFT would be the platform for payments communication and delivery. “We were looking for a best-in-class SWIFT connectivity solution for availability, security, resilience, non-repudiation and guaranteed message deliveries,” recalls Edo. “The tough question was how to put this into effect.”
Edo’s team at OFID held some study workshops and comparative analyses and, having “crunched some numbers”, found it would be more efficient to go through a SWIFT service bureau than bring the solution in-house. One of the main reasons for this was that OFID didn’t have the manpower and skills in-house to support this kind of payments system infrastructure on its own. “We didn’t want to reduce costs in one area and create a new cost centre at the same time,” he explains. “Another reason for choosing a service bureau solution was that we wanted a speedy implementation – and this was the best way to achieve both goals.”
With the decision to adopt a SWIFT service bureau having been made by management, OFID set about identifying the most appropriate vendor and solution for its needs. In evaluating various vendor offerings, the key criteria that OFID was seeking included a strong and proven track record in implementing similar solutions – including integration with SAP ERP systems – and a well-demonstrated ability to meet OFID’s specific requirements, both on the technical side (availability, security and so on) and in terms of pricing.
In April 2015, BBP came out top in an assessment of a small number of potential providers (BBP is part of Fundtech which this week was rebranded as the Global Transaction Banking Solution of new owners, D+H). Following site visits and full assessment of its suitability (OFID runs along different lines to most corporate users) in May the green light was given for the implementation to begin.
Less than three months on from project launch, and following a “quite straightforward” migration that involved no disruption to OFID’s ongoing activities, its SWIFT connectivity via BBP was up and running pending productive go-live. As a result, OFID now has complete integration of its financial operations with the support of STP payments processing for its global clients located in all countries where it makes disbursements. It also has a fairly standardised payment processing format with which to function. According to Edo, the three-month implementation could have been delivered even more quickly but OFID needed to integrate the bureau’s back-end into its own SAP Treasury and Risk Management system and it wanted both to go live at the same time.
The technical programme is now complete and final testing for full go-live is underway so there now remains a number of administrative and legal exchanges with the counterparty banks before the project can be considered complete. “It’s looking good,” comments Edo. In terms of business benefits, he feels that it is too early to judge how successful the project might be, although he feels that “the promise of the system is quite obvious and demonstrable.” With the fundamentals of payments more or less settled, the OFID team fully intends to expand the use of its SWIFT connectivity and is currently looking into the visibility of messaging for its online trading as a future enhancement.
In the final analysis, Edo says that the right choice of payments platform will vary according to each organisation’s specific needs. What it has chosen is not a “one-size-fits-all” offering. “In some cases it might make sense to have the infrastructure in house. But for OFID, moving to a SWIFT service bureau was definitely the right choice. We have no doubts at all about that.”