Perspectives

Bank Interview: Ebru Pakcan, Citi

Published: Feb 2010

Responsible for Citi’s payment product solutions across Europe, Middle East and Africa, Ebru Pakcan provides her insight into the challenges facing customers in the payments space today. We also discuss the impact of SEPA, evolution of cross-border payments and trends of innovative technology impacting the life of the corporate treasurer.

Ebru Pakcan

EMEA Head of Payments for Treasury and Trade Solutions

Prior to her current role as EMEA Head of Payments for Treasury and Trade Solutions (TTS), Ebru Pakcan had been responsible for the TTS EMEA Product Implementation team since May 2004. Before moving to the UK, Ebru was Citi’s Securities Country Manager in Turkey, managing the custody and clearing business and operations for two and a half years. Ebru joined Citibank Turkey in 1997 as a Project Manager in the Technology department and later expanded her Operation and Technology division responsibilities in various management positions.

Ebru holds a degree in Computer Engineering from Bogazici University in Istanbul, Turkey.

Why are payments still such a challenge when the processes involved are essentially quite basic?

Firstly, the basic activity of moving funds from one location to another, whether through account-based electronic solutions or cheques, still involves time and cost. In addition, there is inevitably a question surrounding the information requirements for that payment. This may involve local regulations, tax implications, or simply additional information needs that stem from the beneficiary’s or remitter’s business. As such, the activity surrounding the payment, in addition to the movement of the physical funds, must tick a number of boxes.

As globalisation continues, some of the payments which used to be more traditional, that is the domestic payments, have become increasingly cross-border. A decade ago we would have seen cross-border payments happening within Europe for instance but payments from Europe to the Middle East, Europe to Asia or vice versa, were certainly not so common. In Europe we have seen the introduction of SEPA to beat the complexities of cross-border flows, but what about Asia and Africa?

Cross-border payments in these regions involve more and more currencies as a result of the increasing commercial flows to and from developing countries and very diverse and prolific regulations. Therefore the payments landscape continues to be a complex ecosystem with growing challenges, but equally rewarding opportunities for efficiency. It is not simply a question of technology automation and faster and cheaper clearing infrastructures as these do not fully address the problem.

Is SEPA really making a difference yet?

In the marketplace there is a great deal of talk as to whether SEPA has been successful. Is it achieving everything it was designed to achieve? Where are we now? What is the adoption rate? These are the questions everyone is asking us.

Let me begin by providing some context. Citi is one of the biggest advocates of SEPA and has been for many years. One of the key reasons for our support is that SEPA is trying to achieve the environment that we have been striving to create for our global and multinational clients for over a decade. From talking to our clients we understand that one of the most important things that cash flow managers and treasurers are trying to achieve is consistency leading to efficiencies – whether consistency of payment requirements, payment rules, clearing cycle times or consistency of pricing.

Citi was essentially successful in setting up this environment for its clients by providing a single interface to customers, standardised formats and standardised information. There were of course diversities in the markets in which we operated: differences in the clearing cycles between Germany and Italy for instance. So for us, SEPA was exactly what we needed to be able to take that consistency to the next level for our customers.

In that context, with the capabilities SEPA currently has, it has achieved the basic requirements of this need for consistency. What it perhaps hasn’t achieved yet is overcoming all the quirks of the individual local markets for every payment type.

Does this mean corporates aren’t finding SEPA that useful?

If I am a treasurer thinking about converting my payment flows, I still have to think about the payments I will be able to successfully convert to SEPA, and which payments I will have to keep in the old world of local ACH solutions.

Having said that, in the last three to six months, we have started to see much greater interest in exploring SEPA and we are talking to our clients about converting their flows sooner rather than later. I don’t think there will be perfect time for converting as such, unless there is a deadline or a milestone which will drive corporates forward.

The payments industry as a whole has to stop seeing SEPA as a market initiative imposed by policy makers, or an optional off-the-shelf payment type. We have to embrace whatever efficiencies SEPA is already capable of delivering, and start making maximum use of it. This way of thinking is starting to resonate much more with the corporates, and everybody is looking for additional efficiencies wherever they may be able to find them.

For corporates, this might mean the opportunity to lose a number of accounts that they are holding in different markets, or to know exactly what cycle time they can expect when they are making their payments. Ultimately, this means better managing the entire cash flow cycle.

What is your outlook for SEPA this year?

2010 is certainly going to be a year when we will see more interest in SEPA than in previous years, but I do not believe that the conversion rate will have increased dramatically by year-end. I am however quite hopeful that this year is going to be the year when corporates start putting SEPA into their two to three year plans around what they are doing with their ERP systems.

We do have a number of clients with sizeable volumes already converted. Many of them took the opportunity of the ongoing projects that they already had, whether it was an ERP implementation, or a new technology adoption such as XML, and built the migration to SEPA into their project. In many instances the feedback we are getting form our clients is that SEPA has in fact turned out to be more worthwhile than initially thought it would be. So when they are approached by another corporate and asked why they chose to convert, their answer is, ‘Why not?’ For us, this is a key message going forward.

What can be done to optimise cross-border payments outside of Europe?

We recently conducted a survey across our client base to determine how companies were dealing with their cross-border payment needs. Interestingly, the results of the survey showed that a large proportion of our clients are keeping local accounts open in many markets, just so that they can manage their cross-border payments. Some particularly tricky currencies were highlighted by the results, such as the Korean won, and the Russian rouble. The commercial and trade flows of these currencies are becoming increasingly important, but the regulations around these flows are making it difficult for corporates to deal with them. This is an area where we have been able to bring our global footprint and local expertise to offer non-account based solutions to corporates. This could potentially mean using a single account structure to make payments in over 100 different currencies.

The cross-border payments space is an area where corporates need to think much more broadly about all the flows involved. Many treasuries, while establishing payment factories, will consider their large cross-border flows such as supplier payments and in-country payroll but will forget the seemingly less significant flows such as payments to expat personnel. Similarly, many corporates have substantial payment flows not directly owned or managed by the Treasury – such as dividends and employee stock plans. There are some interesting solutions available for all sizes of flows and corporates should embrace more creative solutions to enable these flows to be better structured and managed.

One such example is related to corporates with accelerated growth agendas through multi-national acquisitions and/or aggressive expansion plans organically. Typically, these companies are challenged with setting up complex account structures in multiple markets over a short period of time. Moreover, headquarters have the dilemma of centralised controls and oversight versus local authority. A payments solution, requiring only a single funding account, capable of meeting payment needs in multiple markets, while allowing flexibility with the company’s operational structure may be best placed to overcome this challenge. At Citi, we help by structuring solutions to such complex needs.

How has technology facilitated developments in payments?

Technology is certainly a very important enabler for payments. The question here really is how to make best use of the technology as an enabler? Corporates may fall into the trap of trying to adopt new technology as soon as it comes to market but fundamentally a payment is still a payment. So how can we make sure that we can use the technology in a way to help our clients improve their end-to-end payment processes and generate efficiencies?

There are some conflicting priorities across the industry on how to use technology and the XML ISO 20022 format for instance. There are still some banks that believe that proprietary solutions are something that they need to have in order to be able to retain their client base. Citi promotes an unbiased vision, we want to make it easier for clients to work with banks and to allow differentiation of banks at the overall service offering level. We are, therefore, supportive of the bank agnostic model and we have pioneered as much as we can through industry boards and working groups, in conjunction with our clients and SWIFT, to really make things happen.

It has been a real learning experience for us, in some instances working with competitor banks to help the customer to reach their goal. In the EMEA region we have over 20 customers who have adopted the ISO 20022 format across their operations. Combined with the SEPA solution, the standard really allows corporates to get more mileage out of centralisation programmes.

Technology also has an important role to play at the more fundamental level of improving efficiency for sending payments and receiving return files regarding the status of payments. One particular area where we are seeing a great deal of potential for improvement is straight through reconciliation (STR). This involves not only outgoing payments related return information, but of course the corporate’s incoming payment flows as well. It really revolves around the power of information, allowing auto-reconciliation of account statements and all the information that banks return back to a corporate.

Traditionally, straight through processing (STP) has been a common measure of efficiency for payment factories and SSCs. STR is now emerging as the new measure of operational and financial efficiencies. What corporates are now coming to understand is that the information they need is increasingly more accessible and at a higher quality – thanks to the evolution of information technology and advancements of clearing infrastructures in many markets.

Many clearing houses provide information to the banks but the challenge is getting this integrated into the client’s ERP system. Citi has invested in tools and techniques to achieve such levels of integration and actively works with clients on adopting these tools. Then we can look at what kind of next level centralisation or even cost reduction they are able to achieve simply from the improvement of the manual reconciliation process.

Why has STR not been looked into before?

Really, it is just a matter of priorities. Before now, the whole payment instruction side of things stood out as the area that could serve up immediate efficiencies. The advancements in the information technology space, enhancements to SWIFT and availability of higher quality information being passed on by clearing systems, have greatly increased the opportunities with further efficiencies in the downstream processes. Now people are going down in the food chain, looking at the next layer of what can be done.

Corporates digging deeper to find efficiencies across the business is a strong trend that we are seeing at the moment.

How will this affect corporate strategy in 2010?

Essentially, this means that it is time to start looking beyond payments as a transaction and to focus on what are known as adjacent processes. These are the business workflows that actually result in a payment being made. Supplier payments are a good example. These payments are the result of the procurement cycle, which involves the adjacent processes of invoicing, billing and so on. Other adjacent processes may include supplier financing or discounting opportunities.

The efficiencies that can be gained by looking at these processes under the same umbrella will of course vary from company to company. Citi aims to open the door to these efficiencies in 2010 by having an open dialogue with our clients, and offering end-to-end solutions.

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