Following the launch of SEPA in January, this month we talk to Robert Heisterborg about ING’s Payments and Cash Management business, and discuss the impact of SEPA on corporates and the banking industry.

What is the background of the international cash management business at ING?

We are focused on being a leading European player in payments and cash management.

We are active in 20 countries. We have a very strong position in what we call our home markets: the Netherlands, Belgium, Poland and Romania. ING was one of the first movers in Central and Eastern Europe in the 1990s, and we have good in-country capabilities there. With the takeover of BBL ten years ago, we got a well developed network in southwestern Europe – France, Italy, Spain and Switzerland. We have combined all these activities under one leadership in order to serve our clients better. Through Bank Mendes Gans, a 100% subsidiary of ING, we can also offer global cash management and treasury services.

What products and services do you offer?

In a nutshell: advisory services, accounts, transaction processing, reporting, liquidity management, collections – the whole range of cash management and payment services. It’s a full service for our internationally operating clients. In some of the 20 countries we also have very good, well established in-country capabilities, so we can compete with the local banks.

How is ING’s cash management business differentiated from other banks’ offerings?

The way we differentiate ourselves is by having a clear focus on Europe and by being able to offer our services with a very limited number of partnerships. There are many banks which offer European or global services, but if you look at it in more detail they have a long list of partnerships, or banking clubs like IBOS. The main advantage of being in control, and operating all the services yourself, is that you can guarantee the service level. When there are a lot of dependencies on partners you are not in control as your clients would like you to be.

This doesn’t mean that we don’t partner with banks to fill in gaps in our offering, but it’s on a limited level. In Europe we cover the Nordics with SEB, and in some countries we have arrangements for domestic cheque processing and cash because we don’t have a branch network everywhere. The accounts, processing and reporting are all done within ING. It’s a very limited use of partnerships. There is nothing wrong with partnerships, but I think this is the way for sustainable quality, because there are less dependencies and less risk in running the system.

Another differentiator is that we are active in 20 countries, which means that we have a lot of local knowledge. SEPA will enable corporates to run their payments and transaction business from one account with one bank. This is the theoretical model.

In practice, depending on how corporates are organised, if you have sales and marketing operations you want to be close to your clients. ING can offer this type of proximity because we have local people in all those countries, unlike a lot of other banks who have centralised their customer support.

We are also big from a payments perspective in countries with a very efficient payments culture, such as the Netherlands and Belgium. We leverage and export our expertise in this area to other countries in Europe.

What are ING’s strategic objectives regarding the PCM business?

As I mentioned earlier, we aim to be a European player with a strong network and local knowledge. In addition, SEPA is all about scale, STP and effectiveness, and that’s the second pillar of our strategy. Being one of the bigger euro clearers in Europe, together with our network and local presence, we are in a position to use this to help clients in the migration process.

ING as a group has a certain flexibility and an entrepreneurial mindset. A good example is ING Direct – ING built this franchise by being a bit different from other models. In the group we have a lot of life insurance and pensions greenfields (companies that are built from scratch in a developing market). We know how to build and grow the business, with a certain commitment towards long lasting enterprises.

What is the payments market going to look like in the future?

There is a consolidation process going on, not only on a global, but also on a European scale. We see a lot of our banking clients struggling with huge investments and the deterioration of the cost/income ratio. This will lead to shifts in the whole market landscape. A lot of banks will still offer the solutions, but the processing and the end-to-end management of the whole process, including the liquidity, will be done by large banks, and we want to be one of them.

The corporate market is being driven by regulators and technology, which bring more insight and faster and more reliable information on the whole business environment. This is shaping our landscape and we are looking to survive in this market. Banks should be able to enrich the information for their clients in their business processes, in areas such as electronic bill presentment and e-invoicing. More and more of the traditional world is moving to the e-world.

One word of caution: there is a strong need for corporates to have more standardisation and straight through processing. I think that’s good; we are more than willing to work on that to deliver solutions, but the corporate world also needs to work on standardisation.

In the automotive industry there’s some standardisation, but that’s not used in the oil or in the leisure industry. So on top of all kinds of industry standardisation, there should be a more pan-European or a more global way of standardisation. Otherwise we will never get to the level of STP and flexibility that corporates want.

A second word of caution is that this means a lot of investment from banks and corporates, besides all the investment from the regulatory perspective. We need to attain a sustainable business model. If we invest millions improving the whole value chain and being compliant with all types of regulatory conditions, we should be able to make a living out of it. If we can’t make a living out of it, in the end I think the clients are worse off.

I don’t mind competition. Corporates always say they want to buy quality, which we offer, but they are buying on price. The problem is, we can’t give everything away for free or at very low prices. Given the high level of reliability and security our clients rightfully expect, this is not a sustainable business model. If you don’t allow the industry to stay healthy, there is a danger of underinvesting and this won’t lead to the solutions our clients want.

How does SEPA fit into ING’s strategy for payments and cash management?

SEPA is a reality – it won’t go away. However, it’s not finished yet. The industry has taken the first step and built the SEPA Credit Transfer – now it’s up to clients to use it. There’s still a lot of work to be done. I think it’s going to take much longer than politicians anticipate.

As to how SEPA fits into ING’s strategy, we are still investing a lot of time and money in dealing with SEPA. We see it as an opportunity to consolidate and improve our position as one of the leading European banks. We are already positioned as a pan-European player with activities in 20 countries and a huge amount of euro transactions, and we can leverage that towards SEPA.

SEPA also gives ING an opportunity to improve our processes. Europe is a scattered landscape with many types of local regulations and local market practices, and this allows us to benefit from our scale on a pan-European level.

How do you cope with the increased regulatory pressure (such as the Payment Services Directive (PSD))?

It’s a fact we have to deal with, and we deal with it. In the end the PSD will serve the ambition of having a better market in Europe. It could lead to more competition. I think ING is well positioned to serve our clients in a more competitive market.

While I do think these regulatory initiatives are beneficial for the whole industry, I struggle with the timing occasionally. I think this applies to corporates as well as banks. New regulations would be much easier to implement if you could combine the investments with your natural investment cycles, in line with the technical, economical depreciation of your processes and systems. And that’s a challenge that corporates also have to manage. SEPA has an impact on them and people shouldn’t underestimate that. A bank like ING can really support our clients and advise them on how to deal with this.

How proactive are your clients being in terms of migrating to SEPA?

It differs. Some clients see it as an opportunity to address their own treasury and back office activities. It also differs by country. In some countries there is already a very efficient and low priced system and there’s less appetite to migrate. In other countries with a different pricing level and service level it could be more attractive to migrate.

So we see all flavours, both in the banking and corporate markets. We actively inform clients and we have ready-to-go solutions that clients can use now.

SEPA was only launched in January. What is your opinion of the pace of the migration?

Migration is going to take much longer than the regulators anticipated. This is a personal observation, but in the end I think we need a fixed end date, compulsory for everybody, to have a forced migration towards SEPA, ultimately supported by a law.

I can’t imagine the introduction of the euro based on self regulation – we still would have legacy coins now. I think if we really want to make SEPA a success for all the parties involved – corporates, politicians, banks, government institutions – we need an end date.

If you had to choose an end date, when would it be?

I would ask my clients first. If I picked an end date that was too early, I would force my clients into unnatural investment cycles. I think the normal IT cycle in a corporate is five to seven years. Then technology evolves and you have to invest again to maintain it. So if we were to choose a cut-off date of 2015, 2017, we would all know when the legacy systems stopped and we would be able to invest in an economically sound way.

What should corporates be doing right now?

They should understand. We have developed an interactive tool for our clients called the SEPA Scan. This consists of a series of questions. Based on the answers, we give clients customised advice on the impact of SEPA on a number of different business areas.

How do you see the future for SEPA?

The real future for SEPA is the online world. All the investment in SEPA Direct Debit is great, but we are still investing a lot of time and money in bringing a legacy system up to SEPA standards.

I’m a strong advocate of the idea that as an industry we come up with standards for bill presentment and internet payments. We have some good examples like Billington, which is a joint venture initiative in the Netherlands for Electronic Bill Presentment and Payment, and iDEAL, which is a Dutch internet payment methodology.

I think as an industry, in order to leapfrog and become a very effective market, which is the ambition of the EU, we should invest more time and money in developing these standards. There will still be a place for legacy products in the future, but I really believe we should focus on the strength of the internet, because that’s going to be the base for market practice in the future.