This month we talk to Stefan Wloch of Commerzbank about developments in Trade Finance and Transaction Services.

What is your area of responsibility as Head of Global Product Management and Development?

Within Corporate Banking I am in charge of product management and development of all our trade finance and transaction service business. This covers, for example, the field of domestic and foreign payments for all of Commerzbank’s operating units, which includes anything from credit transfers, direct debits and cheques to SEPA.

I am responsible for cash and liquidity management products, cash flow dispositions, cash pooling products and the internal systems that we need for this – not only in Europe, but wherever Commerzbank operates with its own units. For all these systems my group commissions the applications that are needed from our own IT department. This means that we define the requirements and functionalities and subsequently implement any innovations and technical developments in corresponding projects.

Other areas of responsibility are corporate cards and point of sale.

Cash collection and cash supply services are also an important part of transaction services. Here we also have a subsidiary, SOLTRX Transaction Services GmbH, which manages cash collection and distribution for large retail stores and other businesses that rely on cash transactions.

On the trade finance side we do anything related to the documentary credit business such as letters of credit, guarantees or export and import collections. These are all products we are responsible for and that we develop further. The applications used in trade finance are also strongly reliant on technology, albeit to a lesser extent than those employed in transaction services. The standardisation of data formats in trade finance in general is unfortunately not yet on the level that has been attained in payments and cash management. We do however offer the ability to open and manage letters of credits online with our Trade Finance module.

Finally, my team is responsible for IT front-end systems. These are software applications that Commerzbank provides to its customers on a standalone basis or through its corporate banking portal. This includes, for example, client specific software developments or applications like our Treasury module, which is an ASP treasury management system available via our portal. We are also involved with issues like internet encryption, electronic signatures and customer-to-bank interfaces.

What do you do as far as programming is concerned?

My team will outline the technical specifications and functionalities and instruct our IT department to either purchase or develop the software program. IT will decide whether to acquire the appropriate tool from a software provider or to write the program internally.

Can you quantify how much is being purchased and how much is developed by your own IT?

There are two product lines which have been developed externally. On the one hand there is COTEL, our domestic electronic banking tool, also known as MultiCash in the market. This has been developed by Omikron and is licensed via the Association of German Banks. On the other hand there is our Treasury module, which we have bought externally from ecofinance Finanzsoftware & Consulting GmbH. The remainder of the internet portal has been developed entirely by our own IT.

With regard to our back-end systems it is always a mixture of the two. There are software providers that offer solutions, but these will have to be customised and adapted to the existing systems environment at Commerzbank. This is also generally the source of high IT expenditures.

Is new product development generally the result of customer demand?

Yes, we either determine what our customers require through surveys and market analyses or we derive this demand directly from our sales department. This is helped by our organisational structure which extends TFTS (Trade Finance and Transaction Services) sales across all operating units worldwide.

In a way you link the banking and IT arms at Commerzbank. Is this reflected by your personal background?

Very much so. I began as a banker before embarking on an 18 month trainee programme that had the objective of providing a thorough understanding of the banking business as well as the underlying IT. I subsequently held technical positions in electronic banking and introduced our product COTEL at Commerzbank years ago. I was also involved as project assistant in the implementation of Eurocard services before I switched to the business side in 1995 as a product manager for all software and file transfer products of the bank.

Four years later I returned as team head of the electronic banking hotline for corporate customers and at the same time served as the right hand to the IT millennium project leader. After the project was finalised I headed a group which functioned as the point of call for all departments in terms of IT production. At the same time I was in charge of a project taking stock of all applications that needed to be adapted as a result of the euro introduction.

In 2006 I returned to the product management side first as project leader and then as Head of Global Product Management and Development. I am therefore familiar with the banking business and the IT side and my role is precisely what my initial training aimed for.

What technical developments and innovations are you currently seeing in Trade Finance and Transaction Services?

Only last year we introduced a unique form of authentication for our web portal in the form of a USB stick that does not require any installation. This stick is perfectly secure and includes an electronic signature for the authorisation of payments so that all the services of our corporate banking portal become available from anywhere in the world where our customers have access to the internet. The stick also offers our customers the ability to structure the authorisation of payment transactions with separate signatures from different locations.

Our corporate banking portal continues to be the only multi-bank-capable internet banking portal by making use of the German EBICS (Electronic Banking Internet Communication Standard) format. As a result our customers can reach any EBICS-ready bank in Germany through the payment module of our portal as well as other banks worldwide.

Another interesting project has come in conjunction with the introduction of SEPA. We were asked by one of our customers, the Würth Group, to support their ramp-up-project for the implementation of the new SAP modules ‘Bank Communication Management’ and ‘Integration Package for SWIFT’ in order to gain access to SWIFTNet via a MA-CUG administered by us. This was a unique project as it was the first launch of this new SAP module. Despite a very short turnaround time the project has been a resounding success, not least due to the strong commitment of Würth Group. The interface and SWIFT connection were then also used by Würth to send one of our first SEPA Credit Transfers on January 28^th.

And SEPA itself of course requires a number of new developments in terms of the SEPA Credit Transfer that we have just introduced and the SEPA Direct Debit that will follow soon.

Speaking of SEPA, how is Commerzbank positioned in this space?

We have adapted our internal structures, processes and platforms in time for the introduction of the SEPA Credit Transfer and fulfilled all the necessary SEPA requirements. In addition, COTEL is SEPA-ready which means that all our applications were SEPA-ready on January 28^th this year.

Leading up to SEPA we organised numerous events, during which we informed our corporate customers about SEPA and what it means for them. At the end of last year we conducted a survey among 600 corporate customers asking them how satisfied they were with the information that we provided on SEPA. We were very pleased to learn that 79% of corporates felt that their information needs on SEPA had been met or exceeded.

Another question is whether these companies themselves were ready for SEPA in January 2008 and here we found that two thirds of the companies were not and are not ready for SEPA yet. However, I don‘t see this as a problem. SEPA will certainly have benefits, but companies will have to invest into the consolidation and adaptation of their systems to make use of the new formats. Currently nothing really dictates that companies will have to do so as long as existing formats are not being phased out.

Will the SEPA Direct Debit give an additional impetus?

We will have to wait until the Payment Services Directive has been implemented into national law but the SEPA Direct Debit will certainly have the benefit that the fixed and transparent time-frames of the scheme will make it easier for corporates to plan ahead. So it is possible that we will see more demand but it will be crucial for large debit collectors like insurance companies how the question of mandates is going to be resolved. If the SEPA Direct Debit required the issuing of new direct debit mandates, this will become a huge burden for companies that currently are extensive users of direct debits.

However, SEPA will have many benefits such as a uniform regulatory framework across Europe which creates more transparency. Clearly defined and binding execution times will enable more efficient cash flow management.

What has the demand for SEPA been like so far?

There has not been a massive run on SEPA in our experience yet. We are of course prepared if companies want to use SEPA Credit Transfers. We expect an increase in demand in the second half of 2008 and particularly later in 2009.

What current trends are you seeing in transaction services?

One trend I can see is a more extensive use of the electronic banking standard EBICS – initially within Germany and in the medium term even across Europe. I believe EBICS has a good opportunity to become a European e-banking standard as France, the Netherlands and Austria have already expressed their interest in it. This would be a great development and it would cover a very large part of Europe.

Another trend I can see coming from our corporate customers is customer-to-bank straight through processing. The level of automation in the transfer of information between customer and bank can be increased as there are still some discontinuities of media in this area. This customer-to-bank interface has also been somewhat neglected as far as SEPA formats are concerned and there is currently a drive to establish a uniform format.

Meanwhile, the topics of liquidity management and daily disposition of cash flows continue to be pertinent issues for our customers.

How does Commerzbank differentiate itself from competition in Trade Finance and Transaction Services?

We are different in terms of our organisational structure in the sense that sales of Trade Finance and Transaction Services are globally managed from Frankfurt.

Trade finance is one of our core businesses where we have extensive knowledge. The documentary credit business, where we have a market share of 18%, plays a very important role and it is also a strong income generator. We are different from our competition in terms of our proximity to our customers. We maintain 21 locations in our documentary credit business throughout Germany and in each operative branch from an international perspective. Our results show that this is a successful strategy.

Further unique characteristics of the foreign business include our Trade Finance tool, which can be used to open, amend and manage letters of credit and guarantees online, as well as our value for doc service. With value for doc, Commerzbank assumes a range of tasks related to the generation and management of documents on behalf of its clients, either to support them at peak times or to relieve them of tasks they no longer can or want to do themselves.

Our corporate banking portal is another important differentiator. We are the only bank offering USB stick authentication in the field of trade finance and transaction services and, as I mentioned earlier, we are also the only bank offering a multi-bank capable portal based on the EBICS standard.