Payments Technology: The Polish Revolution
Since communism ended in Poland in 1989 there has been significant developments in payments technology, including payments software, processes, data security, and telecommunication. At the beginning of the 1990s, corporates were mainly using Microsoft-DOS-based local accounting solutions, while most banks were still using batch-processing systems (which register data during the day at branch level and then consolidate it in the evening).
The first real-time centralised core banking solution was introduced in 1992 by BRE Bank (a daughter company of Commerzbank in Poland) – this was called IBS-90. When IBS-90 was introduced, real-time systems became necessary to compete and soon after products such as Profile and Fiserv were launched. And by 1993 the bank had launched its own electronic banking product, called BRESOK. BRESOK was a system that provided transaction and account information to corporate clients electronically.
Electronic banking has grown in Poland in the past decade and has been subject to increased standardisation. A decade ago there were no payment standards so banks introduced their own proprietary data exchange formats, which resulted in up to five different electronic banking systems with five different data formats being used by one company. This has changed and data formats have now been standardised. Presently, the most commonly used data formats are Elixir-O for payments and the Swift message type MT 940 for statements.
Achieving an electronic banking interface is one of the key areas for development in the future. Corporates and banks will find that having a direct link – in other words payment data is signed with an electronic signature and is coded, then sent to the bank directly from systems such as SAP – from the corporate’s system to the bank will be key in ensuring straight-through processing and accuracy and speed of payments processing.
The web is the fastest growing method of data exchange and, according to Adam Jaroszynski, who is the deputy director of the large corporates department at BRE Bank, it should be developed as a base for payments. He says that banks are making a concerted effort to persuade their customers to use Internet banking rather than the traditional off-line alternatives. A new set of regulations on electronic invoicing is expected at the end of March this year, and Jaroszynski expects this to open the doors to more electronic commerce. There are no details yet of the exact content of the regulations.
In Poland many companies have yet to make organisational improvements in terms of their technology and bringing their commercial payments online. This means that banks are often called on to work in an advisory role and to create products that will enable corporates to manage their transaction flows.
Straight-through processing (STP) is a priority and the introduction of a regulation in 2002, by the president of the National Bank of Poland, has standardised accounting in Poland. All accounts notations are now 26-digit numbers that include a two-digit control number. Jaroszynski, at BRE Bank, says: “The idea is to give the customer 100 per cent assured data about the payer. And in most cases that data can be automatically entered into the customer’s financial system.”
Since 2004, a further regulation has been introduced and now just one number format is used, which is based on an international bank account number (IBAN). Using the same format means that it is much easier to automate the process. Previously there were many different formats for account notations including alphabetic descriptive parts, and there was no control number and no checking procedure, all of which meant that manual intervention was necessary.
Foreign direct investment (FDI) has also brought change and new technology to Poland. Frank Eickholt is the head of the International Corporate Section at BRE Bank, and he says: “Large companies such as Hewlett Packard, Carlsberg, International Paper, and Philips have decided to set up their shared service centres there.” He adds that the multi-national corporates have brought with them globally used systems such as SAP, Oracle and IFS, which have come into direct competition with the smaller local software providers.
The size of the multi-national organisations and the number of single legal entities with a complex network of units, means that it is impractical for these treasury centres to work with different electronic banking systems for each of their banks. They need to have the same communication systems (ie ISDN and Internet) and similar security standards – for example tokens, which are dynamic password generators used as authorisation tools. The standardisation also applies to cut-off times and sending and receiving payments and of course the payment format, as discussed above. Banks are obliged to comply with the standards that their corporate customer requires.
Some banks offer products with additional services – for example BRE Bank launched a tailored product that provided a direct link from a client’s accounting software and meant that the payments data is encrypted and secured with the client’s corporate standards and sent directly to the bank.
BRE Bank and another international bank introduced mass payments identification in the mid 1990s in Poland. BRE Bank’s system, called APRO, was based on paper documents delivered via SYBIR, the paper-based clearing system. BRE Bank scanned these documents and then processed the data. SYBIR was disbanded in 2004 and the electronic automated clearing house (ACH), called KIR, now only processes electronic payments. According to Jaroszynski, there has been a substantial growth in direct debits although there is still much development to come: “The product is still in the cradle, so mass bill issuers need to work out a process that will enable payments identification to happen.”
The most important banking features in this area – ID in the account number and payments matching systems – have already been introduced. Having an ID in the account number is the most popular way of identifying a payer in both mass and commercial payments. This works by allowing a customer to allocate a different part of its bank account to each payer – in effect it creates a set of virtual accounts for payers, although all incoming payments are booked onto one account.
For mass payments the bank can manage the incoming payments and present them to the corporate client as one aggregated data entry, along with analytical data, which is accessible by an electronic banking channel or on CD.
For commercial payments, the analytical data appears on the customer account in real time, and is included in the MT 940 the following morning. BRE Bank’s method of incorporating the payer’s ID as part of an automated process is gaining in popularity and the bank has seen the number of transactions processed with this method triple from 42,000 in January 2004, to 126,000 in December 2004. The process is expressed in the diagram below.
Another method of issuing bills and receiving payments from a large number of customers is by using a numeric sequence, called a KTR code. The number sequence uses an algorithm that secures the content. Each step of the clearing system process needs to check this code, which is preceded by the letters KTR, but many banks are not ready to check at entry stage and so rely on manual operations. KTR has been mainly taken up by telecoms and utility companies, although few smaller commercial bills issuers have implemented it.
There is a further, more complex, payments matching service, which is based on data received from the customer, with the same file used for bills/invoice issuing. The bank can match incoming payments with the A/R file. This service is not standard and requires a lot of IT input to make it possible, and is only suitable for big companies that issue thousands of bills.
Regulations on cross-border payments in Poland have changed in recent years and have relaxed, according to Eickholt, at BRE Bank in Poland. He says: “However, it is still necessary to present either an invoice or a credit agreement. The bank employee has to prove that the customer has a legal title for transferring money abroad and this is not likely to change in the next few years.” All payments over €10,000 need to be approved by the bank employee.
All Polish entities are now allowed to open accounts abroad and it is much easier to transfer money abroad into their own accounts. The Polish tax authorities no longer restrict what happens to the Polish entities’ funds abroad.
Foreign exchange laws do not allow foreign currency flow between Polish entities, and they cannot issue an invoice in any currency except for the zloty. For all other currencies, you need to obtain a permit from the National Bank of Poland. Some companies do this because they want to run their business in euros or do not want to be subject to exchange rates.
Poland has come a long way in the past decade and has emerged from an era where there were no payment standards, to the more standardized format for payments (Elixir-O) and for statements (MT 940). Poland’s status as a modern yet cost effective location is attracting MNCs and it has been necessary to rapidly simplify and facilitate the payments process. The Internet is taking payments even further, and electronic data exchange is a key area for future development. An electronic interface between banks and their corporate clients will create a direct link that will speed up payments processing and increase reliability.
The standardisation of payment and statement formats, and the speed and accuracy offered by e-commerce is paving the way for STP. Banks are also playing a pivotal role in developing a system for payer identification codes and this is extending to payments matching services for the bigger companies. These developments are happening at a fast pace and herald a new era of electronic commercial payments for Poland, with the industry already well on its way to automation, according to Jaroszynski, at BRE Bank. He adds: “Political and economic changes have contributed to the fast development of technology – in general what we have been witnessing for the past 15 years is a revolutionary change for both banks and corporates.”
With a 72.16% stake (as of June 2004), Commerzbank is the largest shareholder and strategic partner of BRE Bank. The cooperation between Commerzbank and BRE Bank is based on the principles of an equitable partnership and the Polish identity of BRE Bank. BRE’s growth plans are supported by the recent intentions of the Bank’s strategic partner, which was allowed by the polish Banking Supervision Commission in September 2003 to exercise between 66% and 75% of votes at the General Meeting of BRE Bank (in September 2003 Commerzbank’s stake in BRE Bank was 50%). This intention to increase the equity investment is proof of BRE Bank’s rising importance in the growth plans of Commerzbank, which has named BRE Bank one of its four global strategic investments.