Building the Highway for the Networked Economy
Marcus Treacher, global head of e-commerce for cash management at HSBC, compares the automation of bank-to-treasurer communications to building a road network to facilitate traffic. And these roads he believes are fast morphing from dust tracks into motorways. “I think we are now on the cusp of something that is quite seismic in terms of change,” says Treacher.
“Historically work in the area of automating bank-to-corporate communication has been patchy with use of bank-in-box solutions around off-line banking, dabbling with Edifact and other constructs – without really finding a method to make that connectivity really effective,” he says. However in Treacher’s eyes this is about to change as technology enablers like XML start to come to maturity – making way for a revolution in how banks and companies talk to each other.
He explains: “XML is starting to bite in the same way that HTML completely revolutionized how we developed electronic banking systems from clunking desktop solutions to very neat, thin-client designs. HTML redefined electronic banking – and now XML will do the same for bank-to-company communication,” he adds.
Treacher says: “With XML kicking in and with IP-based networks (for example SWIFTNet) we are starting to see a true capability to exchange information in a way that is easy to carry out and easy to define. That means that it’s easier for standards bodies to establish themselves, it’s easier for standards to be adopted and it is easier to start adding on and changing what information we pass between bank and corporate.”
Bank-to-bank communication has been well covered by SWIFT for many years, and while that will continue to be enriched going forward, Treacher is adamant that the real developments will be seen in bank-to-corporate communication. He points out that this is happening at a time when treasuries are increasingly being expected by their organisation to do more than simply manage the company’s finances. The renewed focus on getting more value from treasury functions is leading corporates to look at how they use banks – and what services could be provided by banks. This, he says, is putting the focus on connectivity. “Treasurers want more and richer information from their banks,” he says. He mentions the possibility of banks participating more coherently in supply chain information for example. “This is now possible,” he says, “because of technology coming together in a way that it hasn’t been available to do before and a renewed drive to push greater efficiencies – to use working capital more efficiently, and to really get a grip on the financial supply chain.” Putting these elements together is, he believes, opening up a range of opportunities for corporates to manage their money more effectively.
According to Treacher corporates of all sizes are demanding the ability to bank globally. Increasingly, he says, combinations of domestic markets that match a particular trade flow – from India to Europe, or China to the US for example – are forcing corporates to look to banks to be more global, and to behave more globally. “Global Internet banking channels like HSBC’s strategic HSBCnet, connectivity opportunities like SWIFTNet MA-CUGs (Member Administered Closed User Groups – used for companies to have indirect access to SWIFTNet via their bank), and a range of other initiatives from ERP and the treasury work station vendors, combining with the capability of a global bank can add great value to international corporates,” he says. Ten years ago this topic would have been the preserve of the Fortune 50, but now he says, “even medium and small-sized companies are trading globally and their needs are not a million miles away from the needs of the large corporations.”
Treacher is closely following the adoption of SWIFTNet connectivity for corporates via MA-CUGs. He is seeing good initial traction but believes there is a limit to how much penetration it will ultimately have in the marketplace. “MA-CUGs are growing in a big way in some markets notably France. But I think in the Anglo-Saxon world, particularly America, it is probably going to be used to a lesser extent thanks to a tradition of corporates working with a few large banks globally.” Essentially he believes that MA-CUGs will make different degrees of sense, to different companies in different markets, around the world. He explains: “If you look ahead five to ten years I think there will be a number of solutions that will have taken hold. I don’t believe we will get a single global solution.”
He points out that there is a range of other solutions – with many organisations saying they would be more comfortable using just the open Internet. Those companies who just want to be able to connect to their banks in an open way, whether directly or via e-commerce exchange services, he says just want to be able to connect to a small number of banks that they want to deal with globally, using an open standard – for example TWIST or RosettaNET.
According to Treacher there are strong feelings on either side of this debate – “I’ve spoken to companies that are adamant that they want to use a SWIFT MA-CUG and that is the only way they are going. Other companies I have spoken to are equally convinced that open IP – taking the Internet – is the only way to go.”
Regardless of which connectivity method corporates adopt, Treacher believes that current Internet banking systems will evolve to be more collaborative. He gives the example of information sharing between banks, exchange houses and commercial exchanges. “I think that for a lot of companies those open networks will be very good at combining different services together where you can combine an in-house ERP system with screens from an internet banking system for added value. Many of our clients just want to have open connection and flexibility and we just want to be able to connect to our customers in the way that suits them.”
For Treacher the potential revolution in bank-to-corporate communication lies in the additional, richer information that banks can provide their clients. “I think the beauty of the networked economy we are starting to see develop is that you can differentiate your services through adding more value to your client’s information.” Treacher is talking about leveraging the information that banks hold on trends, research and context – and adding that in some way to its services – this is the value-add he sees.
As corporate clients are getting a grip on the base financial data that underpins payment instructions Treacher says there has been increasing demand for more information around the payment itself and specifically more demand for information on what the payment is about. He says there is a need to get much more global reliability or control over what is really moving around and why. “As far as the treasurers are concerned we are seeing more focus on management of positions, cash flow forecasting for example, and they are looking at investment products on the back of optimising cash positions.” He says that there is now a lot more science being used in the treasury.
Treacher believes that the drivers towards automation are coming from two directions. Firstly technology is making it easier to connect and use banking services, while systems like ERPs and treasury work stations are helping to crystallize the data that companies hold themselves. According to Treacher: “That in itself drives sharper management of data – this is causing an evolution away from using spread sheets.” The trend towards more and more automation within treasury and the whole financial supply chain is a natural progression he thinks. “Technology itself is changing the marketplace and loosening old established constructs and that is driving a re-examination of how to get more value from the treasury department.”
Treacher concludes: “Treasury automation is being driven by the need to bank transparently and be able to exchange data transparently. That is a prerequisite to be able to mine your data and use it to add value for your company.”