Standards Paradigm: Bank-to-Corporate Connectivity
Standards are not just ‘nice to have’; they need to deliver tangible values, mostly in the form of return on investment (ROI) because of the high initial cost. Broadly, there are three major groups that benefit from unified payment standards in the financial sector. On the buying side, there are the corporates and on the selling side, there are the banks and solutions vendors.
A typical large multinational corporate wants to apply standards in the following areas (at the same time, if possible): payments clearing and settlement, electronic banking, cash and treasury management (including netting and pooling), supply chain support (accounts payable and accounts receivable), ERP integration, FX and risk monitoring. The benefits are likely to be realised through the following:
Many of the recent industry developments and surveys point to the fact that the major beneficiaries of the overall standardisation of payments and bank-to-corporate connectivity will be corporates, large corporates to be precise. However, to benefit from common standards for payments and cash management, corporates have to get the best convergence and migration options from the servicing banks and the solution vendors. It may turn out that only the largest corporates – who are already driving the process of convergence to common standards, e.g. Shell, the chair of TWIST – will be able to migrate payment and cash management platforms to a common standard, optimise their service banking relationship and, consequently, capitalise on the improved infrastructure, cost per transaction and operational efficiency. For the rest, it will be a de facto migration exercise with much lower, if not only break-even, ROI.
But the service (on the seller’s side) of the industry has been evolving rapidly. Small- and medium-size enterprises may find that the first stage of convergence to common standards is prohibitively expensive in terms of appropriately scaled solutions, availability of properly qualified and priced staff and burden of the ROI of the existing systems based on proprietary standards. One example is the high cost of joining a MA-CUG although the situation is changing around SWIFT access and the advance of cheaper and scalable solutions from service bureaus.
The question that interests banks, corporates and vendors alike is: how long would it take to implement unified standards for bank-to-corporate connectivity and what are the chances of implementing the standards across the industry and deriving tangible benefits from standardisation?
Firstly, what solutions are required prior to major migration and convergence? For organisations that are budgeting major overhauls of their systems and applications in, for example, two year’s time a number of migration tool sets are available to convert to XML and UN/EDIFACT. For example, XML Edifact, which translates an UN/EDIFACT message into readable and valid XML and vice versa and Stylus Studio XML Enterprise Edition, which includes a EDIFACT to XML schema conversion wizard for migrating or integrating legacy systems to support new XML, XML schema and web services technologies.
The ISO Technical Committee on Financial Services (ISO/TC 68) has published the standard UNIversal Financial Industry message scheme (UNIFI) – ISO 20022. Every standardisation body, banking conglomerate and working group has agreed on the core role of ISO 20022 as a common way of using XML and a uniform business modelling methodology. SWIFT XML is now equivalent to ISO 20022 and RosettaNet payment messages also use the ISO standard. IFX, TWIST and OAGi XML standards import the ISO 20022 schema within their own wrapper. With no disparate standards to worry about, the financial industry players now only have to choose their partners, technology and channels. For banks and corporates alike, the speed of migration and the programme’s ROI are factors restrained by the organisation specific legacy infrastructure and the budgetary depth of the organisation’s pockets.
How does the industry start the migration/conversion strategy for standards? It is vital to develop and agree the organisation specific principles with regards to retaining, adopting and migrating towards new standards. In simple words: what stays, what goes and what is needed. The agreed principles must be applied ruthlessly with a site-survey on all major processes with regards to payments and cash flow and the systems, applications and auxiliary engines that facilitate these processes.
It is also important to consider the most appropriate and cost efficient operational models and transactional/communication channels that will support the future infrastructure and business. One business model may work supported by a MA-CUG assisted SWIFTNet channel. However, the same functionality may be acquired at a fraction of up-front capital expenditure and scalable future operational expenditure by signing with one of the SWIFT service bureaus. There is choice!
Are we facing the future with disparate standards for messaging and payments? For another year, at least, the answer is ‘yes’. The industry has achieved consensus on unified standards and is close to ‘perfect’ interoperability but only in theory. In practice, however, legacy, proprietary and highly customised areas of the technical and process infrastructure of individual players will dictate the choice of technology, priority of implementation/migration and budgetary expenditure.