Cash & Liquidity ManagementCash ManagementNetting/PoolingDevelopment of E-initiatives in Denmark

Development of E-initiatives in Denmark

In recent years, Denmark has introduced a number of initiatives through the government body, Danish Agency for Government Management (Økonomistyrelsen), around cross-government sector digitalisation projects in order to fulfil the country’s strategy for e-government. The ultimate aim is to create a more efficient and coherent public sector. These e-procurement initiatives have been turned into law and, as a result, the Government has the power to enforce digitalisation and e-commerce within the private sector and on private individuals.

Many companies found it hard to update their systems in accordance with these initiatives on time, and they weren’t the only ones to find this challenging. The Finance Ministry used the introduction to encourage local governments to adjust their procedures in line with the new world of digitalisation with efforts to increase automation and efficiency. It calculated how much counties and municipalities would be able to save from implementing e-initiatives over the year and cut their budgets by one third of that sum in advance – thereby forcing them to achieve those savings.

The Launch of E-invoicing

Since February 2005, the Danish public sector (including municipalities) can only accept e- invoices. Unless a vendor sends an invoice as an e-invoice in the required OIOXML format and with mandatory information, such as an EAN EDI location number (which corresponds to the electronic postal address of the receiving public institution), they will not get paid. If they do succeed in sending the invoice correctly, they will automatically be paid into their ‘easy account’ (NemKonto).

Of course, the vendors were given various options in order to be able to produce the required OIOXML e-invoice. For example, small companies can send their paper invoices to ‘read-in bureaus’ where their invoices are scanned and converted into an e-invoice free of charge. Vendors can also use an invoicing portal where they log on, type in their name and user number, and then key in the invoice information – a fee is applicable to this service. Finally, there is a solution designed for larger companies with an ERP system, which is an electronic invoicing system where vendors send their invoices in the required OIOXML format via a value-added network (VAN). In this case, vendors pay a fee to the VAN provider. The prerequisite is that the company’s ERP system is capable of creating an OIOXML file.

The leading Danish banks have developed solutions that allow their customers to send e-invoices via their existing web-based electronic banking system – either by typing in the invoice information or by sending the bank a file. This means that customers do not have to set-up additional delivery (communication) channels in order to send invoices to the Danish public sector. (Approximately 1.25 million e-invoices are sent to the Danish public sector every month, of which about 30% originate from read-in bureaus.)

The Future Landscape

The state and private sector are already working on an open process in order to develop e-commerce further and the goal is to support the entire supply chain process from order-to-payment. (Danish banks are monitoring this project with great interest, as well as participating in this project). The solutions will be based on international open standards and so far it has been agreed that in Denmark the standard will be changed from OIOXML to OIOUBL 2.01. This could also be the preferred standard for Iceland, Sweden, Finland and Norway and potentially other European countries to support their efforts in e-governmental e-procurement issues.

Easy account (NemKonto)

Since November 2005, the Danish public sector has paid money to Danish citizens and companies electronically to a designated ‘easy account’. All citizens and companies had to designate one bank account to be the ‘easy account’ they would like to receive funds into from the public sector (e.g. social benefits, refund of VAT and tax, pension, salaries, etc.).

The way the system works is that only entities within the public sector know and use the private individual’s central person registration (CPR) number or a company’s specific number in the central company register (centralt virksomhedsregister/CVR), i.e. the number that provides the reference when sending a payment file. The public sector has established a third-party provider to administer the ‘easy account’ and make sure the CPR or CVR number matches the easy accounts. It also ensures that that the easy account numbers are added to the payment file so payments can take place via the Danish clearing system from the public entity’s bank account to the citizen or company’s easy account. This system has proved to be very efficient for the public sector, as well as reducing costs. This is particularly important when we estimate that 600,000 individuals and companies change their bank account number in Denmark every year.

Danish banks have supported the initiative by making it possible for private customers as well as companies to change the designated easy account number in the bank via the customer’s private banking or electronic banking system.

After more than two years of using the solution in the public sector, the Danish parliament has decided that not only the public sector but also the private sector should be able to benefit from the cost and administrative savings by using electronic payment methods. As a result, on 7 June 2007, an amendment to the law regarding public payments was passed with effect from 1 August 2007. This means that private pension funds, insurance companies and utility companies can change the payment type from cheques to electronic payments. The change of law also enables private intermediaries to provide the service to their customers. In this way, banks can play the role of a private intermediary.

We expect the major Danish banks to offer their customers the ability to accept payment files and match them with their easy account before the actual transaction can take place. This means that corporate customers will still be able to maintain one point of entry when making payments, i.e. at the bank side. According to the Danish Agency for Government Management, the first pilot-customer, Pension Denmark, has successfully been up and running with this initiative since May 2008.

In-house bank of the State of Denmark SKB/OBS

For several years, the Danish Agency for Government Management has being working on optimising the cash management organisation structure for the entire public sector in Denmark. In 2001, they took the first step by setting up a cash pool and, in 2007, they put the entire business out for public tender. Before they did so, however, they informed the banks planning to bid of their vision and requirements for a new and updated cash management set-up. (They knew that none of the banks at that time could offer all the required services and functionalities to meet their vision.) Their main requirements were:

  • One real-time updated cash pool in multiple layers (up to six) containing the bank accounts of all public entities. In total, about 9000 sub-accounts in one cash pool.
  • All account holders should be able to monitor the balances of the sub-accounts, also on sub-group levels, reflecting the internal balances towards the SKB/OBS bank.
  • All liquidity in the cash pool system should be concentrated in the State’s account in the central bank of Denmark without loss of value.
  • The bank should be able to provide the State with a designated and customised web portal designed to support the thousands of users of the State’s in-house bank.
  • The bank should be able to provide an electronic banking system to support all the payment transactions initiated by the account holders in the cash pool.
  • The electronic system should include self-service administration of users.
  • Various security issues.

In response to their requirements, each bank had to decide how to develop their services and technology to meet these requirements, as well as consider how we would benefit from it by offering new services to other customers in our market area. On 1 June 2007, it was publicly announced that Danske Bank had won the SKB/OBS business for a period until 2012, which includes a total of approximately 45 million in- and outgoing payments per year and a single cash pool with more than 9000 sub-accounts in six layers.

Conclusion

In the Nordic region, our experience shows that the public sector is constantly seeking increased efficiency and optimisation of processes in order to reduce costs, and it is the major driving force behind e-business and cash-pool solutions. The major challenge for all of us regarding e-invoicing and payments services is that we still don’t have uniform standardised formats across countries in the EU. As a result, we will continue to see initiatives, such as the example from the Danish public sector, where a country decides to use a particular format in order to move forward.

What we can do on the bank side is contribute to these initiatives in order to agree common formats. Until then, the reality is that banks, in order to service their customers within the value chain, must be able to adapt to every major format type in the market. Banks have the business opportunity to develop ‘one stop’ solutions as well as share cases of best practice. In this regard, the in-house bank structure put in place in Denmark can be of inspiration to others.

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