The Advantages of a Common Bank Services Billing Standard
As the financial crisis unfolds, pressure mounts on the treasury department because every corporate executive board is demanding greater knowledge of their cash flows. Treasury departments need to deal in the most efficient way with the liquidity that is available. The pooling structure, and other structures within a company, has to be in a position where the treasurer doesn’t tie up too much working capital.
The Transaction Workflow Innovation Standards Team (TWIST), through the co-operation of its members, has developed a standard for bank services billing (BSB) in order to address the problem of the complexity and impenetrability of bank charges, which is a headache for many corporate treasurers.
The initial driving force for such a standard came from General Electric (GE), which operates in more than 100 countries and territories globally. It was GE that lobbied for a bank billing standard and reached out into the market to enlist corporate and bank support. TWIST took up the baton and became responsible for developing the standard with the TWIST Members’ Committee, which includes corporate treasurers, fund managers, banks, system suppliers, electronic trading platforms, market infrastructures and professional service firms.
Then GE, like a number of other corporates, went to their banks and insisted that this standard was used in bank statements. In the case of GE, it was identified as one of the key elements of a banking relationship, although obviously not the only one. The coverage of banks reporting production files to GE in this format now extends across six banks in 20 countries, including Danske Bank (five locations), Barclays (UK), Société Générale (France) and Citi (12 locations).
Bank charges are difficult to decipher as they are charged through a number of different methods: for example, some charges are processed on a daily basis, as a debit directly against the account, whereas others are processed as a bulk debit at the end of the month. This makes it extremely difficult for a corporate treasurer to have a complete understanding of what their bank charges are.
In its most simple definition, the BSB is an electronically readable customer statement. It is a global format standard, which means whether a bank is in France, Singapore or the US, a company is able to look at its charges and process them, and doesn’t need to build something different for each country.
Therefore, the BSB is aimed at large corporates that operate in at least a few countries and deal with a number of banks. When a corporate has many banking relationships and accounts in different countries, it needs bank statements in a single standard format in order to see the whole picture of its banking relationships.
The standard makes it possible to look at a large amount of data from different sources and analyse it. It also allows corporates to compare the cost of its banking services across different banks, which could lead to a re-evaluation of banking relationships. But there are a number of other reasons for why corporates should be insisting their banks use the bank billing standard.
First, by using the BSB, a company can look at its charges and see if they are reasonable and customary. For example, a corporate is charged for a certain number of high value payments or wires, such as CHAPS payments or Fed Wires. Many times these charges will be charged on a daily basis as a separate charge or added to the initial amount debited. With the BSB, the firm can immediately identify if the total wire charges are reasonable for its business.
Second, a corporate can easily compare its bank charges against specific data. For example, usually a corporate negotiates a transaction rate with its bank, but if it opens a new account the bank may not transfer the negotiated price to the new account because it accidentally sets a default price rate. Using analytical software, the company can immediately identify that the bank wasn’t charging the negotiated price.
Third, corporates can also review bank accounts that are managed by subsidiaries. They can receive a statement and immediately know if these are the correct total charges with this bank.
Fourth, the BSB is a powerful executive tool for bank relationship management. It allows corporates to review their charges to see if they are using the right services. For example, if a company historically has had a large number of low value payments and a low number of high value payments, and suddenly it starts to see its high value payment volumes creep up, then it can query whether its employees are sending payments the wrong way. To be able to perform analysis, and question whether it is correctly using its banking services, is a powerful tool.
In another example, if a company sees its cheque numbers go up, it can see that there is an opportunity to work with the subsidiary or a business group in order to convert them to electronic payments. There may be business reasons why the corporate may not want to make the conversion, but BSB lets it look for such opportunities and become a smarter consumer of banking services.
The BSB standard development began in the US because it was difficult for corporate treasurers to see what they paid for which services. This is why they developed a standard way of communicating which fees were deducted and which balances were on the accounts, as this allowed them to compare banks and services like for like. Many multinational corporates, such as GE, wanted to widen that to Europe and the rest of the world because of the benefits they were already experiencing in one country. There were a number of challenges to spread this practice internationally, such as technical issues and market practice, so the BSB was developed to address those issues.
GE approached a number of banks, including Danske Bank, a regional player, to see if there was an interest in launching the standard in Europe. Danske Bank was the first bank to go live because it identified how vital it is for corporate treasurers to be able to see which services they use and what these services cost. It’s also easier for the treasurer and bank to negotiate when they have the same figures in front of them, outlining the number of transactions, the costs, etc.
After three years in development, Danske Bank went live and now has 10 corporates signed up for TWIST BSB – nine pan-European corporates and one domestic Danish corporate. Since then a number of other European banks have launched a similar service.
BSB: Which Banks are Doing What?
Adoption has to involve corporates and banks in a partnership. If it is solely taken as a business case, some banks are reluctant to implement BSB out of the fear that it could be used against them in upcoming negotiations.
But the uptake of BSB on the corporate side has also been a little bit slower than anticipated. Although many corporates are interested, a number of issues have moved to the fore, such as credit and liquidity. Within corporates, IT resources and the costs of implementing software have been targeted in the immediate fall out from the credit crisis. The prospect of developing or modifying an inhouse solution is not on the cards for most corporates at present.
Therefore, the third part of the equation is the software providers, who are also responding to market demand, or the lack of it. As of today, only four vendors sell BSB solutions:
It is important that other vendors enter the market to meet what will be growing customer demand, adding billing to their treasury workstation software as an additional opportunity.
It is up to each individual bank to implement the BSB standard. TWIST created the standard and in many ways tries to promote it, but it is up to each bank to roll it out. It is also up to the corporates to go to their banks and request it, because banks will only implement the BSB if they feel that there is a customer need and it is beneficial to them to do so.
Some banks will do it because their customers insist; some banks will see that this is a good strategy for the bank; and other banks just won’t. Some will take the view that if they do this, the customer is going to be able to reduce the size of their banking bill and, therefore, the bank will lose revenue. Other banks are taking the approach that it is a great way to meet their customer needs and to expand their customer base.
There is also some bank usage of BSB beginning. In the US, many major banks receive statements in the US electronic format because they have a number of correspondent banking relationships – they use the standard to help get a handle on their charges to control costs.
From a corporate point of view, they have got to get their banks to adopt BSB. Fundamentally, corporate treasurers have the power to push the BSB and should have TWIST as part of the overall proposal when they put together a tender, in the similar way that they are asking banks to make payments via SWIFT.
Once there is a critical mass of banks providing BSB, it will spread very quickly because it is a logical progression. In two years time, the BSB will be more mature and extend its value proposition for small and medium enterprises (SMEs).
As the BSB is developed more thoroughly in Europe, it will expand its global presence and move into Asia. International corporates, such as Nokia, Shell and GE, will demand this from the banks in Asia. And banks, such as HSBC, Standard Chartered, Citi, JPMorgan and Deutsche Bank, which are big in Europe and the US, will roll it out in Asia.
Finally, there are two projects to expand the BSB capability. One is to expand the 2008 AFP Service Codes into an internationally compliant set of common ‘global’ codes – the Global Service Codes Project. The second is to register the BSB under ISO 20022.