eBAM - the Way to Nirvana?
The electronic bank account management (eBAM) initiative has been a long time coming. Although 15 extensible mark-up language (XML) messages, covering 18 messaging flows, went live a couple of years ago the adoption rate is still very slow. One of the constraints for adoption lies in the legal framework around bank account management (BAM) and needs to be resolved. The eBAM central utility being developed by SWIFT should help, by providing easy access. However, although some aspects have been piloted by a number of banks and corporates it remains a concept which, subject to co-funding being obtained, has a tentative launch date in the fourth quarter of 2013. So what are its future prospects?
The potential benefits of eBAM, which include the introduction of legal entity identifiers for account management, have mainly been recognised by the banks. Unfortunately, results of a recent survey have shown that less than 50% of corporate treasurers have little or no knowledge of eBAM and there are inconsistencies in people’s understanding, with confusion between BAM (bank account management) and eBAM (electronic bank account management). What can be done to better inform businesses of the benefits of eBAM?
For corporates, eBAM is not just a time and cost savings solution it will provide increased transparency and control, and simplified approvals processes through digital signing. It is a vital aid for corporate governance and risk management. It will help corporate treasurers comply with the never-ending introduction of new and revised regulatory requirements – such as Sarbanes-Oxley (SOX), which increased the demand for electronic rather than paper audit trails for treasury operations and, more recently, the enforcement of the Report of Foreign Bank and Financial Accounts (FBAR) by the US Internal Revenue Service (IRS).
Corporate Misconceptions
It’s been more than a decade since the eBAM objectives were first mapped out. In those days, like now, any progress in automating and standardising BAM and moving away from the inherent risks and inefficiency of maintaining paper-based systems should have been welcomed by corporates and banks alike. Nonetheless there is still confusion, especially among corporates, on how best to connect with multiple banks. Do they use SWIFT or another secure communications channel?
SWIFT is a no-brainer for most banks, which already use SWIFT, but things are less clear cut for many corporates, which traditionally have not been SWIFT users. There is still a misconception by many, as to whether International Organisation for Standardisation (ISO) messages – more commonly referred to as SWIFT messages – can only be carried over the SWIFT network. Not so, of course, meaning that not being connected to SWIFT shouldn’t prohibit corporates from taking advantage of eBAM’s benefits. eBAM is not just for large corporations; even smaller companies which do not have to deal with multiple banks can gain advantages from eBAM through the web portals being developed by a number of banks.
However, although eBAM will automate the process of opening, closing and maintaining accounts, it will not provide a repository for account information so integration with other systems that will provide this facility is vitally important. In fact, integration with other systems, including treasury management systems (TMS); bank systems; enterprise resource planning (ERP) and accounting systems; cash forecast information; dealing systems; market data systems; confirmation matching systems; and Microsoft Office, should be a mandatory consideration when instigating an eBAM project. Complete integration not only opens the door to straight-through processing (STP) but transparency, control, risk reduction and efficiency.
Since the present financial and economic woes started in 2007-08 the eBAM project has gained in importance for corporates and banks looking for operational streamlining and the mitigation of risks. However, the financial services industry does not have a great track record when implementing similar initiatives that demand the collaboration of banks and their customers. For example the single euro payments area (SEPA) has also been travelling down a similar path and eventually required the big stick of legal and regulatory enforcement to thrash it into life. The Legal Entity Identifier (LEI) project now taking shape cuts across eBAM so there is a need to either incorporate or map the LEI standard for eBAM.
There have been, and still are, many political and regulatory objectives put into play that all lead to various and numerous projects to build better financial services markets. Much of the change tends to be reactive rather than proactive. This has caused a disjointed approach to technology developments, where overlaps occur and, in the worst cases, one development project is shelved as it’s superseded by another. All this is a severe drain on budgets and the increasingly weary project managers tasked with complying. However, the upside is it’s food and drink to the software vendors and consultants.
What’s the Future of eBAM?
It’s not really much different to many of the past and current industry initiatives to drive out costs and risks and simplify a very basic banking function that has frustrated corporates and consumers for many years. The need is for eBAM to be incorporated into other developments required by commerce and the financial services industry in general. Why not incorporate e-BAM into developing better trade finance and with SEPA into a more efficient e-invoicing solution for domestic and cross border business?
Is there a strong enough will in the banks and the corporate treasurers to overcome whatever future obstacles are presented and more importantly strategies and a development plan that is fit for the 21st Century? Could e-Bay, Google or Facebook become players competing with the banks? Could new entrants offer alternative solutions to the eBAM design that has more widespread benefits in commerce?
The world is changing faster than industry initiatives can be implemented and the stark fact is that if the use of eBAM is slow, or limited to only a few corporates and banks, it will fail and open the door for alternatives, as these solutions really only pay off with critical mass. Standardising anything is tough at the very best of times and it is far from certain that eBAM will achieve the hoped-for standardisation of its original objective, in the current climate, unless it is used as a first step to greater cost reduction and increased services.
Technology is always an expensive item for any project of this type and the investment by banks and corporates has a certain leap of faith feel to it, without the confidence that a critical mass will provide a return on investment (ROI). For this reason corporates need to understand the big picture and how eBAM will be a first step in meeting their existing and future needs and whether it can set them on the road to business Nirvana.