For some, it is probably still hard to imagine that ISO 20022 XML messaging (XML) has actually been around in the cash management space since 2003, on the back of the combined efforts of the RosettaNet community and TWIST initiative. Initially driven by two key individuals, David Blair and Tom Buschman, and supported by key stakeholders from the banking, corporate, vendor and standards community, they shared a common vision around simplifying and standardising the corporate-to-bank space. It was very clear to some that the competitive boundaries in the cash management landscape would change forever, as corporates wanted to remove the existing dependencies on proprietary banking technology and move to a more generic and open standards model around the connectivity, file formatting and security. The competitive space would now focus on coverage, service and value-add solutions in addition to price.
Since these early beginnings, momentum has been building around the adoption of XML, with corporates enjoying mixed experiences where they operate on a multi-banked model. To Citi, XML is much more than just another file format that can be sent to initiate payments and collections – it is actually a great enabler to establishing a ‘low cost, low maintenance’ standardised cash management environment.
Figure 1 illustrates some of the challenges in the corporate-to-bank space, which is linked to a plethora of national scheme formats and proprietary banking partner formats. This adds a layer of complexity and cost to the cash management process, which also affect the costs around banking integration. XML offers the potential to remove the problems associated with both proprietary banking standards and national payment schemes, as a common global messaging standard can be achieved with the right approach.
XML: The Real Benefits for Corporates
To explain this point, you first need to consider the way banking integration typically works in a host-to-host (direct file connection) model in the old world. These host-to-host customers will generally receive a file specification (message implementation guidelines), which details exactly what information the originating customer must provide in order for the originating banking partner to achieve a straight-through processed (STP) payment transaction.
These guidelines do not allow the originating customer to provide any ‘excess’ information, so the customer must effectively define a set of business rules that filter the data contained within their enterprise resource planning (ERP) and treasury management system (TMS) applications, such as Oracle, SAP, SunGard and Wall Street Systems. To add to the complexity and cost, each bank typically has its own proprietary file formats, or its own interpretation of the more generic industry standards.
The new world of XML provides the opportunity to operate a more standardised and simplified environment for the following reasons:
Simplified business rules
The rules of engagement have changed with XML messaging because instead of the originating customer having to filter the information before it can be sent to the originating bank, the business rules now sit at an originating bank level, therefore removing this cost and complexity.
Closely aligned to the above point, the concept of data overpopulation allows the originating customer to effectively provide their bank master and master vendor record data in the XML message. As part of this unique concept, the originating bank will then ignore any data that is surplus to requirements for the requested payment method. This concept helps in the creation of a more generic banking template that is explained later.
Portability and reduced integration costs
Providing a more generic XML template has been achieved, this will enable the corporate to achieve the often desired ‘plug and play’ solution with their other banking partners. The benefit of this concept is clear, namely reducing integration costs which generally represent a barrier to adding a new banking partner or extending the scope of an existing partner. In the current climate, this is becoming even more important as concerns continue around counterparty risk and the possible downsizing of some banking operations.
Improved operational and financial efficiency
The final benefit is really linked to a combination of the richness of XML messaging and the standardisation of the messaging and supporting internal processes. The underlying cash management architecture can be simplified and may allow the removal of costly middleware applications that currently manage the complexity. Standardisation also provides the opportunity to improve internal monitoring and controls in addition to improving overall visibility.
XML: Achieving the Benefits
Citi has been proactively involved in the definition and on-going evolution of the XML global financial messaging standard. The bank recognised that value is in the eye of the client and therefore to differentiate, you must add value to the process. At the start of this article, we indicated that some customers have not had a favourable experience around the adoption of XML messaging and this is partly linked to the belief that XML is just a standard and therefore everyone does it the same way.
Unfortunately, the reality is slightly different as the XML payment message contains 942 fields, only 13 of which are mandatory. This is where the problem lies as banks have taken their own views on the information that is required and where that information should be provided. The result is a series of proprietary banking interpretations. However, all is not lost and Citi was very quick to recognise both the issue and the opportunity, which resulted in a more unique implementation approach to help the customer maximise the potential ‘low cost, low maintenance’ cash management environment. The bank developed a collaborative and consultative approach which seeks to raise the bar in terms of the banking integration space.
During this initial first phase, we seek to help customers understand the background, drivers and most importantly the real benefits of XML messaging for their business. It provides the opportunity to instil the belief that XML is indeed more than just a file format.
The second phase is really about sharing our understanding of the XML message including any specific industry usage rules. This session provides the opportunity to consider the underlying business processes, as adoption of XML messaging is more than just introducing a new file format; it’s about establishing a more efficient and standardised cash management environment.
This final phase is really core to the process, where a customer maintains multiple banking relationships. In these situations, Citi offers to facilitate a meeting of all core banking partners with the primary objective of agreeing a single ‘harmonised’ template. While some corporates have indicated a more phased roll-out approach, Citi still strongly recommends that all core banking partners attend as this provides a clear opportunity to achieve a more ‘future-proofed’ design as all banks have the opportunity to contribute to the ‘harmonised’ template.
From a logistics perspective, it typically takes three to four weeks to find a suitable date to meet. The agenda focuses on a review of the 942 fields, with the objective of achieving a core messaging template that each banking partner can accept and process, without any additional work. These discussions work because they seek to identify the additional flexibility that each bank actually has in its own XML processing logic, so the ‘lowest common denominator’ can be achieved. These discussions seek to exploit the concepts of ‘data overpopulation’ and ‘accept and ignore’ and still allow the banks to overlay their own local country rules in terms of the ‘minimum’ core data requirements.
With 85 customers now live and over 5.5 million XML initiated transactions processed in 2011, Citi has the proven track record and approach to continue to help other corporates enjoy the real benefits around XML adoption. One such implementation is the Paris-headquartered media and entertainment giant Vivendi. In the next section of this article, Olivier Chasseau, assistant vice president (AVP) treasurer at Vivendi, in charge of the Universal Music Group (UMG) treasury, discusses the company’s experiences so far.
About Vivendi and Universal Music Group
Vivendi is at the heart of the worlds of content, platforms and interactive networks. It creates, publishes, assembles and distributes digital content, aimed at consumers and businesses. It controls the technology, infrastructure, marketing tools and commercial networks in the entire value chain. Vivendi is a worldwide leader in video games (Activision Blizzard) and music (UMG). It is also the leading operator in alternative telecommunications in France (SFR) and Brazil (GVT), the leader in telecommunications in Morocco (Maroc Telecom Group) and the leader in pay-TV (Canal+ Group) in France. UMG, 100% owned by Vivendi, is the world leader in recorded music, with more than one in four records sold around the world, and the largest catalog of music rights.
Treasury Organisation at Vivendi
The treasury organisation at Vivendi is based on centralisation, rationalisation and standardisation principles.
Vivendi treasury’s main mission is to pool and balance cash flows for the entire group in all currencies, while providing all the necessary cash resources for short- and long-term requirements. Bank relationships are exclusively managed by Vivendi treasury together with global terms and conditions. Treasury also provides assistance to its business units in order to enhance their payment processes and reduce bank fees.
UMG Global Banking Communication Project
Vivendi group treasury designed and recommended a global solution for UMG banking communication that was based on the use of:
- SWIFTNET, as a single connectivity channel to communicate with the nine main UMG banks.
- XML ISO 20022 as the single payment format for all UMG territories.
- SWAPS (edited by Syntesys) as a common banking communication platform for all UMG territories.
This project was initiated following several payment process issues that arose during SAP roll-out, which included:
- The original design included the requirement to develop and maintain different payment file formats depending on the territories and the banks.
- The development and maintenance of different payment interfaces with the bank systems depending on the territories and the banks.
- The development and administration of different bank internet platforms, which required manual intervention.
The project enhances the application of the Vivendi treasury principles through the rationalization of bank platforms and payment interfaces, the standardisation of file formats and the associated reconciliation processes, the centralisation of the communication channel and the bank mandates management. The conclusion is a more automated ‘lights out’ processing model that simplifies the multi-banking architecture and improves overall visibility.
SWIFTNet is specifically suitable to the UMG organisation given the level of complexity through the number of partner banks (nine), the number of bank branches (48), number of bank accounts (560) and the multitude of payment methods that are currently used around the world.
Why XML Messaging and Citi?
The decision to adopt XML messaging was really based on the core requirement to eliminate any development costs that could be viewed as ‘bank’ proprietary in terms of the banking integration process. The objective was to simplify and standardise, with XML messaging providing a core foundation.
Vivendi also believes XML messaging provides a better framework for achieving economies of scales savings and improved productivity gains in the payment workflow via the achievement of higher STP and automated reconciliation. It also eliminates costs associated with the internet banking platforms maintenance and reduces bank charges.
Citi’s contribution to UMG’s SWIFTNET XML project has been instrumental. Citi’s involvement was key in the success of the harmonisation process UMG initiated, due to the number of territories it covers. Through one working session largely driven by Citi’s expert, UMG was able to harmonise the XML message with its nine core banks across 52 territories. The agreed template represents around 99% alignment. In this respect, the main objectives to improve efficiency, better control and speed up the SWIFTNET roll-out across the organisation were achieved.
Implementing XML: From harmonisation to Roll-out
The project’s first step was to choose a SWIFT connectivity provider. The service bureau BRED was selected following a request for proposal (RFP). Vivendi treasury then organised a detailed review of UMG banks’ SWIFTNet capacities: nine banks out of 12 were selected. A full day meeting held in Vivendi offices, hosting UMG’s nine main banks, was required to reach an agreement on the harmonisation of the global XML template.
A request for proposal to select a global bank platform solution was launched: SWAPS, edited by Syntesys, was chosen for its flexibility and its capacity to be interfaced easily with both SAP and the SWIFTNet environment.
Eight months were required to set up the SAP/SWAPS/SWIFTNet/XML architecture with Deutsche Bank and Commerzbank for the Universal Music German, Austrian and Swiss subsidiaries. The project went live successfully on January 2012 for the pilot territories. Clearly the success of any project is down to a combination of internal sponsorship, from Hubert Dupont Lhotelain, vice president treasurer of the Vivendi Group, a partnership approach with the key stakeholders and of course a committed project management team. The dedication and focused work of Julien Alimi, group treasury, and Tian Yang, UMG IT lead, helped deliver the initial phase on time and within budget.
With Phase 1 now complete, UMG is now extending the project to its nine main banks covering 52 territories with completion expected by 2016. This initial foundation work will enable UMG to enjoy a faster path to adoption in other territories. Many lessons were learned and the central project team will be able to build on this experience, as it now turns to its key markets in the US, the UK and France for a wider implementation in 2012.
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