Many cash managers of internationally active companies are (still) looking for ways to harmonise their different formats for payments, account information and status reports and want to find these combined in one single format for their company. With messaging standard ISO 20022 common gateway interface (CGI) they appear to have found a way to achieve this aim.
The format issue is, however, merely one side of the coin when it comes to automating payments and related financial information – for example bank statements and remittance advices – to the highest possible degree and, thus, to process them cost efficiently.
On the other side of the coin, it is equally important to find the most effective way for a company to send payments to the bank and to receive account information as well as status reports (such as pain.002) from the bank.
Currently, there have two cross-border options: EBICS or SWIFT. Which is the right choice for a company? The answer is that it depends on the company and its particular needs. Each has its own individual set-up, its specific bank portfolio and follows its own banking strategy. Nevertheless, there are a few indicators that support either EBICS or SWIFT – or even a hybrid solution of the two banking protocols.
What Is EBICS?
EBICS (Electronic Banking Internet Communication Standard) represents a standardised, bank-neutral transmission protocol in Germany and France that companies and banks use to exchange financial messages with each other. Further background information and the benefits of EBICS can be found here.
Meanwhile, EBICS has made its way across the German and French borders and is making progress across the rest of Europe. There are initiatives in Portugal and Switzerland to implement EBICS as a standard protocol. A number of banks in Switzerland, Austria, the Netherlands and in the Nordics already make EBICS available to their corporate customers or are preparing for introducing the standard in 2015.
It is often the ‘classic’ cash management banks that offer EBICS as a ‘single point of entry, so that companies can send their payment orders via one single channel to a group of banks; the bank then routes the payment flows via its own internal network to the respective foreign affiliates from where the payment is meant to be executed. Conversely, it also works for the concerted provision of account information.
This method has technical, administrative and – last but not least – cost advantages as companies no longer have to support and maintain several local or bank-specific protocols. In this sense, EBICS is probably the first choice for bank communication of companies that work with banks offering EBICS as an entry channel into their bank group network.
In this area, several projects have already been realised where payment orders were sent in the format ISO 20022 CGI via EBICS to a large international bank with a branch in Germany, which then routed these payment flows internally to its international office in Asia (e.g. Vietnam).
Where Does EBICS End and SWIFT Start?
Once a company starts working with banks that do not support the EBICS protocol, the only real alternative is SWIFT.
In this case, a company has to ask itself whether or not SWIFT should be a supplementary entry channel to the banks (i.e. a hybrid approach) or whether SWIFT should become the one and only protocol to access all banks. This decision has to be carefully thought through, taking into account factors such as the number of banks, their respective technical capabilities and transaction volumes. Again, there is no clear-cut answer to the question as to which approach is best to follow.
The fact is that SWIFT has done a lot over recent years concerning connections and related costs. As a consequence, it is now possible to set up a SWIFT access via Alliance Lite2 for less than € 5,000 per year. Any remaining hurdles may usually be found on the bank side which may, for example, include very comprehensive bilateral contracts, or effectively ‘defence’ conditions.
Where this occurs, the only recommendation is for companies to get independent and experienced consulting services on board to help examine the above mentioned aspects to their full extent. This will support them with best-practice recommendations in their decision-making process. It is also indispensable to evaluate whether the company’s payment system facilitates both protocols – even in parallel.
To return to the introductory question – should companies wait for a pan-European EBICS standard? The answer to this question is a clear ‘no’. EBICS will continue to progress on its way through Europe, this is certainly undisputed; however, whether it will go beyond that remains to be seen and at least some regard it as unlikely
Companies considering whether to centralise their payments and their bank communication usually have two starting points:
- A heterogeneous bank portfolio, which companies want to keep: In this case, the company needs to analyse which bank can actually be reached via which protocol.
- The company wants to harmonise its existing banking landscape, and/or some existing bank connections may be replaced by new ones: Such an approach gives companies the opportunity to choose new banking connects in line with their own criteria (for example standard formats such as ISO 20022 CGI or standard protocols such as EBICS and SWIFT).
So, there is no easy answer to the question of whether EBICS or SWIFT is the better choice. To borrow the consultant’s favourite phrase: “It all depends…”
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