Process automation in the context of this article means eliminating, or at least minimising, human intervention between the customer and the bank relating to activities in financial processes such as purchase to pay (P2P); order to cash (O2C); and accounting to reporting. So what is needed to accomplish this? To start with, customers’ financial systems must communicate directly in a computer-to-computer manner with those of the bank. These so-called host-to-host (H2H) channels have three key areas of considerations:
- Secure communication – which comes down to secure and encrypted communication over the Internet or SWIFTNet.
- Digital signatures – used to identify the bank and customer, as well as to ensure that there are no unauthorised alterations to financial messages.
- The format used to create financial messages – not only the format standard as such, but also which products and services can be accessed and which banks actually support the required formats.
The first two items were solved quite early with banks’ adoption of global standards, but efforts to globalise and standardize formats and services were unsuccessful. This resulted in a very challenging situation for customers, especially those with multiple bank relationships who required transactions and reporting in multiple countries.
To reach a decent level of process automation customers have been forced to implement a vast number of country-specific solutions, defined by formats and services in combination with banks’ proprietary solutions. If, for example, a customer implemented the Electronic Data Interchange For Administration, Commerce and Transport (EDIFACT) format standard from one bank, the next EDIFACT-enabled bank likely demanded a different implementation for their own EDIFACT messages, while a third bank might not support EDIFACT at all.
The implementation and testing of formats and bank-specific message requirements in customers’ financial systems has therefore been a very time-consuming and costly activity. It has also been extremely challenging to operate and maintain such a set up. However, the launch and progress of the ISO 20022 format standard has now changed this cumbersome process forever.
SEPA as Catalyst for Change
As the introduction of the single euro payments area (SEPA) from February 2014 stipulates the use of ISO 20022 between financial institutions, banks in Europe and other parts of the world have had to invest in this new global format standard. Based on their initial investment in inter-bank communication, banks started to offer customers H2H solutions based on ISO 20022. But did the banks agree upon one single definition of the structure and content of these ISO 20022 financial messages? They did not.
A limited victory was achieved in that at least all banks in Europe supported one defined format standard to customers, but the problem with long implementation time and substantial cost for banks still remained. The vision of plug-and-play bank connectivity still seemed out of reach. Another negative effect of banks’ inability to agree was the lack of format support from enterprise resource planning (ERP) vendors. These typically were more than willing to implement ISO 20022 as a standard module in their financial systems, whenever the banking industry managed to agree and define an ISO 20022 standard that a customer could use generically across banks. Bank-specific implementations by ERP vendors were, of course, out of the question.
SEB was among the first to identify the potential of ISO 20022. It has been at the forefront of implementing domestic and global services using this standard, and a driving force behind the Common Global Implementation (CGI) initiative which aims to define an ISO 20022 standardisation across banks and ERP system providers. The work by CGI is about finding market generic solutions which all stakeholders can align to and the most recent result is the delivery of ISO 20022 version 3. Bank products and services differ on details so that full standardisation of financial ISO 20022 messages between banks is impossible to accomplish. However the high level of standardisation has now, finally, motivated ERP vendors to develop and offer ISO 20022 as a standard module to be configured toward different banks, rather than being developed toward individual banks.
Standardisation of communication, signatures and format standards are all important steps to further improve customer on-boarding. To simplify the process even more, test tools for verifying bank specific format implementation in financial systems are becoming available. Customer test transactions are being transferred to these test tools, where error detections can be made instantly and corrective instructions can be provided online. SEB began providing its own Test Bench facility early in 2010 free of charge to customers and partners, resulting in implementation times reducing by 65% and substantial cost savings for both the bank and its customers. Implementation times today are typically a matter of weeks instead of months, as previously manual work with long lead times and poor quality have been eliminated and processes have become substantially rationalised.
The conclusion is that the players in the financial industry are finally establishing at par with market and customer expectations. A paradigm shift has occurred based on the global adaptation of ISO 20022 and GCI’s success in standardisation. Providers of financial cloud services are also considering use of these standards to include bank connectivity as a part of the cloud offering. The topic of financial process automation is no longer only a subject for large international company groups, with the ease and availability increasingly attracting corporate customers at all levels and across various sectors. Corporates of all sizes are finally experiencing a new era of process efficiency and automation.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?