Chain Reaction Ibm

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Chain reactionor slow burnHow ast is Europemoving toward moreharmonization o thefnancial supply chain?

Banking

IBM Institute or Business Value

IBM Global Business Services


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IBM Institute or Business ValueIBM Global Business Services, through the IBM Institute or Business Value,

develops act-based strategic insights or senior executives around critical public

and private sector issues. This executive brie is based on an in-depth study bythe Institutes research team. It is part o an ongoing commitment by IBM Global

Business Services to provide analysis and viewpoints that help companies realizebusiness value. You may contact the authors or send an e-mail to [email protected]

or more in ormation.


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In line with the spirit of the Single Euro Payments Area (SEPA) initiative, is moving steadily toward tighter convergence of its physical and financialchains. Yet, in a 2007 IBM Financial Supply Chain study, twenty leading E

banks and corporations did not always see eye-to-eye on the topic. To remcompetitive, banks must act now to prioritize collaboration in several areascorporate customers to create the innovative financial supply chain-based they need, and through representative bodies, both to influence the creatiopayments standards and to establish legislative consistency across borders

Chain reaction or slow burn How ast is Europe moving toward more harmonization o the fnancial supply chain?

By Pablo A. Castilln and Cormac Petit

Chain reaction or slow burn

playing field; encouraging new and innovativeservices; and increasing market transparencyfor both providers and users.

One expected outcome of a single paymentsarea is a tighter integration between therequirements of corporate customersregarding their physical supply chain and thecorresponding financial services provided bytheir banks. This may even lead to a poten-tial supply chain convergence, understoodas the alignment of the payments industrygovernance, policies and process acrossthe wholesale markets sourcing, procure-ment, conversion and logistics activities, to

enable a single profiling image that facilitatesbusiness information sharing across multiplestakeholders. To better understand currentperceptions and activities related to potential

European banks and their corporatecustomers are familiar with the SEPA initiativesgoal of processing all Euro payments in thesame way, within the Euro area or acrossnational borders in Europe. However, itscontext should be considered to fully graspits significance. The European Commission(EC) laid the groundwork in 2000 with itsaction plan known as The Lisbon Strategy,whose aim is for Europe to become the mostcompetitive and dynamic knowledge-basedeconomy in the world 1 by 2010. SEPA is a keycomponent of such effort: the European Union(EU) ultimately seeks to remain competitivein an increasingly multilateral world, and asingle market for payments is expected toimprove the EU position through enhancedinternal competition. The effect of SEPA spansfrom opening up markets; providing a level


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physical and financial supply chain conver-

gence in Europe, we conducted the 2007 IBMFinancial Supply Chain study, tapping into theinsight of 20 leading banks and major corpo-rations across Europe.

Our study suggests that the European bankingsector has yet to announce additional bankingproducts that support or leverage greaterintegration of the financial supply chain.Meanwhile, non-bank competitors are enteringthe market and could pose a threat to thebanking industry if it is too slow to act.

Indeed, business- and regulatory-led changesare by nature complex processes carryingsignificant execution risk. An example can befound in the requirements for the new SEPADirect Debit services. As the Payment ServicesDirective (PSD) is expected to be transposedin the national laws of the EU 27, banks eval-uate the costs and level of complexity thatsuch compliance represents, one key examplebeing reporting requirements. As they furthertheir search, the market is realizing that thereis no single cookie cutter solution to clear thesignificant hurdles that banks will have to face.

It seems that most banks are focusing onachieving minimum compliance by January2008 and only a few are exploring how toleverage future market opportunities. However,the anticipated changes are likely to challengetheir current operating model and marketpositioning in the near future. Facing this inevi-tability, the question for banks becomes: What

role should they play, in competition and coop-eration, in shaping supply chain convergencein Europe?

All involved in the workings of a physical

supply chain cycle are interested partiesto its evolution spanning financial serviceproviders, large corporations and small busi-nesses, the public sector and supranationalorganizations. As these stakeholders move tointegrate across a fragmented market, they arefacing significant hurdles, including:

A complex supply chain with a proliferationof technology options and standards

Public sector support that varies widely bycountry

Lack of legal and fiscal harmonizationlimiting supply chain cross-border activities

Justifying the cost of internally enablingcross-border operations

The current lack of a global scope (beyondthe EU) in the standardization effort 2

The differing expectations between banksand their corporate customers on relatedproducts and service offerings, and the levelof remittance-related information that banks

process

Todays view from the bankers and corpo-rate treasurers we spoke with is that over thenext five years, progress toward supply chainconvergence will necessarily be modestand vary significantly by industry. As a result,fragmentation does not seem to be goingaway in the near future. Supply chain-basedfinancial products will likely still be country-specific and solutions are expected to remaincustomer-centered, to a high degree. However,our respondents reported that building uponSEPAs standards could accelerate andbroaden the spectrum of potential services tothe benefit of the industry.



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Chain reaction or slow burnHow ast is Europe moving toward more harmonization o the fnancial supply chain?

A harmonized financial supply chain will uphold Europes economic competitiveness in the near

future. It is largely for the European payments community to define how and when this will beachieved, and what the end state will look like.

As the Single Euro Payments Area reshapes the nature of European payments, European banks,jointly with their corporate and SME customers, begin to realize the prospective business andinnovation potential that may lie ahead. The attractiveness of the destination is not generally ques-tioned, although the selection of the road and the speed of adoption are indeed.

The choices that the payments community faces ahead are strategic and not evident. What is themarkets current perception of the degree of financial supply chain harmonization? Are there show-stoppers hindering innovation? Is there a case for electronic invoicing in Europe, today? What dobanks and corporations really want the payments platforms to do? Where can banks focus to gain

the upper hand?

We believe that IBM, as a thought leader, contributes with its 2007 IBM Financial Supply Chainstudy to successfully address these topics, as it explores the matching of realities and expectationsin a payments landscape that is increasingly in flux.

We warmly welcome the IBM Institute of Business Value to the debate, convinced that its insight willassist the payments community accomplish its high objectives.

Gerard Hartsink Erkki Poutiainen Chairman, European Payments Council Board Member, European Banking AssociationSEVP, ABN Amro EVP, Nordea


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The steady march toward supplychain convergenceA combination of forces currently influencesEuropes payments landscape, including banksand their corporate customers, various legis-

lative bodies and non-bank market entrants.As bank customers demand rapid andaccurate monetary transactions regardlessof geographic distance or political bound-aries, banks must remain on top of what ishappening, not only to comply with the rules,but to profit as well.

An accelerated convergence of the physicaland financial supply chains in Europe is highlypossible in the coming years. Evidence of theefforts behind this objective abound: besidesrelevant ongoing efforts by non-governmentparties, the European Commission (EC) hasrecently taken a coordination role in achievinga common infrastructure for payments, particu-larly related to a European electronic invoicingframework.

The private sector is ahead of the pack, asleading companies work towards full integra-tion of the information flows in their physicalsupply chain. At the same time, corporate

treasurers and CFOs seek efficiency andreductions in costs and working capital byautomating and integrating the steps in thefinancial supply chain. Banks have strong

competencies in automated administrationand potential access to both sides of thetransaction (either directly or through theestablishment of common infrastructures seesidebar later in this paper, All Eyes on the

Finnish Objective ). This allows them to assistby accurately transferring the informationnecessary to bridge the interfaces and firstalign, then later support the integration of thephysical and financial supply chains.

Today, perceptions vary regarding how tighterintegration of these two supply chains willhappen. Generally speaking, progress duringthe next five years is expected to be modestand vary by country. Bank respondents believethat in the near future, business opportuni-

ties will continue to be concentrated on largecorporate customers that require customizedsolutions ones that can only be successfullyprovided by the top global financial institutions.

As the region moves toward improved finan-cial supply chain convergence, new andinnovative banking products and services areincreasingly needed. But thus far, the majorityof banks havent rushed forward with manyofferings to fill such needs. In fact, the supplychain-based financial product market is largelyunmoving at this time, while non-bank compet-itors are entering the fray and blitz marketshare from slow-acting banks.

An acceleratedconvergence o the

physical and inancialsupply chains in Europe

is highly possible in thecoming years, with theprivate sector currently

leading the pack.


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The European Commission (EC) steps upIn March 000, the European Commission dra ted its Lisbon Agenda, an action plan to position Europe asthe global economic leader with ull employment by 0 0. Achieving competitiveness via innovation is onederivative o this development initiative a context that explains e orts to create a single European paymentsarea (SEPA) and the possibility o a uni ied procurement space.

The legal groundwork or SEPA was ormalized in April 007 by the European Parliament in the shape o thePayment Services Directive (PSD). Its aim is to ensure that payments within the EU in particular credittrans er, direct debit and card payments become as easy, e icient, and secure as domestic payments withina Member State, by providing the legal oundation to make the Single Euro Payments Area (SEPA) possible.3 The schemes and technical rameworks have been developed by the European Payments Council (EPC), the sel -regulating body established by European banks. Full transposition o the PSD is mandated by November 009.

The EC has also set up multiple additional activities that promote innovation, including the establishment o theCompetitiveness and Innovation Framework Programme (CIP) and the Expert Group on electronic invoicing,which is expected to ormulate recommendations to remove legal barriers and or additional business rules andstandards.

The CIP aims to encourage the competitiveness o European enterprises. With small and medium-sized

enterprises as its main target, CIP will support innovation activities, provide better access to inance anddeliver business support services. It will also encourage better use o in ormation and communicationstechnologies.

The ITF on e-Invoicing recently presented the European Electronic Invoicing Final Report, which calls orlarge-scale CIP pilots on e-procurement, including e-invoicing (with a minimum o 6 Member States partici-pation) between 008 and 0 0. It also calls or the creation o a common European Electronic Invoicing(EEI) Framework as the basis or industry to develop and implement products and services that allow theircustomers to send invoices and receive corresponding payments electronically. 4

In describing how SEPA should urther these goals, the ITF on e-Invoicing stated that SEPA is expectedto contribute signi icantly to the Lisbon Agenda. The report also said, Making value chains more e icientreduces cost; improving the certainty o the environment in which they operate makes them more competitive.

There ore, achieving value chain e iciency and certainty is a oundation or innovation.5

E-invoicing, a key hinge for future convergence Along with other offerings like bill presentmentand payment that are in the early stages oftheir life cycles, e-invoicing is likely to be amajor development related to supply chainconvergence. However, respondents inadver-

tently anticipated the ECs findings that thesuccess of e-invoicing could be hamperedby an assortment of legal, trust, operationaland standardization hurdles. If these hurdlesare overcome, the breadth of change andits impact on the EU economy could be ofmassive scale.


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6 IBM Global Business Services

As the pursuit of convergence evolves, the rolethat the banking community chooses is likelyto have profound consequences both for indi-vidual banks and their customers. Cooperationin many areas is vital to developing an infra-

structure that stimulates competition andinnovation.

E-invoicing is just one example of manypossible uses of electronic information transferat the different stages which comprise acomplete financial transaction. There aremany points in both the buying and sellingprocesses where electronic informationtransfer could potentially improve accuracyand efficiency (see Figure 1) and open thedoor for risk mitigation and liquidity enhance-

ment solutions.

However, successful electronic informationtransfers rely on widely-shared standards andprotocols. The standard bodies UN/CEFACT(for trade) and ISO 20022 (for payments and

trade services) cooperate in creating andharmonizing standards for the market partici-pants in the physical and financial supplychains.

Among the initial solutions by those in orserving the industry is the Trade Services Utility(TSU) by Swift, which allows data matchingin trade transactions. 6 Swift TSU is a growingcommunity, currently standing at 46 TradeBanks in 19 countries, mostly in EMEA. 7

Several commercial initiatives existingAmerican ones or new European ones areentering the European market to enable finan-cial and physical supply chain integration, butmost of these remain based on proprietary

solutions and message layouts. To signifi-cantly impact the market where bilateral openaccounts trading is the norm, standardizationand interoperability have proven to be keysuccess factors, especially if they do take intoaccount lessons learned from past experiences.

FIGURE 1.

Electronic in ormation trans er.

Market andsell

Processorders

Transport anddeliver

Bring intoaccount

Receive

and processpayment

Settledisputes

Selling process Pre- and post-shipmentfnancing and actoring

Determinepurchasing

strategy

Process andprepare order Receive

Processinvoice

Process andmake payment

Settledisputes

Purchasing process

Electronicin ormation

trans er

Purchaseorder, transportdocumentation

Invoicefnancing

Documentarycredit

CreditGuarantee

e-invoicingEBPP

Electronic billpresentment andpayment (EBPP)

Open account trading

Paperinvoice

Reconciliation (accountsreceivable, accounts

payable), remittance data

Collection

Note: Ovals are the improvements possible through use of electronic information transfer.Source: IBM Institute for Business Value analysis.

Two majordevelopments related

to supply chainconvergence are

e-invoicing and greaterstandardization ortechnical speci ications

related to payments.


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7 Chain reaction or slow burn

Coming together in search of interoperability Expanding the cooperative space has beena key characteristic of European paymentmarket discussions for some time. One

relevant milestone related to standards fortechnical specifications was met in January1995, when the IEC/ISO/UNECE Memorandumof Understanding (MoU) on e-BusinessStandards was signed, with ITU joining fiveyears later .8 Such MoUs are clear examples ofthe markets search for convergence and howto address it, as the market works to fostercooperation among standards developers,so as to minimize the risk of divergent andcompeting approaches to standardization, toavoid duplication of efforts, and to avoid confu-sion amongst users of E-Business standards. 9

More recent examples abound involvingcorporations and banks in open discus-sions that enrich the debate, such as CAST(Corporate Action on STandards), a projectinitiated by the EACT, that has enrichedthe debate by encouraging greater stand-

ardization and process automation inbank-to-corporate and corporate-to-corporatecommunications across the whole financialsupply chain. 10

Ultimately, one of the best indicators ofsuccessful standardization will be how a solu-tion incorporates small and medium-sizedenterprises (SMEs). The day-to-day reality ofSMEs is not compatible with lengthy debatesor a proliferation of bilateral solutions withinconsistent standards. Therefore, it seemsreasonable to expect the most pragmatic andcompatible standard to have greater oddsof becoming a default option in the solutionsacquired by European SMEs.

Study indings at a glanceOur interviews were conducted with both Tier-1banks and large corporations. Study findingsshowed that banks and corporations agreethat today there is limited convergence ofthe physical and financial supply chains, andbetween payments and invoicing, though bothexpect the outlook to improve (see Figure 2).Each also recognized that the development ofstandards is vital in this effort.

Physical and inancial supply chainstoday are converged

The convergence outlook will improveover the next ive years

Payments and invoicing today areintegrated

SEPA standardization can contribute tosupply chain convergence

Banks are currently involved in initiativesto urther converge supply chains

Disagree Agree

Banks and corporates have similar viewpoints

Banks and corporates differ

Banks Corporate customers

Survey statement

Source: 2007 IBM Payments Convergence study.

FIGURE 2.

Key perceptions o banks and their corporate customers.


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Comparing specific bank responses to those of their corporate customers On other points, however, the figure also high-lights some very different perceptions betweenthe two. Overall, banks were less sure than

their customers to the extent to which SEPAstandardization alone contributes to supplychain convergence. In another contrast, bankswere much more aware of current initiativesto further converge supply chains than theircorporate customers.

When asked how much integration currentlyexists between physical and financial supplychains today, not a single respondent said toa great extent. About half of all respondentsanswered this question with somewhat. Evenwhen focusing just within the financial supplychain, the majority of respondents across bothgroups felt that there was not a great deal ofintegration.

Regarding the feasibility of establishing anintegration platform for procurement, invoicingand payments, most banks responded thatit would not be achievable, citing country-

specific business rules as well as legal andtax requirements that hamper its viability.Corporations tended to agree on the improb-ability of having a single, all-encompassingsolution; however, the ideal benefit was most

evident to them. Both agreed that the solutionprobably lies with the interconnection of thesupply chain and financial platforms. As foridentifying specific potential solutions, bankrespondents perceive SEPA as an enablerof increased involvement in additional initia-tives to further integrate physical and financialsupply chains.

Differences of opinion extended to identi-fication of the roadblocks to supply chainconvergence across Europe (see Figure3). Banking respondents most commonlycited organizational silos , while corporaterespondents most often named the lack of standardization and the fragmented legal and fiscal frameworks .

In addition to notable perception gaps aboutthe hurdles to supply chain convergence,

FIGURE 3.

Perceived obstacles to integration, beyond organizational silos: Banks view versus corporate customers view.

Source: 2007 IBM Payments Convergence Study.

Silo mentality, saturations o mind and resources withininternal divisions

Resources absorbed by regulation and mergers Critical mass, interoperability and ownership Di erent legal and tax regimes, regulatory / reporting

requirements and accounting standards Corporate clients need to re-engineer their trade applications

and processes Banks internal costs: international trade fnance costs

money Expensive or small and medium businesses Security and confdentiality: banks shouldnt see each

others data

Processes not standardized across the supply chain Individually ragmented chains Complexity o expanding processes beyond cross-

enterprise level Fiscal legislation lacks clarity Di erences in processing cycles among countries linked

to payments Some a ected parties are resistant to change Auditability issues Security and confdentiality issues

Roaming (connectivity) agreement among operators,or example, EBPP consolidators

Bank respondents Corporate customer respondents

There were notableperception gaps betweenbanks and their corporatecustomers: or example,

banks were muchmore aware o currentconvergence initiatives

and each perceived adi erent set o roadblocks

needing attention.


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9 Chain reaction or slow burn

our respondents recognized that the level ofmaturity and adoption of offerings such ase-invoicing and e-procurement varies greatly.Retail (non-food), consumer brands, high tech-nology, pharmaceuticals and the automotive

sectors were perceived as the most advancedin the integration of physical and financialsupply chains.

The respondents of the study were also askedabout the innovation potential associated withsupply chain convergence. We found that mostbanks are skeptical about finding obviousinnovative financial services and productsthat can generate high added value to theirwholesale and SME customers if imple-mented around these processes. By contrast,most corporate customers expressed openexpectations for innovative banking services.However, when asked of current relevant offer-ings, most corporations limited their answersto reverse factoring .11

Finally, when asked about integration require-ments, bank respondents most often citedtop-down change of mindset and govern- ment participation . Other supporting successfactors that banks identified include:

Developing a win-win business case acrossall supply chain partners: buyer, supplier,logistics, insurer and bank

Using standards for regulatory reporting andthe payments process

Re-engineering processes and gradualbuild-up

Adding Additional Optional Services (AOS)on top of SEPA services

Strengthening dialogue with ERP suppliers

and integrators.

According to corporate customer respondents,the top success factors were common standards and interoperability . Others mentionedfactors such as corporate level enterpriseresource planning, achieving a critical mass

of users versus only early adopters and iden-tification of a strong internal sponsor, both toeliminate silos and assign accountability.

Important actions or banksEuropean banks can begin moving towardimproved supply chain convergence with aplan that assigns target completion dates forimportant high-level tasks, such as deadlinesfor making legacy systems SEPA-compliant,and verifying that banking CEOs and CFOshave SEPA-related items on the 2008 agenda.

I the banks want to remainin the business, they must adapt to the new technologies. They cansomewhat delay the inevitablechanges, but at the risk o someother participant eventually taking the market. Harry Leinonen, Bank o Finland

Beyond setting those milestones, this studyleads us to five specific recommendations forbanks:

Eliminate silos within financial institutionsand corporations

Focus on core competencies

Step up two-way communication withcorporate customers


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Work through representative bodies towardregulatory standards

Promote systems and tools that simplifyprocesses supporting cross-borderpayments.

Eliminate silos Remove internal inefficiencies resulting fromduplicate functions, redundant informationcollection and insufficient information sharing. Banks and corporations are aware of thedifficulties in putting together a cohesive,comprehensive solution proposal to help solvetheir corporate customers most pressingneeds this is made greater by significantoperational fragmentation and the commonlack of a unified view.

Identifying what the problems are, what thealternative solutions may look like and whosbest positioned to execute on these is achallenge. If a banks business developmentmodel is also siloed, the level of complexityincreases dramatically. We believe it is essen-tial to search and remove internal inefficienciesresulting from duplicate business developmentfunctions, redundant information collectionand insufficient information sharing within the

organization.

Focus on core competencies Review the banks core business strategyto determine who is best suited to performtasks like payments processing. Facing anaccelerated changing payments landscapewithout at least reviewing the readiness of thecurrent operational model is not advisable.Furthermore, the squeeze between growingmaintenance- and compliance-related costs,

and competitors whose models are betterpositioned to flourish in a converged paymentsenvironment will tend to tighten.

Evaluate the match between the bankscore business strategy and its operationalcapacities, with an open mind to exploringalternatives. There are options, such as white-labelled cash management solutions, that mayoffer a financially sound alternative to currentmodes of operation or investments to meetregulatory demands.

When you outsource production, you also outsource fnancing costs.Companies are strongly seeking

solutions to accelerate cash cycles. Marco Bolgiani, Unicredit

Step up two-way communication with your corporate customers Use insights to develop innovative supplychain-based products and increase customerbuy-in. As firms continue to expand glob-ally, their requirements from risk to liquiditymanagement are growing ever more complexand specific. Banks corporate customers

expect that their financial services providersoffer consultative-based solutions. Suchdemands initially came from the major globalcorporations, but are increasingly going down-stream to include smaller companies. Involvea representative selection of customers earlyin the solution design cycle, and use customerinsights to develop innovative supply chain-based products and increase customer buy-inacross all segments.


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Work through representative bodies toward regulatory harmonization Collaborate to implement consistent regula-tions across Europe. Convergence will inevitablyoccur and take a specific shape which will

enhance the particular positioning of certainparticipants, to the possible detriment of others.Active individual involvement through organizedrepresentative bodies is key at this early stage,and is certainly strategic in nature, to remaina beneficiary of change. Becoming part of abroad vision to be executed by the bankingcommunity during the next few years will alsoallow access to critical insight that may prove ofhigh value in determining investments and busi-ness goals in this space for years to come.

Promote systems and tools that simplify processes supporting the financial supply chain There are two milestones that should be metfor convergence to achieve its promised value:critical mass and homogeneity. Banks shouldembrace the notion of dematerialization (e.g.,electronic invoicing) and other related servicesfor the financial supply chain, as well as theadoption of technology that is widely used.There is therefore a critical strategic need for

cooperation in order to create solid bedrockthat enables more profitability and greatercost-effectiveness. The alternative is an evermore complex and fragmented space, whereproprietary solutions crowd out the benefits.Promoting consistent systems and tools to

simplify processes supporting cross-bordere-invoicing services will require a significantlylarger interaction base among banks with amandate for innovation.

Corporates do not only want toautomate the e-invoicing and pay-ments solution. They also want to automate the whole invoic-ing-related package: both cashmanagement aspects and order-delivery aspects. In the trans ormation period to the ull electronized handling o invoices, corporates aralso interested in scanning solutionsand the handling o remaining

paper-based documents. Obviously,banks cannot o er all this by themselves and they need partners. Pia Sarnala-Kallio, Nordea


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All eyes on the Finnish objectiveFinland is a highly competitive Nordic countrywith over ive million people and much can belearned rom their electronic bill presentment andpayment approach. According to the Federation oFinnish Financial Services, consumer bill paymentonline has exploded during the past decade:currently, over 66% o Finnish citizens use e-banking to pay their bills12. Although comparablecountry statistics in this space are typicallyunavailable, these results could point to Finland asa benchmark o the European market.

In line with these developments, an existingmarket in rastructure was recently enhanced,allowing Finnish banks to o er their corporatecustomers di erentiated consumer e-invoicingservices, based on a common plat orm called

Finvoice. Originally built in 00 as a B B e-invoice plat orm, Finvoice was enlarged to supportB C transactions in 007. It is intended to be areliable e-invoice solution or corporate customersto send invoices and receive payments rom theirSME and consumer clients. This service, enabledby close cooperation among banks, allows invoicedata to be transmitted between themselves andrecipients through the banking in rastructure; italso allows or tailored and cost e ective ormatsto support sector-speci ic requirements.

The Finvoice solution design is intended totransmit, veri y and approve invoice in ormationseamlessly, as well as to ease authentication andproo o delivery. To do so, experience has shownthat the plat orm bene its greatly when opened tonon-bank service providers, allowing access to allcounterparties. As the Finvoice project rolls out,other countries may leverage the lessons learnedas they execute their own payments initiatives.

Are you collaborating enough today?If you are a banker involved in steering yourorganization through these changes, you mayfind the path may not be obvious. How canyou discover where heavier involvement is

needed to strengthen your banks future posi-tion in the era of supply chain convergence?The following questions may help.

What is your plan for addressing yourinternal silos and overcoming those withinyour customers environments?

Based on your institutions core competen -cies, which functions are good candidatesfor outsourcing?

How are you collecting and reacting to infor-mation about the needs of your corporatecustomers related to supply chain conver-gence?

Do you have a plan to systematicallyeducate your corporate customers abouthow regulatory requirements will impact theway they handle payments?

What actions are you taking to helpinfluence regulatory standards?

How prepared is your bank to contribute todiscussions about implementing consistentpayments systems and tools industry wide?

Armed with answers to questions like these,banks can now begin to set priorities to faceto the shifting future of supply chain conver-gence. Knowing where they stand today isessential to developing a customized plan not only to enact infrastructure improvements


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that make payments processes more efficient,but even to create or access new financialopportunities in the changing Europeanbanking environment.

Above all, banks that want to lead in thechanging European payments landscapeneed to prioritize collaboration: to influencetechnology and regulatory standards, and tobuild trust and educate by example devel-oping working and extendable models withleading corporate customers.

About the authorsPablo A. Castilln is a Partner in the BankingSector of IBMs Global Business Services.Based in Brussels, and previously in Chicago

and Mexico City, he is responsible for drivingselected business solutions into the Beneluxmarket, with special focus on core bankingand payments, including SEPA. He haspresented at numerous conferences, mostrecently the EPCA Conference in Frankfurt,Germany. Prior to joining IBM, Pablo heldexecutive positions in the institutional bankingand strategic planning divisions of a globalfinancial institution. Pablo can be reached [email protected] .

Cormac Petit is a Chartered Accountant(South Africa) and Managing Consultant in theIBM Global Business Services Strategy andChange practice. He has over twenty yearsof experience worldwide and across a wide

range of industries, with primary expertisein the Finance Sector. In the IBM Institute forBusiness Value, Cormac is joint global Bankingleader. He has published many researchstudies and articles in a variety of journals, andspeaks regularly at conferences. Cormac canbe reached at [email protected] .

Contributors Sebastin Erkens, Global Business Services

Elke Kurek, Global Business Services

Alec Nacamuli, Financial Services Sector

Acknowledgement We would also like to thank all the bankingand business executives that participatedin the survey across Europe. Your invaluableinsight is the backbone of this study.

About IBM Global Business ServicesWith business experts in more than 160countries, IBM Global Business Servicesprovides clients with deep business processand industry expertise across 17 industries,using innovation to identify, create and delivervalue faster. We draw on the full breadth of IBMcapabilities, standing behind our advice tohelp clients implement solutions designed todeliver business outcomes with far-reaching

impact and sustainable results.

The changing paymentslandscape will requireEuropean banks to

collaborate on manylevels they should beginnow to take stock o their

current actions and setpriorities to help them

ace the shi ting uture osupply chain convergence.


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Copyright IBM Corporation 2008

IBM Global ServicesRoute 100Somers, NY 10589U.S.A.

Produced in the United States of America01-08All Rights Reserved

IBM and the IBM logo are trademarks orregistered trademarks of International BusinessMachines Corporation in the United States,other countries, or both.

Other company, product and service namesmay be trademarks or service marks of others.

References in this publication to IBM productsand services do not imply that IBM intends tomake them available in all countries in whichIBM operates.

Re erences1 Extracts from Presidency Conclusions on the Lisbon Strategy by Theme, European

Council, Lisbon, March 2000.2

It should be noted that parallel albeit disconnected efforts are underway outside of Europe,such as those led by the U.S. Clearing House Interbank Payments System. The debatenow centers on bridging to a global standard (potentially ISO 20022) via the implementa-tion of the EDI-based EPN STP 820 format in the U.S., while the outlook for a true globalstandard matures. For an in-depth review, which includes a comparison between EPNSTP 820 and ISO 20022 standards, refer to CHIPs Business-to-Business Wire TransferPayments: Customer Preferences and Opportunities for Financial Institutions, October2006.

3 European Commission. http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/550&format=HTML&aged=0&language=EN&guiLanguage=en (accessed on November6, 2007).

4

ec.europa.eu/information_society/eeurope/i2010/docs/studies/ eei -3.2-e- invoicing _final_report.pdf

5 Ibid.6 JPMorganChase. SWIFTs Trade Services Utility InfoPack. http://www.jpmorgan.

com/cm/ContentServer?cid=1132157277019&pagename=jpmorgan%2Fts%2FTS_Content%2FGeneral&c=TS_Content (accessed on September 11, 2007).

7 Jackie Keogh, Head, Supply Chain Management, Swift, in SwiftNet TSU: wheres themoney October 2007 presentation (SIBOS).

8 The abbreviations stand for International Electrotechnical Commission, InternationalOrganization for Standardization and the United Nations Economic Commission forEurope, respectively. A later reference within the paragraph is made of ITU, which refers tothe International Telecommunication Union.

9 More information about the MoU on electronic business between IEC, ISO, ITU, and UN/ECE: http://www.itu.int/ITU-T/e-business/mou/index.html

10 More information can be found at http://www.eact-group.com/11 Reverse factoring is a financial service provided mainly to small- and medium-sized

suppliers, where a financial institution provides them with credit facilities based on thesounder credit rating of their larger buyers, upon invoice acceptance. This results in anenhanced supply chain for the buyer and additional working capital via accelerated cashflow to suppliers.

12 Federation of Finnish Financial Services. http://www.fkl.fi/asp/system/empty.asp?P=2298&VID=default&SID=459525616249433&S=0&A=open:news:item_www:2814&C=35036

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