Global Transaction Banking The successful introduction of a payment factory Implementing integration solutions based on best-practice components
The purpose of this white paper The white papers published by Deutsche Bank examine key topics that focus on corporate treasury management across the world, describing potential solutions and providing guidance on practical implementation in different areas. As a result, this informative series forms a beneficial contribution to industry discussion as well as helping corporates maintain and improve their competitive edge in the face of various market challenges. This paper explores how corporates can centralise their treasuries and thereby optimise efficiency going forward. An informed outline for future optimisation initiatives In the course of SEPA migration, many companies closely reviewed their existing cash management set-ups, namely their treasury system. This critical analysis was not only necessary in order to prepare for migration, but also valuable for identifying potential improvements. Corporates built-up their understanding of the strengths and weaknesses of their current cash management processes by thoroughly examining their internal structures. This enabled them to select and realise meaningful improvements, or at the very least to establish an informed outline for future optimisation initiatives. Companies that have successfully migrated to SEPA are now taking the next steps to centralise, standardise and automate their treasury processes by leveraging the benefits accrued during the SEPA project. One important aspect of SEPA in this context is the aim of standardising cash management processes across various countries. A centralised payment factory based on a best-practice integration solution is an efficient method for managing and executing the cash flows of a corporate treasury. The integration solution usually features advanced capabilities for banking communication, global formats and an automated end-to-end (E2E) process. These three building blocks are the main components for the efficient handling of transactions across a group of companies. 3
The payment factory as a tool for control A lack of transparency or coordination, unnecessary costs, and poor efficiency are only some of the challenges that affect many multinational companies with a decentralised approach to treasury. Furthermore, inadequate control makes strong group-wide cash flow management and forecasting impossible, leading to an inability to efficiently manage corporate liquidity across subsidiaries. Such circumstances also mean increased operational risk for the corporate as a whole. Introducing a payment factory enables corporates to overcome these challenges by creating a central hub that handles all of a group s treasury functions. The role of the payment factory can then be extended to process the transactions of all the participating legal entities of the group. Simplifying and standardising the process has two important benefits. Firstly, it leads to a reduction in the number of processes and payment formats; secondly, it facilitates uniform bank communication. Moreover, by managing payments centrally, companies have access to key information for enhancing their finance management, optimising and simplifying processes further, and achieving tangible cost savings. It leads to a reduction in the number of processes and payment formats 4
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High expectations within the business ecosystem Corporates that are planning to set-up a payment factory often have high expectations for their benefits. Their focus is usually on the potential for using, industry standards to unify and automate treasury processes for all banking partners, based on one central treasury system. However, within those broader objectives, corporates incentives for setting up a payment factory can differ. Accordingly, it is essential to understand the individual requirements of a corporate in order to determine the most appropriate best-practice solution for each individual organisation. Centralisation: the key to success When setting up a payment factory, large corporates in particular expect significant advantages compared to their existing decentralised treasury, including: Significant advantages compared to their existing decentralised treasury improved efficiency and control enhanced transparency and liquidity across all cash positions optimised account reconciliation in Enterprise-Resource-Planning (ERP) and in Treasury Management Systems (TMS) reduced number of necessary bank accounts and banking relationships efficient authorisation management within ERP/TMS that meets all compliance and audit requirements harmonised, centrally-managed and automated processes Before implementing a payment factory, it is important to understand and define the scope of the project. Some relevant considerations, for example, are how many legal entities will be included, which countries are within the scope of the project, which instruments will be used and whether centralisation should be regional or global. Varying technical possibilities allow for different appropriate solutions according to each corporate s objectives and requirements. 6
Standardisation: seamless consistency The usage of multi-bank industry standards allows for seamless integration across all components of the payment factory, from the corporate s IT infrastructure to the bank s systems. This usually leads to a substantial reduction in cost and complexity by drastically reducing the number of payment formats and communication channels. Automation: increasing productivity The level of automation implemented can vary from corporate to corporate; in most cases, corporates aim for fully automated E2E processes. The productivity gains not only stem from converting manual processes. Automated data transmission, in particular, is becoming increasingly important to ensure that the overall process is optimised. Another benefit is increased process security due to standardised payment files that can be transmitted automatically from the ERP/TM system to a bank, without any manual process interruption. Going further: extending the advantages Despite these clear advantages, the range of services that a payment factory can potentially provide is not limited to the three main elements. Thus corporates frequently extend the goals of their projects beyond the mentioned focus areas. Further best-practice enhancements that can be created by a payment factory are as follows: the reduction of electronic banking solutions and variety of payment formats the creation of a standardised IT infrastructure as a basis for the centralised optimisation of processes and cost the development of centralised cash flow and liquidity management high standards of process security the simplification of treasury processes for frequently planned acquisitions of other companies a comprehensive coverage of several countries, local bank relationships and subsidiaries, as well as a corresponding critical mass of bank accounts managed by the payment factory 7
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Competent support for integration Deutsche Bank provides a comprehensive range of services and best-practice solutions to support clients during the selection and practical implementation of an appropriate payment factory concept and beyond. Each integration solution includes several components that must be considered and analysed individually before the implementation of the project can begin. E2E- Process Bank Communication Global Format 9
First: Bank Communication The selection and set-up of bank communication are the most important factors for the success of any centralisation project. There are essentially two types of bank connectivity that should be considered when implementing a payment factory. IT & Ops Services, Vendor management File transfer Bulk payments (ACH) Branch 1 Branch 2 SLAs ERP / TMS ISO20022 XML Authorisation Feedback file transfer H2H Deutsche Bank systems High value payments (HVP) Clearing Branch 3 Branch 4 MT 940 MT 942 ISO20022 XML Account statement transfer SWIFT for Corporates Cheques Deutsche Bank's global integration solutions Host-to-Host (H2H) connection A Host-to-Host connection allows clients to send and receive data in an automated and secure manner. The service supports various communication protocols, encryption standards and compression options. Another advantage of a H2H connection is that it supports the automated authorisation of transaction files on the basis of a corporate seal (company stamp). This corporate seal represents an automated, non-personalised signature, which is integrated into the technical data transfer process. SWIFT for Corporates SWIFT for Corporates has the advantage of being based on a single technical link, i.e. an exchange of information with any bank that meets the highest security standards. Currently, the demand for the SWIFT Alliance Lite2 service an uncomplicated way to obtain a fast and straightforward SWIFT connection continues to increase. Companies benefit from lower investment costs and also have access to the entirety of SWIFT services for corporates. Both communication options support the usage of standardised messages based on ISO 20022 and thereby create a basis for fully automated and standardised E2E processing. 10
Second: The ISO 20022 XML Global Format One format for everyone; unlike before, when corporates were often dependent on a variety of local payment file formats, the standard ISO 20022 XML format is used for SEPA transactions throughout the Single Euro Payments Area. This represents an important step towards standardising and reducing the number of formats within the ERP/TMS environment. Of course, the ultimate aim is to use this singular XML standard across banks worldwide, in order to reduce costs and complexity. The Common Global Implementation - Market Practice (CGI-MP) initiative The goal of the CGI-MP initiative is to standardise the use of the XML format across banks. Ultimately, the initiative works to establish one standard worldwide between companies, banks and other market stakeholders, specifically by defining harmonised guidelines on a global level for XML messages following ISO maintenance 2009. Deutsche Bank is an active participant in the CGI-MP initiative, as are other leading transaction banks and leading ERP/TMS providers, and SWIFT as the standardisation organisation. An important step towards reducing the number of formats Good progress has already been achieved for example, the CGI-MP group has developed and defined harmonised guidelines for the basic message, as well as country-specific rules. Their work so far has found that payments and direct debits are in fact already 90 % harmonised. The remaining 10 % are country or bank-specific requirements that companies must also consider. pain.001.001.02/03 credit transfer initiation pain.008.001.01/02 direct debit initiation pain.002.001.02/03 payment status report Validation results Company camt.054.001.02 debit / credit notification Returned direct debits/refusals for booked SEPA transactions (equivalent to DTI) camt.052.001.02 account report (intraday) camt.053.001.02 account statement (end of day) 11
Nonetheless, CGI-MP has already achieved an outstandingly high rate of harmonisation in its implementation so far. Around 25 global transaction banks and several ERP providers continue to be involved in the CGI-MP initiative and support the usage of CGI-MP XML for their client base. For an easy adoption of the CGI-MP format, SAP and a number of CGI-MP banks have defined a dedicated format template. By using these format trees, companies can easily generate the CGI-MP XML format in their regular payments runs. In this way, companies can also benefit from cost savings, because of the significantly lower effort necessary to set-up the XML format within their IT systems. Deutsche Bank supports the XML format in accordance with the CGI-MP harmonised guidelines for the Americas, Europe, the Middle East and Asia. Companies that would like to implement the CGI-MP format, should discuss the CGI-MP XML support in detail with the principal bank in advance. Paves the way for a fast and more transparent reconciliation SWIFT MyStandards In order to further foster the usage of CGI-MP XML, Deutsche Bank has introduced SWIFT MyStandards. SWIFT MyStandards is a web-based application providing clients with direct access to the standardised and structured documentation of payment file formats, such as ISO 20022 XML or SWIFT Message Types (MT). By leveraging this tool, users can, for example, analyse, centrally document and update XML messages with a minimum of effort allowing them to utilise all available information in the most efficient manner. SWIFT MyStandards presents format guidelines in a consistent way and thereby provides an optimal basis for the faster technical implementation of format requirements into a client s IT systems. In addition, the structured representation of format guidelines can be made available to users via a variety of export formats such as PDF, Excel or XML. This shortens the verification process between the bank and client. Usage of ISO 20022 XML along the process chain Several companies already use the XML format for payment and direct debit business, but they aim to extend the usage of XML to other areas. For example, they want to be in a position to use it further down the process chain by adopting the payment status report pain.002 format or the account statement camt.053. format. The consistent usage of dedicated reference fields and standard ISO codes pave the way for a fast and more transparent reconciliation of accounting items, thus accelerating the automation process. 12
Third: The Automatic End-to-End Process (E2E) The full E2E integration is another important way of making treasury processes more secure, economical and cost efficient. This involves a seamless integration between ERP/TM systems and banks, based on state-of-the-art communication options and usage of the ISO 20022 XML format. Consequently, media disruption usually caused by the intermediate storage of payment files in order to support a manual file upload into electronic banking systems can be avoided. Blueprint integration solutions Since 2010, Deutsche Bank, together with leading TMS providers, has been providing corporate clients with pre-packaged solutions that can be directly incorporated into their treasury systems. These blueprint solutions are designed to incorporate the exchange of transactions and reports via a standard communication channel. So the standardised XML format in accordance with CGI-MP guidelines can be used to its full advantage. A reduction in paperwork and improved process automation Moreover, blueprint integration solutions make it possible to shorten the implementation timeline, and, as a result, the overall cost of implementing the project. Additional trade finance components In conjunction with certain TMS providers, Deutsche Bank is expanding current cash integration solutions to service the trade finance sector as well. This will eventually enable corporates to process letters of credit and guarantees by adopting the SWIFT MT 798 via existing integration components. This new value proposition provides companies with tangible advantages, such as a reduction in paperwork and improved process automation. Additionally, companies will only need a single treasury system to organise cash management and trade finance. 13
Well-equipped and well-informed The services, concepts and initiatives outlined above lay the perfect foundation for our clients to establish a central payment factory by defining the optimal integration solution for them. Deutsche Bank will continue to advise and support companies during the implementation of their treasury strategies and beyond. Moreover, Deutsche Bank can provide further comprehensive information on best-practices for setting up a payment factory. Deutsche Bank is well placed and prepared to support its clients in strategically designing and optimising their treasury business going forward. Strategically designing and optimising their treasury business 14
www.db.com/gtb gtb.marketing@db.com This brochure is for information purposes only and provides a general overview of the range of services offered by Global Transaction Banking. The general information provided in this brochure relates to the services of Global Transaction Banking as offered to clients on the date this brochure was published in September 2014. The information is subject to change. This brochure and the general information on the range of services offered by Global Transaction Banking merely serve as an illustration; no contractual or non-contractual obligations or liability on the part of Deutsche Bank AG or its subsidiaries can be derived therefrom. Copyright September 2014 Deutsche Bank AG. All rights reserved.