WHITE PAPER ebam: the automated future of corporate banking Includes insights from an ebam pilot with Swift and BNY Mellon
ebam: the automated future OF corporate banking PAGE 2 OF 8 Edition 1
Welcome note from Glen Solimine When we began working on electronic bank account management (ebam), of course we hoped our work might lead to the creation of an industry standard, enthusiastically adopted by banks and corporates seeking ways to deliver greater operational efficiency. Without the support of SWIFT bringing the community together, such an ambitious objective would surely have remained out of reach. Nevertheless, working together we have now run a number of extremely successful pilot projects, proving the feasibility and potential value to banks and their corporate customers of ebam. The prospects now look very healthy, and the value to the industry as a whole is almost incalculable. This white paper is based on interviews with industry leaders who were participants in the first ebam production pilot to be completed using the new SWIFT ebam standards, including Stacy Rosenthal, Senior Business Manager, Swift and Loretta Gannon, VP, Treasury Services, BNY Mellon. The production pilot project was a partnership between Wall Street Systems, BNY Mellon, SWIFT and several global corporates. Each played a critical role in the project, providing real world business scenarios to stress test the standards and applications supporting the ebam initiative. The paper covers the recent history of ebam, and why it has taken until now to take off. It sets out a potential best approach for corporate treasurers and banks adopting ebam, and provides straightforward advice to them on how to run their own pilots. We hope this provides information and insight to help corporate treasurers and banks embark on a smooth transition to ebam, but please don t hesitate to get in touch if you have specific questions about the experience we gained running our pilots. Glen Solimine October 2010 13% 87% PAGE 3 OF 8 Edition 1
Introduction Corporates are not new to making electronic payments. In the early 1980s, cash management underwent transformation as the fax and telephone were replaced as the key means for companies to make payments to one another. It took just two years from the introduction of electronic payment systems until they became standard. And yet, while consumers have been able to set up, manage and close retail bank accounts electronically for years, corporates have remained unable to do so themselves. It has been talked about at workshops and conferences, but little progress had been made until recently. In 2010, the corporate equivalent of internet banking electronic bank account management, or ebam finally appears to be taking off. The opportunity to dematerialise and automate 1 this bank account management process was grasped with both hands by corporates when SWIFT announced the release of its ebam messaging standard earlier in the year. Banks will have to work hard to strive to ensure their back office systems can process ebam messages, but they too, are now taking a real interest in doing so. So now that ebam is on the cusp of becoming an industry standard, it raises the question: why is ebam taking off now? Figure 1: the transformation of ebam (Source: SWIFT) Why is ebam taking off now? Electronic bank account management was already under consideration prior to the 2008 financial crisis, but that event overtook early plans to create a standard and it was inevitably left on the back burner. Now, however, that financial crisis has become one of the key drivers of ebam adoption, as it fundamentally changed the way banks and corporates assess financial risk. Pre-crisis, the automation of services between unrelated enterprises was rightly seen as innovative. Although the potential benefits of ebam in terms of cost reduction and efficiency were already apparent, it was still considered more risky than opening, maintaining and closing bank accounts using the traditional methods paper and wet signatures. The financial crisis reset this attitude. The natural sense that the status quo is the safer, less risky option was dealt a blow. It forced companies and banks to reconsider how they do business together. In this environment, the corporate treasury has been given a new lease of life, tasked with examining processes and protocols anew, with a view to better understanding liquidity and exposure to risk. Corporate Treasurers and banks have both become more open to new ways of working than they were before the crisis, and the transformative potential of ebam (see figure 1) is now squarely back on the agenda. 1 Electronic Bank Account Management over SWIFT, SWIFT, January 2010 PAGE 4 OF 8 Edition 1
The adoption cycle Now that ebam has the wind in its sails, it is likely to grow quickly. The benefits of an automated approach to bank account management are manifold (see side bar: Electronic benefits), and with pressure on for banks and corporates to contain costs and find ways to become more efficient and productive, there s a palpable appetite for ebam. In the first instance, the drivers of ebam have been corporates, as they can see the benefits of moving to an automated service, particularly as a means of managing financial risk the transparency and audit trails that come with ebam will be very valuable to Corporate Treasurers. Tier 1 banks have been quick to respond to this demand and a number of early pilots are currently underway in partnership with SWIFT and Wall Street Systems, the first treasury solutions provider to launch a robust ebam solution (via its acquisition of Speranza 2 ). The pace of adoption will be governed by the assessment of risk among Corporate Treasurers, which is largely impacted by precedent. Sooner in some jurisdictions than in others, legal precedent will dictate a need for corporates to adopt a better means to audit and track bank account statuses. As a consequence, ebam adoption may be uneven to begin with, with adoption taking place faster in some regions than in others. However, once adoption begins in earnest, the pace may well surprise observers. If ebam mirrors previous innovations in cash management, once the major banks are happy with the SWIFT message standards and understand the implementation path for providing ebam for their customers, they will become the most active proponents. The lengthiest and most costly implementation is the first one, but ebam is hugely scalable for banks. Once you have the connectivity in place, you can use the same pipe over and again, meaning that subsequent implementations become faster and more cost effective. Once banks sign up their major corporate customers for these are the ones that stand to benefit the most to begin with they will spread their nets more widely. Expected timescales vary, with some suggesting ebam could become a widespread standard within two years. However, it is already recognised that ebam will play a role for banks and corporates of all sizes, in all sectors, and across all regions. A more conservative estimate for adoption across all these segments is three to five years. Electronic benefits As with all automation processes, ebam s benefits can be tangible and quick to realise. From the industry perspective, SWIFT s backing means that adopting the ISO20022 certified XML messages ensures they are adopting a de facto industry standard from the outset. Banks and corporates alike will derive commercial benefits from ebam. With processes streamlined, reductions in manual intervention, paper handling, archiving, printing and postage may deliver significant cost savings and improve the accuracy of banking activity benefits that banks will be able to pass on to corporate customers. For corporate treasuries, the switch to an automated process will help corporates better manage resources internally. In addition, the time saved to open, maintain and close bank accounts will make corporate treasurers more responsive to business demands, especially in fast-moving environments such as during mergers and acquisitions or when they seek to review bank relationships. The accelerated opening and closing time will provide corporates with the ability to expedite some of the processes should financial institutions eliminate credit or servicing falls below acceptable standards. SWIFT ebam functionality will be a new service criteria used to evaluate a bank s suite of capabilities. The services that are linked to the bank accounts, such as lockbox and positive pay makes it a more difficult scenario for treasury departments to just pick up and leave. In addition, the credit relationships that are in place with the specific financial institutions help drive these relationships. Finally, ebam may help both banks and corporates maintain robust audit trails and eliminate risk. The ability to audit improves the quality of internal compliance controls and tracking of request status. This is a key issue for complex global corporations, which deal with hundreds or even thousands of bank account relationships. 2 /news-events/press-releases/wall-street-systems-acquires-assets-of-speranza-systems.php PAGE 5 OF 8 Edition 1
Detailed benefits: automate data exchange for account opening, maintenance and closure accelerate and improve updates of mandate holder information, including personal digital certificates 17% automate related documentation exchange ease the integration into back office applications 83% strives to ensure banks and corporates have the same view of their account and mandate structures satisfy internal and external audit and regulation requirements link changes to HR databases highest security levels Proposed Best approach to ebam adoption In the first full-scale trial of ebam that has so far been completed, Bank of New York Mellon and a number of corporates agreed to participate with SWIFT and Wall Street Systems to test naming conventions and message handling protocols under an industry-first ebam implementation. SWIFT was approached by both banks and corporates to create and take ownership of nascent ebam standards. It is one of the first non-financial standards that SWIFT has created, but the value to the industry is clear for all to see. SWIFT already has the channels in place for banks and corporates to use and has a proven track record of stewardship of industry standards. Importantly, SWIFT also has a track record of continued investment in standards, which is vital. Standards need to evolve, in order to remain relevant. Even as it launches, SWIFT s ebam standard needs to be ready for changes likely to take place in the next few years, such as the adoption of standards for digital certification and continued changes to Know Your Customer (KYC) due diligence processes. The corporates became early adopters because the benefits that could be generated were so clear. They wanted to be involved early in the initiative, to be able to leverage the knowledge and expertise gained in future. The corporate participants gained the opportunity to provide critical corporate input into the direction taken by the bank, SWIFT and Wall Street Systems with the pilot. BNY Mellon took a leadership position in partnership with SWIFT and Wall Street Systems. It shared a desire to drive change, be an innovator and support the use of an industry standard which benefits all SWIFT members enabling it to influence the adoption of an open architecture for ebam at its inception. The relationship between bank and customer has become more valuable in recent years and the benefits of ebam should allow BNY Mellon to build closer working relationships with its customers. Its participation means it will be among the first banks to roll out ebam to other customers. The long-term benefit of SWIFT s participation cannot be overstated. As the ebam standard is more widely adopted, it will become a consideration for mid-sized and smaller corporate customers. They are less likely to use the SWIFT network directly, but the argument for adopting these ebam message standards is strong: it means they can become more integrated with SWIFT as they grow, and also helps them to remain fluid in their relationships with both banks and software vendors. The significance of SWIFT s involvement is that the industry knows the standards will exist in the long term. Advice to corporate treasurers and banks Corporate treasurers have found themselves in the spotlight since the financial crisis, with attention turning to cash management, exposure, and liquidity management in a way that has not been seen before. The board is willing to give extra attention to Corporate Treasurers right now, and it is an opportunity that should not be wasted. Indeed, these conditions provide an opportunity for banks as well, particularly when they can support Corporate Treasurers to demonstrate their ability to innovate, improve risk management and reduce costs together. If you are a Corporate Treasurer or bank seeking to adopt ebam, Wall Street Systems and SWIFT s recent pilot with BNY Mellon provides some valuable lessons. We would like to share these in order to make your ebam experience as smooth as possible. PAGE 6 OF 8 Edition 1
1. Take advantage of project management and subject matter expertise Key to the success of the pilot was BNY Mellon s decision to leverage SWIFT expertise to coordinate and support the project. As the partners acknowledge, one of the vital parts of the production pilot was testing, and without the continued consultancy of SWIFT in this process, it would have potentially limited its success. The lesson is: don t just invest in the technology, invest in an ebam pilot. 2. The partnership is essential The pilot succeeded thanks to the collaboration, open communication and strong partnership of all the participants on the cross organisational project team. BNY Mellon was able to deliver business and technical resources from within the bank, and these contributed to the knowledge and expertise of SWIFT and Wall Street Systems. This is as much a lesson for vendors as for banks and corporates, as it reinforces the fact that delivering great client service means not merely building technology, but delivering it in a way that meets client needs. When there are two clients involved, this becomes doubly important. The lesson is: there is a model for getting ebam right, and it is the partnership model. About Wallstreet Wall Street Systems (Wallstreet) is the market leader in treasury, central banking and FX trade processing solutions. Its functionally rich and scalable solutions are used by the world s largest corporations and financial institutions to improve workflow, manage risks and increase overall productivity throughout the enterprise. Wallstreet s award winning solutions are used by tens of thousands of users to process millions of transactions aggregating to trillions of dollars, every day. With a 20 year heritage, Wallstreet has an outstanding reputation for quality and responsive service, and prides itself on helping its clients achieve long lasting benefits and results. Its 600 employees service over 350 corporate, banking and central bank clients, operating out of 13 offices worldwide. The company is a privately held corporation, and is majority owned by Warburg Pincus, a global private equity investor. For more information, please visit. 3. Agree on a critical path Don t underestimate the challenges of reaching a successful outcome. Delivery of an ebam project is complex, with multiple partners involved internally and externally. Scope creep is an ever-looming spectre on such a project, so it is essential everyone agrees the beginning, middle and end of the project. BNY Mellon, SWIFT and Wall Street Systems have learned a great deal from this production pilot about setting out the scope of the project properly, and this will help future bank and corporate partners to achieve their ebam goals. The lesson is: ensure all partner objectives are agreed at the outset. 4. See ebam in the context of the corporate treasury SWIFT, your ebam software provider and your financial institution can offer support and knowledge to help your pilots achieve successful outcomes. But more than that, your software provider can offer knowledge and assistance to improve not only bank account management but your overall treasury system. The lesson is: see your ebam pilot in the context of an integrated treasury management system, and take advice from your software provider and trusted partners on how it can be best integrated as part of the overall treasury process. What will happen next? Momentum for ebam is now building, and both SWIFT and Wall Street Systems expect to see the number of ebam projects grow sharply in the short term, as large corporates continue to drive their banks to adopt the new functionality. For banks in particular, the first ebam customer is the most challenging and they will have a great incentive to move other customers onto their ebam systems. This is likely to become the main driver of ebam adoption in 2011 12. After that, with benefits available for banks and corporates of all sizes, in all sectors, and across all regions, growth is likely to spread more widely still. The safest bet for Corporate Treasurers is therefore to consider ebam in all future upgrades and reviews of their treasury management systems, and for banks to adopt ebam as quickly as possible, so that they can begin to pass on the very tangible benefits to their customers. PAGE 7 OF 8 Edition 1
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