R E P O R T R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s D e v e l o p e d b y I n c o l l a b o r a t i o n w i t h
Riding the wave of global transaction services and payment systems Published by International Payments Frameworks Association Editor: Customer to Business Interaction (CBI) Consortium Printed in November 2011 We would like to thank all the IPFA members who contributed to the development of the analysis with their valuable information, making it possible to prepare this report. Copyright IPFA All rights reserved www.ipf-a.org List of IPFA members: ACI Worldwide, ANZ Bank, BCS Information Systems Private Ltd, Canadian Payments Association (CPA), Camera Interbancaria de Pagamentos (CIP), CBI Consortium, Clear2Pay, Dovetail Systems, Equens SE, Federal Reserve Bank of Atlanta (FED), Fifth Third Bank, Fundtech, J.P. Morgan, Micro Finance International Corp., NACHA, PayPal, PNC, Raiffeisen Bank International, Royal Bank of Canada, Royal Bank of Scotland, Standard Bank of South Africa, Standard Chartered Bank, Suntrust Bank, SWIFT, The Clearing House, U.S. Bank, VocaLink, Wells Fargo, World Savings Banks Institute. If you would like an electronic copy, please write to: cbi@abi.it For more information on the issues raised in this report, please contact: cbi@abi.it
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R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Table of contents Foreword by Arthur Cousins CEO IPFA 4 Foreword by Liliana Fratini Passi CEO CBI Consortium 5 Methodology 6 Statements Giovanni Sabatini - Managing Director Italian Banking Association (ABI) 8 Michael Steinbach - Chairman of the Board of Directors EQUENS 9 Teresa Connors - Director Market & Business Strategy Financial Institution 10 Royal Bank of Scotland (RBS) 1 Executive summary 11 2 Global transaction services and payments evolution 11 3 Key highlights of the market from the survey 14 3.1 Market and core activities 15 3.2 GTS units 16 3.3 Customers & products 16 3.4 IT systems and platforms 16 4 Global transaction services structure and its evolution 17 4.1 Customer needs 17 4.2 Regulation and competitive system 20 4.3 New organisation to reach for scale 22 4.4 IT costs and investments as a determining factor for competition 23 5 Conclusions 25 Glossary 27 3
Foreword Arthur Cousins CEO IPFA A number of articles have been written about and reflected on how the transactional side of banking has continued to function well and in many cases remained profitable despite the global financial crisis and its ramifications. Now that many observers understand this and appreciate this fact they are starting to ask questions like: where do things stand today in the world on transaction banking and more importantly where to from here? Prior to the global melt down, small and large banks, were spending proportionately far more on people, IT infrastructure and processes in the trading and other front-line areas than they were in their transactional banking units. Transactional bankers will be forgiven for thinking that given the change in focus they should be expecting a greater portion of the spending cake but alas the melt down has brought about one major consequence regulation. Many will say over regulation. This therefore unfortunately means that once again there is a disproportionate spend approach within banking organisations with much more going towards regulatory compliance than to transactional banking. Given that the current set up is likely to continue for some while banks of all shapes and sizes need to carefully evaluate their future transactional banking strategies which may find large global players now shedding operations, outsourcing others (reversing previous strategies) and scaling back. Strong regional players will likely intensify their regional strategies and small, niche, players may make trusts into specific types of transactions. Clearly non-banking entities are also looking to take advantage of the situation and may well make inroads into traditional spaces previously only occupied by banks. The timing and outputs of this survey could not have come at a better time. They should give readers a clear perspective of what is in store and not only should transaction bankers take heed. 4
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T As CEO of CBI Consortium and an active member in the IPFA, I was happy to contribute to the preparation and promotion of this report which provides an overview of the current banking environment and suggests actions for its future success. The Global Transaction Services and Payment Systems market is constantly evolving and is currently playing a new role at international level due to the financial crisis. The new market challenges have led to a new competitive banking environment; banks are required to meet new customers needs, such as an increasingly diverse and integrated value chain, global coverage and compliance to new regulations. In relation to this last point, it is important to underline how new regulations introduced after the financial crisis such as Basel III have raised costs, thus adding additional pressure on banks margins. As a consequence, banks are now developing new strategies aimed at supporting and strengthening their local and global positions and focusing their attention on the optimisation and efficiency of their internal procedures. CBI Consortium supported IPFA in drafting this report given the importance of the topic to be covered and sharing the view that standardisation, interoperability and international cooperation enable the establishment of end-to-end systems at global level. In this field, thanks to CBI Consortium s activities and by supporting corporate and Public Administration objectives and playing an active role in the international scenario, the Italian banking system has become a best practice with respect to innovation and standardisation for end to-end corporate banking services. At present, CBI Consortium constitutes 650 members (representing the Italian banking industry, financial institutions and Poste Italiane S.p.A) with more than 850.000 business users, either small and medium enterprises, connected to the CBI services provided by their financial institutions. The CBI Consortium has achieved very important results and is committed to progress through constant improvement of the activities, both in the domestic and international fields. Foreword Liliana Fratini Passi CEO CBI Consortium 5
Methodology Riding the wave of global transaction services and payment systems is a report published by International Payments Framework Association (IPFA), with Customer to Business Interaction (CBI) Consortium support and in collaboration with Value Partners, with the aim of: Providing an overview of the changes underway in this market Understanding the regional payments dynamics Evaluating the real trends revenue of global transaction services (GTS) around the world This is based in large part on findings from a survey that CBI Consortium submitted to all IPFA members. The survey is comprised of four parts. The first analyses the features of the organisation in terms of core activities, profile and markets served. The second part investigates how financial institutions are structuring in order to offer global transaction services. The third assesses the GTS offer, related to clients served, products offered and channels used, while the last part focuses on payment IT systems and platforms. Each topic has been analysed in order to evaluate key trends and future developments. The results of this survey have allowed for the mapping of the current status of global transaction services and payment systems and future development in the regions where IPFA members are active. The International Payments Framework Association (IPFA) is a membership-driven, not-for-profit organisation that provides rules, standards, operating procedures and guidelines to improve cross-border credit transfers based on the ISO 20022 standard. Twenty-nine organisations, including major financial institutions, clearing and settlement mechanisms and banking associations, are now members of the IPFA. The CBI Consortium represents best practice in terms of standards development and promotion, focusing on the Customer-to-Bank space, but also enabling interoperability with standardisation initiatives related to the Bank-to-Bank space. The Consortium defines the rules and the technical and regulative standards of the CBI Service (Interbank Corporate Banking), on national (Italian) and international levels. It also manages a modern technological infrastructure in order to support relationships between the different parties of the CBI s community (institutions, public bodies, enterprises, trade associations, software vendors, service providers, etc.). This represents a guarantee for the Consortium members who are able to offer to their customers (enterprises, public administrations, intermediaries, etc.) innovative services, either in core collections and payment area (SEPA compliant), or in document management (e.g. e-invoice), according to national and international standards pursuant to ISO 20022. Founded in 1993, Value Partners is a global management consulting firm that works with multinational corporations and high potential entrepreneurial businesses to identify and pursue value enhancement initiatives across innovation, international expansion, and operational effectiveness. It draws on 280 professionals from 23 nations, working out of offices in 10 countries, including double-digit growth markets. Thanks to its significant experience with international organisations, financial and insurance institutions operating in Europe, North Africa and in emerging markets, Value Partners assists clients in the financial institutions sector to attain growth and renewal goals. Innovation and sustainability are the core values around which it creates bespoke solutions in retail, corporate banking and the payment sector. Value Partners has also been involved in major projects covering regulations and innovation changes in the last few years in Italy and Europe, from the new inter-bank corporate banking and the national project on SEPA migration to the mobile payment and VAS mobile project. 6
S t a t e m e n t s
Giovanni Sabatini Managing Director Italian Banking Association (ABI) At both national and international level, the business of global transaction services has gained ever more strategic importance for the banking system over the last few years. This is not only in relation to the volumes managed and its predicted prospect of growth, but also because of its proven capacity to contribute in a stable way to making revenue, even in periods of volatility in the financial markets. Specifically, despite the general slowing down of the economy, the volumes of payments have registered a solid trend of growth, with a 2005-2009 CAGR above 6% around the globe. I believe that this growth trend will also be confirmed in the years to come. This will be driven by a gradual reduction in the use of cash, by an ever growing need of companies for electronic payment tools in their transactions with foreign countries, and by a reduction in the commission for clients on traditional payment services, which are increasingly seen as a commodity by the customer themselves. Provisional forecasts for the period 2010-2020 show an inexorable erosion of commissions on traditional services, recording a negative CAGR of about -3%. In this context, banks should revise their business model and their current management of the market. This would help them respond effectively to new market challenges and harness the potential of global transaction banking, still largely untapped. In addition, such an approach could increase the role of this kind of services within the organisation. To compete in the transactional services business means working specifically with a time to market focus on new sector challenges such as the Single Euro Payments Area and the Payment Services Directive which negatively impact on the services profitability, as well as on the ever-increasing competitive pressure, both locally and internationally. At the same time, banks must be able to offer solutions that meet new customer needs: innovation, flexibility and customisation for corporate enterprises and public administration, but also convenience, reliability and security of transactions, being the priorities for both SMEs and retail customers. The leading Italian banking groups are following this direction by adding, to their industrial plans, major development objectives for the business of global transactional services. There are two main areas of intervention. As far as large banking players are concerned, the transactional services currently offered are being strengthened by enabling integrated financial value chain solutions, optimising and rationalising their infrastructures, revising the sales model for transactional services and integrating the distribution channels internationally. For medium size banking players instead, the strategic actions mainly concern investments towards an integrated multichannel system, the setup of partnerships to cover the international market and, finally, the development of specific offers to industrial zones and other types of community. The second area of intervention aims at innovating the offer of services related to document management and based on new channels, even implicating cross-selling on complementary transactional services. Banks should definitely watch with greater attention to global transactional services. Nevertheless, to play a relevant role in their reference market, they should immediately implement targeted strategies, in order to take advantage of the potential of transactional services. This would allow them to go beyond a national level, thus becoming an international leader in this business. 8
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Even though I strongly believe in the stability of Global Transaction Banking market, CEOs have all suffered from recent crisis, whose final result was a fees drop. In the next future, Global Transaction Banking market will be affected by a mix of critical factors. First of all, I think that the already started consolidation in the electronic payments and cards area will cause a great pressure, making seriously difficult to maintain fees at their current level. At the same time, the reduction of fees and margins will be due to the restriction of regulation and the increase of competition, which is becoming more and more global. In this environment, major banks could find within their group a sufficient volume, while medium sized banks will need to play the scale game. Michael Steinbach Chairman of the Board of Directors EQUENS For this reason, I believe the vast majority of banks will need to think about changing its operating model and in this context financial institutions and service providers might help and provide many benefits to the banking system. About future domain evolution, I think the main emerging markets will grow much faster in the future, of course depending from which stage of technical development they start. I mean, technically less developed countries, like some Asian ones, may benefit from their starting situation, so that from a lower level they can immediately achieve the top rate of IT infrastructures (see also what already happened to some CEE countries) and become very efficient. Look also at the SEPA compliance in Europe and how it worked. Mature markets are in general slower in growth and innovation. In Global Transaction Banking market, customers needs are evolving significantly. On the corporate side everything is about getting information in time for monitoring and optimising liquidity management and ERP integration process. Next generation of users will always be the more demand new tools (such as iphone or tablets) and facilities, so that also banks must be able to change/enrich their traditional offerings and provide advanced services. Otherwise, new players like Google and non-banks will further increase their market share in the e- and m-payment world. Furthermore these types of companies are able to deliver more time-to-market new solutions (for example, mobile payments), simply because they have faster decision processes. Also governance requirements and regulation may have different weights. Very often board decisions take too long time on the banking side. Therefore, according to previous considerations, I think banks answer to the Global Transaction Banking market development concerns anything which is related to in time information, both about banking accounts and other kind of information. The one who will bring the information more accurately and faster to the clients and offer information/ order channels, which can be used by new tools/devices will win. Information aggregators will deploy a relevant role. Also, the local expertise will represent a competitive advantage, so the G-local approach could be the key. As Equens is a global acting company which must link to local in order to satisfy customer specific needs, then: think global, act local. From an IT perspective banks answer to the Global Transaction Banking development will be based on a combination of centralized payment hubs and local infrastructures. Lastly, I believe that Global Transaction Banking is an ongoing good business, but there will be much more accelerating competition and consolidation in the upcoming future. So, banks of all size must reconsider their operating model, otherwise they will play a marginal role on the new markets. 9
Teresa Connors Director Market & Business Strategy Financial Institutions Royal Bank of Scotland (RBS) The Global Transaction Banking market has shown resilience during the financial crisis: global payment volumes continued to grow and have provided significant revenues. In 2009 non cash usage rose 22% in CEMEA, 15.4% in Latin American countries (except Brazil) and 11.1% in the rest of Asia. Card payments are the engine behind global volume growth accounting for up to 40% of payments in most markets, while cheque usage continues to decline globally accounting for 16% of non cash transactions (it was 22% in 2005). In this environment, emerging markets had a higher growth rate compared to mature markets and they are predicted to grow more rapidly than mature ones. This does not mean that mature markets will not continue to grow, but just that they are not expected to grow at the same rate as emerging markets. Of course, the effective growth will be affected by different drivers and, in my opinion, the primary one will be global regulation. Differences in interpretation, implementation and timeline could lead to unintended regulatory consequences affecting clients and financial institutions. This potentially applies to Basel III, the principle supporting regulation is correct, to mitigate systemic and market risk, but care is needed to ensure a level playing field across the globe. I believe that collaboration amongst banks is the key to reduce unintended consequences and to ultimately deliver the best industry solution to clients. Technology is also changing the face of the industry (initiating payments on mobile, tablet etc), and new players are increasing market share, such as Google and PayPal. At the same time, the market is becoming more commoditised so innovation in the form of value added services will be a key differentiator. Banks answer to the GTB development will be focused on factors such as: Developing new GTS services to meet existing and future customer needs. Corporate customers and financial institutions increasingly require interoperability, STP and standardisation. They also need increased management information, this is especially true in the liquidity arena in order to comply with Basel III. Banks must meet and exceed client requirements and be able to offer innovative solutions Governments are embracing the E agenda and Canada has made great strides in this respect. In the UK a Government taskforce headed by a high profile entrepreneur has been established to promote the digital agenda; Consideration of geographic footprint (which markets are served and how, consideration will be given to partnering); IT investment strategy to harness the opportunities offered by new technology. RBS operates in 35 different markets, with diverse customer needs. Our clients require a whole solution, that s why we develop integrated solutions. RBS pursues local and global IT strategies, the one size fits all solution does not reflect our proposition. 10
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Global transaction services (GTS) consist in a comprehensive range of commercial banking products and services, mainly addressed to corporate clients and financial institutions, offered by global transaction banking units. They include domestic and cross-border payments, professional risk management and international trade financing. Each bank, however, offers a different set of products, which can range from cash management, trade finance, structured trade & export finance, cash and clearing, and global securities services to supply chain management. Regardless of the specific bank s offer, the common factor in all transaction services is the ability to support asset-intensive business by providing cheap and stable funding through both the good and bad times. In recent years, banks have shown renewed interest in global transaction services, particularly because of the financial crisis. In fact, while capital markets were crushed, transaction services survived the crisis without stumbling and continued to provide a stable source of revenues for banks, ensuring an EBITDA margin average of 38%. These findings have forced banks to reconsider the role of payments and the overall role of global transaction services units. In particular, these units have recently undergone major operative restructuring to increase operational efficiency, while new services have been developed to deliver top services. In order to develop a comprehensive understanding of the evolution of the banking industry, internal and external factors have also been analysed. Internal factors would include IT innovation and expenditures, as well as scale, while external influences include customer needs, regulation and competition. All of these factors have significant consequences for global transaction services unit structure and organisation: to be profitable requires the processing of high volumes to compensate for the high cost of payment processing. In addition, Basel III the new regulation introduced after the financial crisis has raised the bank costs of short-term trade products as trade finance puts more pressure on margins. Scale is therefore critical and banks need to carefully evaluate the implementation of a new organisation able to reduce the high costs related to payment processing. At the same time, large volumes can justify high IT investments, which are needed to be compliant with global standards. The organisation s strategy on IT structure, in most cases, provides global homogenisation (or homogenisation of the core part), in addition to country specific platforms and trend for the future seems to be oriented to have fully integrated platforms for payments systems. The external factors have a strong impact on GTS revenues and margins and so GTS organisation requires the flexibility to interact and co-operate in more and diversified environments, with specific regulation and different level of local and global competition. In particular, the GTS structure has to be able to fulfil the increasing complex customer needs that are driving towards an integration of GTS services. 1. Executive summary Global transaction services have traditionally represented a small part within banks structure. Often operating simply as back office, they were commonly perceived as the payment factory. However, banks interest in GTS has been renewing during the financial crisis, first of all because transaction services showed to be a stable source of revenues for banks, during uncertain times. Data analysis from some of the top global banks shows that, while banks were sinking and governments were actuating measures to rescue national players by injecting liquidity into the market, bank business units, including GTS, were performing discretely, with an EBITDA margin average of 38%. Global transaction services are continuing to provide stable revenues for banks, generating liquidity (clients deposits) and requiring less capital lending, becoming as commonly acknowledged a good, basic banking business, and a reliable one. 2. Global transaction services and payments evolution 11
GTS unit performance in 2010 EBITDA MARGIN %, 2010 BANK 52% 43% 48% 48% 38% Average 38% 26% 24% 27% GTS Capital Markets Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8 Source: Companies Annual Report 2010, Value Partners analysis Today, profitability is still high, with an EBITDA margin between 25-50% and, in most cases, 10-15 percentage points higher than the total bank EBITDA margin. At the same time, GTS revenues account for 5-30% of total bank revenues. In some cases, the global transaction banking (GTB) revenue share is lower (from 5 to 10%), but this is mostly due to the fact that GTS revenues are reported in other bank divisions and not directly within the GTS unit. GTS revenues over total bank revenues REVENUES %, 2010 39% 26% 12% 12% 17% 8% 7% 6% Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8* Source: Companies Annual Report 2010, Value Partners analysis *Include other services besides the typical GTS EBITDA margin comparison EBITDA MARGIN %, 2010 GTS unit Ebitda margin Bank Ebitda margin 52% 26% 43% 24% 25% 48% 42% 48% 25% 38% 27% 15% 14% 14% 5% 0% Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8 Source: Companies Annual Report 2010, Value Partners analysis Moreover, GTS require low capital and generate high deposit volumes. Operative costs are low and mainly consist of IT and personnel costs, so the cost/income ratio can be as low as 50%. Despite the financial crisis has slowed, the global economy and trade, payment volumes in particular, have maintained fairly solid growth. The analysis of selected countries Australia, Belgium, Brazil, Canada, France, Germany, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, China, Singapore, South Africa, Sweden, Turkey, the UK and the United States reveals that non-cash payment volumes grew at a CAGR of +6% in 2005-2009. 12
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T TRANSACTION VOLUME, bn CAGR Non-cash payment transaction volume evolution * 6% 186 205 217 230 237 2005 2006 2007 2008 2009 Source: BIS red book 2011, Value Partners analysis * Selected countries: Australia, Belgium, Brazil, Canada, France, Germany, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, China, Singapore, South Africa, Sweden, Turkey, UK, United States Unlike payment volume, payment transactions value contracted in 2008 and 2009, but CAGR is still positive (+9%). TRANSACTION VALUE, USD bn CAGR Non-cash payment transactions value evolution * 9% 385.367 486.811 634.259 613.858 535.456 2005 2006 2007 2008 2009 Source: BIS red book 2011, Value Partners analysis * Selected countries: Australia, Belgium, Brazil, Canada, France, Germany, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, China, Singapore, South Africa, Sweden, Turkey, UK, United States In terms of volume, the US and Canada still dominate global payments, representing almost 50% of transactions in 2009, followed by Europe at 29%. Latin America is the fastest-growing region (CAGR of +16%). In particular, the main regional economies Brazil and Mexico are growing at a compounded annual rate of 16% and 11% respectively. TRANSACTION VOLUME bn, % CAGR Non-cash payment transactions by regions * Other Latin America Asia Pacific Europe North America 6% 11 (6%) 5 (2%) 5 (2%) 14 (6%) 2 (1%) 13 (6%) 24 (12%) 28 (13%) 19 (10%) 62 (30%) 63 (29%) 58 (31%) 96 (52%) 102 (50%) 108 (50%) 7 (2%) 7 (3%) 38% 15 (7%) 20 (9%) 16% 30 (13%) 25 (10%) 7% 66 (29%) 68 (29%) 4% 112 (49%) 117 (49%) 5% 2005 2006 2007 2008 2009 Source: BIS red book 2011, Value Partners analysis * Selected countries: Australia, Belgium, Brazil, Canada, France, Germany, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, China, Singapore, South Africa, Sweden, Turkey, UK, United States 13
Non-cash payment transactions by instruments * TRANSACTION VOLUME bn, % 6% 4 (2%) 4 (2%) 19% CAGR E-wallet Cheques Direct debit Credit transfer Cards 2 (1%) 46 (25%) 23 (13%) 32 (18%) 78 (43%) 2 (1%) 45 (23%) 26 (13%) 36 (18%) 90 (45%) 3 (1%) 42 (20%) 29 (14%) 36 (17%) 101 (48%) 39 (17%) 30 (13%) 39 (18%) 111 (50%) 37 (16%) 36 (15%) 41 (18%) 115 (49%) -5% 11% 6% 10% 2005 2006 2007 2008 2009 Source: BIS red book 2011, Value Partners analysis * Selected countries: Australia, Belgium, Brazil, Canada, France, Germany, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, China, Singapore, South Africa, Sweden, Turkey, UK, United States Cards continue to be the favourite non-cash payment instrument, accounting for 50% of total non-cash payment volumes. The economic crisis did not contract their use in 2008 and the US is still the strongest market for this payment instrument, with credit cards covering 51% of their payments within selected countries. Traditional credit cards alone account for 20% of total payment transactions in the US in 2009, showing a continuous growth (CAGR of 10%). Credit transfer is growing at a slower pace (at a 6% CAGR), but is still the second preferred payment instrument in 2009 (17.6% over total payments). Within developed countries, credit transfer is the favourite transaction instrument. In Germany, for example, 35% of non-cash payments are processed through credit transfer. Credit transfer is also strongly rooted in BRIC countries: in Russia, it accounts for 54% of payments and is growing at a CAGR of 24%, while in Brazil, it accounts for 39% of all non-cash transactions, growing at a CAGR of 11%. In India, credit transfer is still at the early stages of adoption (4% of payments), but is growing at an astonishing rate (42% CAGR). While cheque usage is evidently decreasing in importance (CAGR at -5%), direct debit is growing with 11% CAGR within the selected countries. Its adoption is particularly strong in Europe: it is used, on average, in over 20% of transactions, with the strongest adoption in Germany, where it is the preferred tool, accounting for 50% of total non-cash transactions. Overall, the positive growth trend of payment volumes and pick up in trading, and the evolution of payment instruments and innovative services are facilitating the introduction of new services with higher margins. 3. Key highlights of the market from the survey The survey carried out by the CBI Consortium, with the support of Value Partners, was submitted to all IPFA members, including banks (global, regional, local and banking associations) and other institutions such as payment specialists. Four main areas were analysed: Market and core activities GTS units Customers & products IT systems and platforms 14
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T 3.1 Market and core activities The results of the survey show that all banks and payment specialists interviewed are more active in Western and Eastern Europe, and in North America. At the same time, it s useful to underline that all of these organisations, in order to meet customer needs for consistent bank service wherever they operate, are expanding their presence in emerging countries, with a significant attention to Latin America and Asia-Pacific. Geographical coverage is not just about having a branch in another country. Most importantly, to gain relevance in a market a bank should reach an effective integration into its infrastructure and be compliant with the context. In particular, banks should draw on people who understand how local economies work, besides providing a consistent service wherever their clients operate. To ensure that, banks are successfully working together. There are several means of collaboration among banks: for example, one bank may use another bank s services for its customers across different countries. Organisations geographic reach HIGH MEDIUM LOW Source: Survey submitted to the IPFA members The majority of the organisations analysed in the survey being participating members of the IPFA is largely made up of banks and payment specialists that have core activities represented by payments (50%). Following these are retail banking (25%), commercial banking (17%) and investment banking (8%). 100% = IPFA members core activities IPFA members core activities Investment banking Commercial banking 8% 17% 50% Payments 25% Retail banking Source: Survey submitted to the IPFA members 15
3.2 GTS units All of the banks interviewed offer global transaction services to their customers, but only 50% of these have a stand-alone GTS unit with a dedicated sales structure. The remaining 50% have a GTS unit within a global division that includes other functions such as trading, securities and global markets.this means that GTS units interact directly with the clients and provide services on the market, but operate as a function of other divisions. However, it is useful to note that GTS organisation is evolving. With the specific goal of improving GTS offerings and enhancing GTS profitability, banks are restructuring their organisation internally through the extension of GTS division competences and investing a significant part of their IT budgets on insourcing white label platforms. 3.3 Customers & products The majority of clients served are direct (SMEs, corporate, government & public administrations, retail) and they represent 83% of the customers; the remainder is comprised of intermediate clients (mostly other banks or other financial institutions). Corporates are the main direct clients served. Each customer segment has different needs and different preferred products. Direct clients are likely to require from basic to more advanced trades and payment services because their needs are more connected to their supply chain. Retail customers look for convenience, price, reliability and security in transaction processing, while corporate customers require highly customised solutions and flexible services. Intermediate clients are more focused on services that will permit them to offer a state of the art GTS service in order to satisfy their clients needs, while containing the cost connected to the development of platforms and products they have no incentive to develop internally, but they need to provide them to retain their clients. Supply developed concerns especially in cash management (e.g. investment instrument, reconciliation, reporting, short term debt) and trade services (e.g. financing, foreign currency, invoicing), first of all because they represent the most profitable businesses. In particular, as the global financial crisis has shown, they are able to provide reliable fee and spread revenues, considering the global economic cycle. At the same time, in the financial market, other products (e.g. e-invoicing, e-reconciliation) have been recently developed, with the aim of satisfying new customers needs, such as an increasingly differentiated value chain and customers geographical expansion. These solutions foster a stronger interaction between buyers and sellers, related to the overall supply chain. It is useful to note that the most strategic channel to focus on for developing new products is undoubtedly the internet. 3.4 IT systems and platforms An organisation s strategy on IT structure in most cases provides global homogenisation or homogenisation of the core part, in addition to country-specific platforms. In particular, some organisations are going to evolve distinct core processing payment systems for high value and low value systems into a centralised payment hub, others are looking to centralise some of the common functionality each application performs into a center of excellence to reduce inefficiency and redundancy. The main objective of all these strategies is to reach standardisation and integration in the IT systems and platforms. 16
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Market realities have forced banks to reconsider the role of payments and GTS units. In particular, GTS units have been recently going through major operative restructuring in order to increase operational efficiency, while new services have been developed to deliver top ones. Internal and external factors have also been analysed to develop a comprehensive understanding of the evolution of the banking industry. Internal factors would include IT innovation and expenditures, as well as scale, while external influences include customer needs, regulation and competition. Each of these has significant consequences for GTS unit structure and organisation. Scale is critical, because global transaction services require large volumes in order to be profitable. At the same time, big volumes can justify high IT investments, which are needed in order to be compliant with global standards and to innovate. IT innovation has transformed traditional products that have become increasingly integrated and internationalised as the value chain has evolved from local to global. A global supply chain has urged banks to offer their product globally and to enter new countries to guarantee a consistency of services to their clients in different geographical areas. 4. Global transaction services structure and its evolution INTERNAL FORCES EXTERNAL FORCES Factors influencing GTS structure and its evolution IT is one of the main costs in GTS Which IT platform to develop or implement is key to innovate IT platforms & services and to enhance operational excellence Increasingly complex customer needs are driving an integration of GTS services and the introduction of capital and currency tools within GTS offerings IT investment Customer needs GTS FORCES Scale Regulation and competitive system Up-warding pressure on costs and down-warding pressure on prices have encouraged banks to re-organise GTS units to increase scale, reduce costs and inefficiencies Local regulation is driving sector consolidation in different geographical areas, while increasing the co-operative role of local champions in some emerging economies 4.1 Customer needs Customer needs and expectations have always driven GTS offerings. Over the last years, customers needs have evolved towards more complex and tailored products to support an increasingly differentiated value chain and its geographical expansion. The impact of the financial crisis has raised concerns about liquidity in the system, in particular, that of the supply chain, which could have significant repercussions for the customers activities. 17
Client - offer matrix Liquidity and risk management have become paramount concerns, encouraging GTS clients to look for real-time information, real-time payment tracking, transparency and last, but not least, risk management tools. To fully understand the evolution of client expectations and needs on GTS, it s important to comprehend the type of clients that the GTS unit is serving. The two primary types of clients are direct clients (SMEs, corporate, government and public administrations) and intermediate clients (mainly other banks or financial instutitions). Clients Intermediate clients Financial institutions Banks Government & PAs Direct clients Corporate Enterprises & SMES Offer Cash management Trade services Liquidity Working capital Financial management optimisation supply chain Short term investment Securities/ custody Foreign exchange Information management Traditional offer Offer evolution Capital markets tools Other tools Source: Value Partners analysis While direct clients can be served by local, regional and global banks, intermediate clients are usually served by global banks, through white-labelling products and platforms or corresponding agreements. Products for direct clients Basic cash management (payments and receivables) and basic trade services (letter of credit or letter of debit) have been on the market for a long time, mostly focusing on domestic market services. These services have been developed on modules, but traditionally offered separately. Such a division worked well in the past, as cash management was largely focused on cash liquidity and optimisation, while trade was focused mainly on risks. In the last few years, however, companies have been facing increasingly globalised supply chains, and so these services have evolved. Advanced cash management services, supported by liquidity management tools, are more and more linked to structural trade finance, because companies are trying to optimise internal liquidity. The recent introduction of new services, such as working capital optimisation and finance supply chains, is further integrating GTS offerings. GTS strategies are shifting from a product-oriented culture to a solution-oriented approach: products have become highly integrated and a clear division is sometime difficult to identify, especially because the industry is heading towards a fully integrated value chain. In this new environment, payment and receivable services and trade services are evolving into a fully integrated supply chain, where the physical supply chain is sustained in all the phases by the financial circle. Along the supply chain there is an interaction of different types of services. 18
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Integrated financial supply chain Inventory financing Liquidity management Landed cost analysis Wires/ACH Import financing Structured trade finance Order-to-pay Open account payments Commercial cards SOURCING BUYING SUPPLY CHAIN settlement INVENTORY Export financing Duty & tax payment FX management Order-to-cash Freight payment Receivable investments Receivable financing Inventory financing Source: Value Partners analysis The supply chain incorporates four separate processes: sourcing, buying, inventory and settlement. In the sourcing phase, companies use greater liquidity and working capital tools. Their priority is to have a real-time vision of available resources and costs to estimate risk and plan future operations. In the buying process, companies use more conventional GTS products, connected to payments and trade services as import financing. In the inventory process, the focus is on post-shipment supply chain financing, working capital management and inventory financing. In the settlement phase, the focus returns to payments and receivables, correlated to structured trade finance and liquidity tools. An effective, fully integrated supply chain can be reached only when all parts of the supply chain are connected to the same bank (which is not often the case). This situation is able to increase transparency, information exchange and accuracy. Consequently, it speeds up payment processing and trade financing, because the liquidity of the players involved and risk management are constantly monitored. Even if it s unlikely that all suppliers use buyer s bank, the adoption of communication standards is partially compensating for this and improving information transmission within banks. However, banks are still encountering several problems when opening their banking systems to the multitude and heterogeneity of enterprises systems sometimes obsolete and with low automatization slowing the deployment of integrated services. Real-time information and payment tracking to improve liquidity management are the new most required services. Especially in mature markets, clients are increasingly requiring these services, and so banks are progressively including them in their offer. These services enable clients to make payments, to reduce debt and risk, to invest cash more effectively and to develop up-to-the-minute reporting by company, division and individual location. In emerging countries, offering these services is more challenging because regulations and restrictions are obstructing and delaying transaction processing. E-invoicing has regained importance. Technologies are enhancing and optimising basic and traditional services (e.g. electronification in payables and receivables), and they allow companies to increase their transparency and speed of transactions and decrease manual errors and labour costs. E-invoicing adoption has important implications also for banks. It can enhance 19
the development of an automated supply chain financing and so increase volumes and the amount of information on clients value chain. At the same time, it leads to a reduction of borrowing risk connected to the client s supply chain. Finally, it is a powerful tool for increasing cross-selling opportunities. However e-invoicing volumes are still very low and most of invoice activities are still paperbased. The principal reasons of this situation could be identified in the following ones: Entreprise software like Enterprise Resource Planning (ERP) solutions are widely diffused within MNCs centralizing and standardising key business processes, software used by other enterprises and SMEs are still basic and not automated; In some countries e-invoicing is not legally binding; The way of doing business in different countries: countries business practices could prefer less transparent invoicing methods. Products for intermediate clients Financial institutions needs regarding information management have increased in recent years. Often, however, small banks don t have enough of budget to develop products for information management, risk management and the deployment of standards compliant with the new regulation. For these reasons, outsourcing or white-labelling become important solutions in order to improve their customer satisfaction and to offer a state-of-the-art service and technology. Channels & cross-selling Banks efforts towards a greater integration go hand in hand with efforts to improve the usability of their electronic platforms and systems in order to enhance clients interaction with the bank. More intuitively, user interfaces are being deployed to communicate with increasingly sophisticated infrastructures and processes, while new communication channels (such as the internet) and models of interaction are being experimented with to collect customer feedback on how solutions are structured or should be built to ease usability. The most diffuse platforms, such as cash management and trade services, have been enhanced with the aim to collect information useful to acquire valuable clients information to cross-sell new solutions. SEPA and general compliance, in fact, are standardising information required to comply transactions. This allows for a reduction of the information required. CRM importance is growing as the urgency to create rapidly and efficiently clients e-wallet profile to drive cross-selling of new products and services. When analysing the new frontiers for cross-selling, it s possible to identify both horizontal and vertical cross-selling opportunities: the first is related to product cross-selling in branch, while the second is related to web platforms for specialised sector and PAs. 4.2 Regulation and competitive systems In Europe, PSD regulation (SEPA implementation) has strongly affected margins, forcing all providers to lower their prices. Lower prices and rising costs are increasingly undermining local banks capabilities to invest and to be innovative in GTS. At the same time different regulatory environments in emerging countries are making it extremely challenging to integrate key markets. Regulatory risks such as restrictions on practices (e.g. exchange control) or changes in regulation could have negative impacts on global banks. For a start, they could settle entities in new countries, delay the time needed to adjust to local changes and make it difficult to monitor information in real time, as well as to reach efficiency and consistency in the quality of services provided. Related to the competitive systems, it s important to underline how in a market more and more integrated and standardised, as the future European market is going to be, a deep knowledge of the local market and an extended branch network might not be enough to reach the scale dimension needed to survive. 20
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Global banks are recognising that if there is an effective need to concentrate core functions (as payment processing and designing), there is an equivalent necessity for on-the-ground presence and local expertise to support clients directly in some markets. Different operating models, languages, cultures, religions and way of doing business mean that a country-specific approach is required for most developing countries. Even the biggest global banks with extended network coverage can t provide such an approach in every country and provide a consistent service in every part of the world. Therefore, new important dynamics and trends are emerging as global players are required to interact and co-operate in more and diversified local environments. Standardisation and interoperability have created a common infrastructure, able to facilitate STP (straight through processing) and offer local GTS competitors the chance to partner with global players without entering into direct competition. New partnership agreements are increasingly substituting corresponding agreements. In particular, over the last years, some of the major international banking groups, with a strong g-local approach, have started up collaborative strategies, in order to expand their network, implementing international roaming models. These solutions help their customers accessing more easily their reference bank s counterparts in those regions not directly served by the banking group itself. This is possible thanks to the integration of the platforms of all the partner banks. In detail, different models can be implemented: Integration of platforms based on a technical outsourcer: this model uses a technical subject able to integrate the group s platform with those of one or more foreign partner banks. The advantage is the possibility of connecting multiple players via a single integration effort. Integration of platforms based on a system-to-system dialogue: this model works among a pool of banks and provides a dialogue of application functions in different platforms under agreed standards. Direct integration of platforms: this model allows a direct integration between platforms, enabling the exchange of flows related to different services. It is usually adopted by banking partners with strong synergies. However, the level of effective reciprocity in these partnerships will depend on how effectively local players implement industry standards and protocols and how strategically they invest in IT. The adoption of new technologies and new standards for interoperability, combined with strong commercial growth in some areas, has contributed to the expansion and rise of local banks operating in emerging countries. This development is supporting a contextual wave of innovation in local banks, which is taking off very fast. Emerging countries platforms and products are less complex and evolved than those present in developed countries, permitting a full-force deployment of new platforms, which don t have to communicate with endless and complicated legacy systems. These factors allow local banks to innovate faster and more efficiently. The rise of new competitors from the emerging market is changing the GTS landscape: local players are not succumbing but co-existing with global players and carving out a new and central role in the new equilibrium of global transaction banking. Progressing from one-way relationships to reciprocity, from correspondent agreements or white-labelling to partnership agreements, local banks are becoming potentially trusted partners. Local banks do not target western MNCs, but mostly emerging local ones and large and medium local corporates. They know their market very well, but often don t have the capabilities to compete with global players abroad. They are focused on increasing their local or regional market share and creating brand recognition. To be successful, they are adopting an aggressive pricing strategy and introducing new products specifically developed for the domestic market, such as liquidity structures, consolidation of payables and receivables into shared service centres, and working-capital and supply-chain financing solutions, as well as a significant increase in Export Credit Agency backed solutions. 21
4.3 New organisation to reach for scale Although GTS revenues have fared relatively well during the crisis, protracted and generally diffused low interest rates have slightly contracted GTS revenues, with a CAGR of -2,2% in 2008/2010. Meanwhile, pressure on prices for transactions has reduced margins on revenues fees, causing a drop in GTS revenues, and new regulations, introduced after the crisis, have raised bank costs for short-term trade products, such as trade finance, putting more pressure on margins. In particular, the Basel Committee on Banking Supervision has introduced Basel III, new rules in risk management with the aim of increasing shortterm liquidity coverage and ensuring stable balance sheet funding over the long term. Consequently, the increase of capital requirements and the rise of cost of funding require a re-organisation in order to preserve the EBITDA margin in global transaction services and deal with regulatory reform and with the increasing cost of compliance. Interest rate INTEREST RATE %, 3 MONTHS Euribor USD Libor 4.27% 5.30% 4.64% 2.93% 1.22% 0.68% 0.81% 0.34% 2007 2008 2009 2010 Source: www.global-rates.com GTS Revenues YoY GROWTH % -7% +4% 2008 2009 2010 Source: Companies Annual Report 2010, Value Partners analysis Global banks with strong transaction services have recently reassessed payments operating models, restructuring their organisation accordingly, so to enhance GTS profitability and to increase revenues from transaction facilities, as well as market share. Scale is therefore critical, and banks need to carefully evaluate the implementation of a new organisation able to reduce the high costs related to payment processing. In order to understand the transformations in place and the possible impact, the current organisational and operational structure of big players, the technology and service strategies adopted to outperform the fierce competition have been analysed. There are two main types of GTS organisational structure, GTS stand-alone division, with associated P&L, on the one side, and on the other hand, a matrix structure, with a GTS reporting line, but GTS P&L not publicly disclosed. To improve the GTS operational model, the banks are developing lean, end-to-end business and operative models, able to eliminate process inefficiencies, from the moment customers interact with sales forces right up to back-office operations. In particular, as it will be discussed in greater detail in the next section, IT represents a determinant key for competition and it plays a critical role in order to reach scale. 22
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Therefore, a significant part of the IT budget has been allocated to standardise, automate and consolidate processes (also to implement electronic data capturing and data correction at the source), with the aim of improving client service through a reshaping of banking platforms and installing tracking capabilities for tracking real payment status information. 4.4 IT costs and investments as a determining factor for competition IT investments represent the majority of GTS costs. Payments are strategic areas for banks, so when the scale permits it, banks tend to develop their own platforms. The degree of the investment is usually related to the strategic importance that GTS represents for the bank. Standardisation and increased interoperability have forced banks to choose between internal development, white-labelling or outsourcing. But if payments are key, in which technology is it right to invest? Is it be better to invest in payment hubs? Is there a preference for make or buy options? How long is it necessary to fully implement platforms and what are the main associated benefits? What could the main complications be? How is possible to handle legacy infrastructures? These are just a few of the questions that bankers are facing in deciding GTS strategies. What remains unquestionable is that IT investment remains fundamental. IT investment has always had a leading role as innovation catalyst and it is a powerful tool to improve gathering client data to build a client wallet. Knowledge of the client is determinant to banks to leverage cross-selling and to manage the risks connected to the client or its supply chain. In the last five years, IT structure and platforms have evolved greatly: banks have been following different strategies on IT and architecture depending on their resources and geographic focus. In some cases, banks have consolidated IT systems at a group level. In other cases, the consolidation at group level has been concerned only with the core element, with local IT strategies on specific countries and/or services. Related to this topic, it is important to underline how the increase of interoperability and the development of international standards ease the harmony between IT platforms and ensure efficiency in the IT system. While global banks tend to pursue a strategy of integrated payment hubs, local and regional banks tend to adopt a more specific strategy, especially when there are local regulations restricting operations or currency control. In this case, banks tend to follow a gradual platform integration process, including more and more elements in the core global platform in each phase. The specific case of a pan-regional player active in Europe is a clear example of how this gradual strategy is implemented. In the beginning, the bank strategy focused on the Eurozone, linking with other countries platforms in European countries outside the Eurozone. In the second phase, more specific countries elements belonging to local platforms were introduced in the core platform which is operating at a global level gradually reducing the role of the local ones. Generally speaking, larger banks develop their core platforms internally, especially payment ones, which are considered a core part of the banking business. In fact, payment platforms are key to payment transactions and basic banking activities. Furthermore, they allow banks to collect important client information. The protection of such strategic and confidential data cannot be easily outsourced. Whichever strategy a bank decides to follow, investment in IT remains burdensome. One of the top global banks has been investing USD $1bn a year for the last 2 years solely in technology for transaction services infrastructure and delivery platforms. Not all banks can access such a stratospheric budget. On average, the IT budget allocated by the banks for transaction service is approximately equal to 15-20% of the total IT budget. The most important innovation in payment platform is represented by the payment hub. The type of payment hub that a bank decides to implement is directly correlated to the management of large volumes, the types of services offered and bank s geographical distribution. 23
The investment requested to implement a payment hub can vary enormously. However, there is not a great deal of variation between make vs. buy options, because even solutions bought from a specialised company have extremely high degrees of customisation. The real difference is in delivery time: a system developed internally can have a delay of 18-20 months to be fully operative while specialist solutions have a quicker implementation. Payment hub: make vs buy INVESTMENT, Euro mln Delay time Delivery time X months X months 18-20 months Buy option Make option Source: Value Partners analysis Payment hubs allow banks to increase the volume of transaction processing and to rationalise the back office, improving efficiency on running costs by 20-25%. The increased amount of transactions and the possibility of developing a full range of payment solutions could boost revenues from 15-20% in mature areas (e.g. Eurozone), up to 30-40% in emerging countries. At the moment, several kinds of payment hubs co-exist. They are divided by types of payments (such as payable and receivable, cards payment, mobile payment and foreign payments), but are still structured following a silo logic. The fully integrated hub represents the future evolution of payment hubs and it will allow banks to improve process performance and the collection of information from different forms of payment methods and platforms. Payment hub: benefits REVENUES, COSTS, % Revenues can increase up to 30-40% in emerging countries 15-20% 100% 20-25% Revenues Running costs Source: Value Partners analysis 24
R i d i n g t h e w a v e o f g l o b a l t r a n s a c t i o n s e r v i c e s a n d p a y m e n t s y s t e m s R E P O R T Based on our survey, our studies and our analysis in the global transaction services and payment systems, the following conclusions have been reached: Banks interest in GTS is increasing significantly, primarily due to market performance during the financial crisis. Unlike a lot of other financial products, global transaction services ensure stable returns, even in uncertain periods. Today, global transaction services continue to provide significant margins for banks and, in many cases, the EBITDA margin in GTS is 10-15 percentage points higher than the total bank EBITDA; 5. Conclusions Customers needs are turning towards more complex and tailored products related to transparency, real-time information and payment tracking, risk management and liquidity of their supply chain, largely because on the notable repercussions for their own liquidity. At the same time, customers are asking their banks to provide a consistent service in every country where they are active. This situation has a significant impact on the competitive system, where local players are carving out a central role in the new equilibrium of global transaction services. In particular, local banks are not entering into direct competition with global players. Instead, they are becoming potentially trusted partners, needed to offer and ensure a complete offer; Some banks have recently reassessed their payment operating models and architectures to follow the existing trends. The goal is to enhance GTS profitability through improved efficiency in service provision and to increase the revenues from transaction facilities. The evolution of global transaction services is still at an early stage of development. For this reason, in the current economic environment, it is possible to identify a wide range of different organisations and IT solutions, summarised in two different aspects. Some banks have developed a GTS stand-alone division, with associated profit & loss and a dedicated sales structure, while others developed a matrix structure with a GTS reporting line (GTS P&L not publicly disclosed). Conversely, some banks have either consolidated IT systems at a group level, or only the core part with local IT strategies for specific countries and services. The decision depends on a lot of different factors, but available resources, managed volumes and bank s geographical distribution are the main drivers. In addition, banks are implementing different technologies and payment platforms, with the aim of increasing the volume of transaction processing and of improving efficiency on running costs. One of the new frontiers in payment platforms is the payment hub: it allows banks to consolidate several payment processes into a simple, standardised and coordinated system. This solution lowers the cost of ownership, reduces maintenance costs and risks and allows the increase of the volume of transactions processed. Trend for the future seems to be a fully integrated payment hub. Thanks to this solution banks can improve process performance and collect information from different sources. Regardless of the specific organisational structure and IT solution the bank has implemented, what remains unquestionable is that a financial institution, in order to improve GTS profitability, has to adopt a solution that is consistent with its positioning, coherent with different factors, such as IT innovation, expenditures and scale, customer needs and regulations, competitive systems and congruence with the entire bank strategy. Finally, it is essential to note that banks must also be able to pursue a customer-oriented strategy and promptly meet market needs. This means that the implemented solution has to ensure flexibility and be responsive to changes in the environment. 25
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G l o s s a r y
ACH Automated Clearing House BRIC Refers collectively to the countries of Brazil, Russia, India, and China CAGR Compound Annual Growth Rate CBI Customer to Business Interaction Cheque A bill of exchange drawn on a bank by the holder of a current account Credit Card Card allowing holder to charge purchases against a line of credit up to an authorised amount Credit Transfer Electronic payment where both payment instructions and funds move from payor bank to payee bank via batch-transfer system CRM Customer Relationship Management Direct Debit Pre-authorised batch-transfer electronic payment where payment instructions move from payee bank to payor bank and funds move in the opposite direction E-invoicing Solution for secure exchange of invoice data between suppliers and buyers ERP Enterprise Resource Planning Eurozone Comprises the member states of the EU that have adopted the euro as their national currency GTB Global Transaction Banking GTS Global Transaction Services IPFA International Payments Framework Association ISO 20022 Abbreviated term referring to the ISO message scheme used by SEPA instruments MNCs Multinational Corporations PAs Public Administrations PSD Payment Services Directive P&L Profit and Loss SEPA The Single Euro Payments Area is a domain in which EU 31 standardises all euro payments and collections so they can be treated as domestic transactions SMEs Small and Medium Enterprises STP Straight Through Processing VAS Value Added Services XML Extensible markup language that facilitates the sharing of structured data across information systems FX Foreign exchange 28
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