SUNGARD B2B PAYMENTS AND BANK CONNECTIVITY STUDY INNOVATIONS TO OVERCOME COMPLEXITY-DRIVEN FRAUD EXPOSURE AND COST INCREASES

SUNGARD B2B PAYMENTS AND BANK CONNECTIVITY STUDY INNOVATIONS TO OVERCOME COMPLEXITY-DRIVEN FRAUD EXPOSURE AND COST INCREASES

CONTENTS 3 Study Scope 3 Respondent profile 4 Key Findings 5 Structure 5 A global network of people, processes and systems 6 Poor cash visibility with complex banking relationships 7 Bank connectivity and the move toward automation 8 Technology 8 Introducing centralized corporate payments 8 Effective centralization 10 Process 10 What drives organizations to implement a centralized payment platform? 10 Centralization in practice 11 Preferred payment method 11 Expected outlook

Study Scope SunGard recently embarked on a market study of treasurers and other financial professionals to understand current trends and challenges around payments and bank connectivity. The study, which was conducted in October and November 2013, covered topics ranging from banking relationships and payment workflows to fraud and costs. Respondent profile The study included 398 participants globally, representing all geographic regions. Company size. Almost 60% of the companies participating in the study have more than US$1 billion in annual revenues; approximately 23% have revenues of more than US$10 billion. Industries. Most major industry groups were represented, with the largest segments being financial services (19%) and manufacturing (11%). Role. 67% of respondents work in the treasury department. Fraud is a serious risk that companies face in this complex global business environment. It has become increasingly difficult to detect, and many senior executives remain unaware of the internal fraud risks that their own firms are facing. In addition to fraud, companies with a high degree of complexity experience increased operational and transactional costs. For this reason there is an increased demand for controls such as the introduction of standard processes and technology such as a Payment Factory. Enrico Camerinelli principal, Aite Group www.sungard.com/avantgard 3

Key Findings 89 % 89% of respondents operate across multiple geographies. 25% of companies use more than 10 cash management banks and 23% of those companies maintain more than 1,000 bank accounts. 25 % 29 % 29% of respondents use SWIFT, while 41% expect to be using SWIFT in the next 12 to 24 months. 55% of respondents with more than US$1 billion in revenue rely on e-banking to connect to their banks; only 41% expect to continue to use e-banking in the next 12 to24 months. 55 % 20 % Only 20% of companies follow standardized and controlled payment management workflows across all of their entities. 29% of respondents would implement a payments project to reduce fraud and increase controls. 29 % 15% of companies still make more than 20 million check payments per year. 15 % 4 Mitigating losses and reducing risks in B2B payment processes

Structure 89% of respondents operate across multiple geographies. As organizations grow, they naturally become more complex. Acquisitions in other countries lead to multiple systems and processes. Increased complexity drives companies to evaluate their existing systems, processes and banking relationships with an eye toward streamlining operations and simplifying processes. A global network of people, processes and systems Many corporations are challenged by a lack of infrastructure to support routing and approval of payments globally, leaving them to rely on spreadsheets and local web banking applications in a highly manual environment. Figure 1: Level of organizational responsibility (companies with revenues over $1 billion) 11% This inevitably leads to poor cash visibility, high operational costs and an increased risk of fraud and errors. Compounding these challenges, many companies also rely on a fragmented array of systems for connectivity to SWIFT, banks, ACH and check printing systems. 30% 59% Global Regional Local www.sungard.com/avantgard 5

Poor cash visibility with complex banking relationships 25% of companies use more than 10 cash management banks and 23% of those companies maintain more than 1,000 bank accounts. Most companies use a network of banks and maintain multiple accounts with them in various locations internationally. The study showed a strong correlation between company size and the number of cash management banks and bank accounts, supporting the idea that as a company grows, their banking environment becomes increasingly complex. Companies that use local bank accounts for domestic or decentralized payment processing often maintain marginal fund balances that could be invested more wisely and frequently experience lack of visibility into cash balances. A set of disparate enterprise resource planning (ERP), treasury and banking systems typically exists within these companies. For large organizations it is difficult to achieve full transparency into all bank accounts. Thus, they have poor visibility into global cash. Many companies, as they grow and expand geographically, open bank accounts at subsidiary or business unit levels and manage those accounts locally, leading to poor visibility into cash, trapped cash, and even high costs for transferring money within the company as the balances move from bank to bank. Treasury organizations are looking to quickly evolve and are creating new strategies to solve these issues to improve their use of cash. One of the key advantages identified by companies that have undertaken payment centralization is the ability to streamline bank relationships. Concentrating banking relationships and consolidating accounts was indicated as a best practice for lowering fraud concerns and frequently mentioned as a benefit of consolidating and centralizing payment systems. Figure 2: How many primary cash management banks? 25% 27% <3 4-10 >10 48% Figure 3: How many bank accounts? 6% 4% 13% 13% 34% 30% <100 100-499 500-999 1000-2499 2500-4999 >5000 6 Mitigating losses and reducing risks in B2B payment processes

Bank connectivity and the move toward automation 29% of respondents use SWIFT, while 41% expected to be using SWIFT in the next 12 to 24 months. Treasury and payments solutions require secure and reliable connections to banking partners. One-size does not fit all when it comes to bank connectivity. In most cases, companies use one or more bank-provided electronic banking systems.in fact, 55% of respondents with more than US$1 billion in revenue rely on e-banking to connect to their banks. However, that number can be expected to decline, as only 41% of respondents expect to continue to use e-banking in the next 12 to 24 months. Organizations historically turned to proprietary host-to-host links to each individual bank. However, the challenges in this approach include higher connectivity development and maintenance costs. The study reflected this frustration, with respondents indicating movement away from host-to-host connections in the next 12 to 24 months. Once connectivity is established, corporations can leverage valuable bank and communication services without the need to install additional software. Services available from SunGard include payment transmission, ebam (electronic bank account management), bank statement aggregation, and bank fee analysis, along with SWIFT. As corporations expand their geographic footprint into new territories, diversify their counterparty risk, and seek new ways of enhancing treasury s efficiency and security, efficient bank communication and integration with internal systems become even more important and indeed challenging. By leveraging managed bank communication services, treasurers and finance managers can focus not on communication rather than connectivity, and on process efficiency and control rather than integration. A hub-and-spoke approach using a network or channel such as SWIFT can provide easier, more efficient and less costly bank connectivity. Corporations can benefit from a single connection that sends and receives all confirmations, trades, payment instructions, account statements, and more, from worldwide treasury operations. In some cases too, particularly among corporates that have predominantly domestic business, companies use a domestic payments channel, such as the Electronic Banking Internet Communication Standard (EBICS) in France and Germany. The study showed that as organizations move away from manual and host-to-host methods of bank communications, they are increasingly turning to networks that provide a single standardized access point to worldwide banking partners for cash and treasury management along with trade and supply chain services. While 29% of respondents currently use SWIFT, 41% expect to be using it in the next 12 to24 months. Only 3% of respondents indicated they are using a cloud-based system or externally-hosted third-party connectivity; however, that number is expected to increase to 10% in the next 12 to 24 months. Figure 4: Method of Bank Connectivity (>$1bn) H2H Networks Manual 0 0.2 0.4 0.6 0.8 Current Next 12-24 Months UNIVERSAL MUSIC GROUP ACHIEVES SMARTER OPERATIONS WITH SWIFTREADY MULTI-BANK PAYMENTS PROCESSING Global music leader Universal Music Group was managing 12 bank partners in over 46 countries. While rolling out SAP, the firm realized that it was investing too much time and resources developing interfaces with each bank. The company implemented a payment hub to help its processes and manage SWIFT connectivity between SAP and its banks. www.sungard.com/avantgard 7

Technology Complexity, geographic and within banking relationships, is driving companies to look for technology solutions that aggregate data and streamline connectivity. Introducing centralized corporate payments Many corporations today are managing their payments processing and bank accounts either regionally or at the business unit or subsidiary level. This structure is frequently determined by the growth of the company. Multiple acquisitions, for example, might lead to payment management at the subsidiary level. Managing payments regionally or at the business unit or subsidiary level often results in poor visibility and high operational costs, in addition to the potential for fraud-related risk. Implementing a centralized corporate payment structure leads to widespread benefits beyond fraud control. Simplification and standardization contribute directly to improved liquidity management, reduction of both internal and external costs, enhanced controls and visibility, and error reduction. Effective centralization A payment factory or hub is a single solution to optimize the payments initiation process. Technology sources, formats and dispatches payment instructions to banks from one centralized location and increases visibility through consolidated account statements and reporting. Because it is a central hub that can connect a corporate s back office across different ERP or treasury management system (TMS) that initiate payments to bank connectivity channels, treasury can borrow or invest based on more accurate visibility into cash positions. Implementing a payment factory can reduce operational risk by defining common policies for approving and releasing payments according to internally defined controls and audit procedures. UCB CENTRALIZES & HARMONIZES THE PAYMENTS PROCESS UCB, a global biopharmaceutical company headquartered in Brussels, focuses on therapies for central nervous system diseases and immunology conditions. The group has operations in approximately 40 countries and global revenues of US$4.6 billion. Recognizing the value of a centralized, harmonized approach to payments processing, UCB has set up a payment factory solution and streamlined banking structure that allows payments to be made on behalf of its group companies. The single payments factory approach has a pivotal role in automating processes and standardizing formats, both as part of the initial implementation in Europe and as the payment factory is rolled out globally. As a result, UCB has achieved smarter operations around its payments processes. 8 Mitigating losses and reducing risks in B2B payment processes

In the past, the goals when implementing a treasury management or payment system were purely transaction management, control and reporting. Over recent years, however, there has been a transformation in the way that these systems sit within the treasury or payments technology infrastructure. Integration with external systems, such as electronic banking solutions, is no longer an add-on function relegated to an elusive phase two of a TMS implementation project. Instead, it is an essential enabler for efficient, secure processing of treasury as well as operational payments and retrieval of treasury and business unit operational accounts information for cash positioning and automatic reconciliation. Figure 5: Systems Connected to SWIFT ERP for A/R ERP for A/P Payment Factory TMS Treasury Statements TMS for Payments 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% As corporations expand their geographic footprint into new territories, diversify their counterparty risk, and seek new ways of enhancing treasury s efficiency and security, efficient bank communication and integration with internal systems become even more important and indeed challenging. By leveraging managed bank communication services, treasurers and finance managers can focus on process efficiency and control rather than integration. Robust and reliable bank communication should be part of an efficient payments and cash management process. Rather than making connections to multiple banks or portals, and managing separate formats, bank connectivity (with the relevant banks, in the required format and through the chosen channel) can be delivered in conjunction with a treasury management system or a payment factory. The majority of respondents who had connected to the SWIFT network connected their treasury or ERP systems. www.sungard.com/avantgard 9

Process Only 20% of organizations follow standardized and controlled payment management workflow across all of their entities. What drives organizations to implement a centralized payment platform? The desire to reduce fraud risks and increase controls emerged as the main drivers of payments centralization projects, followed by reduction in either internal or external costs. Figure 6: Drivers of Payments Centralization (revenues over US$1 billion) 16% 18% 6% 4% 27% 29% Control / Fraud Prevention Reduction of Internal Costs Reduction of External Costs Improved Visibility Reduction of Errors Consolidation of Banks Centralization in practice To effectively centralize payments, organizations first should undergo a standardization of their payments processes. The SunGard study shows that, of organizations with revenues over US$1 billion, only 20% follow standardized and controlled payment management workflows across all of their entities. A thorough organization-wide analysis of payments processes can lead to better understanding of areas for improvementand areas that can benefit the most from further examination. Standardizing payment processes strenthens governance and delivers cost efficiencies, while centralization delivers even greater cost benefits. Figure 7: Organizations Whose Entities "All" Follow Standardized Payment Workflows (revenues over US$1 billion) 20% 100% (Fully Standardized) Not standardized FOCUS ON FRAUD Key fraud prevention practices that payment factories or hubs support include: A single clear standard enterprise-wide policy for payment approval, signing and release; Multiple reviewers for all changes, including payment templates, counterparty settlement instructions and other configuration components; Release of payments to banks in compliance with company mandates (amount ranges, bank accounts, entities etc.) for signing and approval; A single global application for administration, monitoring, auditing and business continuity of payment processes; Day limits on approval levels; Data seals to prevent tampering with payments data; Secure interfaces to and from ERP systems for the exchange of encrypted and signed files; Token-based signing verifying users personal signatures; Strong authentication during login and signing processes; Support for ID schemes such as 3SKey where personal signatures are sent with the payment files for the bank to verify; Secure and transactional banking channels that prevent tampering with payment files; Audit trails on all configurations; Processing history trails that include all payment processing steps, including time stamps, users, and changed attributes. Best practices: What have companies done to reduce fraud concerns? 55% had less than 100 bank accounts 46% had fewer than 3 cash management banks, another 46% had fewer than 10 27% follow a fully standardized workflows across the company 65% have a TMS for payments connected to SWIFT REDUCE COMPLEXITY TO REDUCE CONCERNS AROUND FRAUD 80% A SINGLE VIEW OF ALL PAYMENT FLOWS ACROSS 22 SUBSIDIARIES AND MULTIPLE INSTANCES OF SAP WITH 20 BANK CHANNELS Carmeuse sought to centralize its entire liquidity management operation and respond to rapid expansion in recent years by implementing a payments factory. The centralization of treasury management had increased cash visibility on a weekly basis, but there remained a lack of transparency into daily cash flows that could be improved through consolidated and timely payables reporting. Establishing a centralized group-wide payments factory with SunGard s AvantGard solution achieved the required level of visibility. 10 Mitigating losses and reducing risks in B2B payment processes

Preferred payment method The study revealed that organizations prefer to make payments electronically, with participants showing almost equal preference among EFT, wire and ACH payments. With 15% of participants still making more than $20 million check payments per year, opportunities for significant cost cutting remain. Figure 8: Most popular payment methods (revenues over US$1 billion) 26% 24% 15% 12% 23% Checks ACH Card Wire EFT When looking further into check printing trends, 50% of participants print checks in-house currently, but most respondents also indicated that they plan to move away from in-house check printing over the next 12 to 24 months and toward outsourcing or eliminating check printing entirely, a move is intended to reduce costs and also reduce exposure to check fraud. Participants low rate of card payments indicates another area for potential cost advantages, particularly for companies with large numbers of small payments. Virtual credit card payments offer increased security over traditional payment methods by offering a single-use, fixed payment amount and have the added benefit of generating rebate revenues based on a small percentage the interchange fees received by the card issuer. Figure 9: Move to outsource check printing (revenues over US$1 billion) Not Applicable Outsourced to a 3 rd Party Expected outlook The study revealed several broad trends in the areas of payments processes, structures and technology. As organizations look to reduce exposure to fraud, strengthen governance and reduce costs, they will continue to increase controls around payments and move toward standardization and centralization. Organizations that have not done so will undertake a review of their payments to uncover areas for improvement Consolidating to reduce complexity and increase control Organizations will begin to consolidate their banking relationships and rely more heavily on a trusted banking partner. Bank account management is a key area where firms can improve controls and improve visibility. The study showed that growing companies expand bank relationships and accounts exponentially, so even for firms that have undergone bank account rationalization, a periodic streamlining exercise may be key to maintaining visibility. Streamlining with managed bank connectivity Organizations will turn to managed services to access SWIFT, multi-bank connections and cloud-based hosting for their bank connectivity needs, reducing their reliance on internal IT and enabling payment personnel to focus on their core responsibilities. These organizations can then potentially gain a competitive advantage by reducing time spent on manual e-banking tasks and enhancing security and efficiency through managed bank connectivity. Moving to more fraud-resistant payment methods With concerns over fraud front and center, corporations are looking at ways to both increase controls and reduce their dependence on checks, the most widely-targeted payment method for fraud attacks. Moves that can decrease exposure to fraud include outsourcing check printing or eliminating checks entirely, and also using virtual cards. Outsourced to a Bank In-house 0 0.1 0.2 0.3 0.4 0.5 0.6 Current Next 12-24 Months www.sungard.com/avantgard 11

About SunGard s AvantGard SunGard s AvantGard is a leading liquidity and risk management solution for corporations, insurance companies and the public sector. The AvantGard solution suite includes credit risk modeling, collections management, treasury risk analysis, cash management, payments system integration, and payments execution delivered directly to corporations or via banking partners. AvantGard solutions help consolidate data from multiple in-house systems, drive workflow and provide connectivity to a broad range of trading partners including banks, SWIFT, credit data providers, FX platforms, money markets, and market data. The technology is supported by a full range of services delivered by domain experts, including managed cloud services, treasury operations management, SWIFT administration, managed bank connectivity, bank on-boarding, and vendor enrollment. For more information, visit www.sungard.com/avantgard. For more information, please visit: www.sungard.com/avantgard Contact us: avantgardinfo@sungard.com Visit us on Twitter at: www.twitter.com/sgavantgard About SunGard SunGard is one of the world s leading software and technology services companies, with annual revenue of about $2.8 billion. SunGard provides software and processing solutions for financial services, education and the public sector. SunGard serves approximately 16,000 customers in more than 70 countries and has more than 13,000 employees. For more information, please visit www.sungard.com. 2014 SunGard. Trademark Information: SunGard and the SunGard logo are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.