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Monday 19 March 2018


Breaking up the paper chain

Written by Justin Quillinan
Sept/Oct 2010

Ever since the Dead Sea Scrolls – of great religious significance – to the latter days of Egyptian dominance (many prized documents of the period were in fact rather boring bills of sale, but written in exciting hieroglyphs), people have relied on paper of some form to convey their thoughts and deeds.

Even today, paper still calls the shots in what is supposed to be a ‘paperless’ electronic environment.

There are many reasons for this, including different rules and regulations, when it comes to financial transfers between countries, the increasing use of mobile and WiFi devices (which can, and have been, successfully hacked), and not least the credibility of ‘e-signatures’ which can be more dubious than a shaky ‘X’ on a ballot paper.

Chain reaction
The ultimate aim of a successful business deal should be a high-tech replacement for traditional barter, in other words a modern equivalent of a ‘firm handshake’ that used to confirm a transaction between supplier and buyer.

However, the long and convoluted nature of the supply chain makes this impossible, and will probably always be so. Yet technology can help to streamline the process through a robust approach to verification, online billing and payments, paperless direct debits, the elimination of cheques and such things as the electronic equivalent of letters of credit.

Banks are ramping up their efforts to facilitate these processes but other, non-bank institutions are trying to move into their space and a plethora of software vendors are hoping to capitalise on the turmoil.

In an increasingly global marketplace the financial sector needs to speak a common language and the increasing use of the ISO 20022 standard, supported by SWIFT, the FIX protocol and the Financial Products Mark-up Language (FpML) is making a good start.

But standards in themselves are not enough, according to Ray Zabarte, global head of corporate product development (transaction banking) at the Standard Chartered Bank. “The problem is not for lack of standards but the lack of motivation to use them,” he says. “I’m not trying to be controversial with that statement but clients need to see a compelling benefit for its adoption and in our experience this isn’t necessarily demonstrated through efficiency gains.”

He points out that e-invoicing in Korea is one of the most successful markets in
the world as a result of the Korean government’s tax incentives that persuaded ‘thousands upon thousands’ of businesses to go electronic.

Give it a break
The likelihood of such tax breaks happening in the UK and other European countries in today’s austere times seems remote. But, Zabarte adds, some Scandinavian markets have stepped up to the plate because they can see the benefits of harnessing electronics as a way of shedding manpower.

Liquidity management solutions are really what clients want, he says. “Having better information and knowledge of what funds are going in or going out will always trump the value of saving a few bodies from account payable.”

His colleague at the Standard Chartered Bank, Swee Lee, global head of liquidity management (transaction banking), agrees. “The focus of our business is looking at the working capital cycle for our clients, so we look at how they receive their money, how they pay and how they optimise their liquidity.

“We look at our clients’ supply chains from their perspective and what can make their processes more efficient and how we can help them to squeeze more liquidity out of these areas.”

Zabarte is sceptical that paper-based transactions will be abolished in the foreseeable future. “There are valid reasons for this and not necessarily for efficiency gains. A letter of credit, for example, is not just the payment of a settlement instrument but a risk management instrument as well. Until there can be a satisfactory replacement, they will still exist.”

Lee points out cultural differences between markets. “Culture plays a very important part, especially in Asia, in terms of accepting electronic signatures or authentication. In China, where we tried to use electronic images, we still had to use red ink stamping and this is just one example of the mind-set that needs to be picked clean gradually.”

Inevitably in competitive financial markets, other players move into what was traditionally an exclusive role for the banks. One of the biggest is Travelex with 35,000 business customers all over the world with its electronic PayManager and GlobalPay solutions. Travelex has major customers including the Four Seasons Hotel chain and a string of legal firms and universities, who increasingly depend on income from inbound foreign students to bolster their coffers through bank-to-bank transfers to pay fees in their own currencies and via card payments.

Educational cutbacks have played in the company’s favour, with recent signings including the University of Edinburgh, Harvard and the universities of Melbourne and Sydney, Australia.

Whilst in some senses a competitor of the banks, Travelex is also a supplier, servicing more than 700 financial institutions with international payments.

David Sears, managing director of global business payments at Travelex, explains that the relationship is a complex one: “The corporates we deal with are those with a multi-national presence or an import/export need of some description – so they can’t be served by a domestic bank.

“We do compete with the likes of Citibank and some of the global banks like HSBC who have big corporate customers, but in terms of the local domestic banking environment we’re not really a competitor at all and that’s why they use our services.”

Paper cut-outs
High up on the company’s agenda is the elimination of paperwork in financial transactions. Travelex’s PayManager solution, first launched in the USA and now available in multiple languages in other parts of the world, was invented to eliminate cheques and drive the move towards electronic payments.

The move was a ‘no-brainer’ because sending a cheque by post can cost between US$5 and US$10 a go. “Local electronic payments like BACS in the UK are gaining ground, but there are still more paper junkies writing cheques in the US than there are in the UK,” explains Sears. He says the old ‘the cheque’s in the post’ excuse should be confined to the dustbin through electronics, meaning that an email can invite a customer to log onto a server, enter their bank details, be assured that a payment is on its way and told when it will be credited to their account.

Speaking about concerns relating to the security of financial transactions over mobile devices such as smartphones, he comments: “We’re not confident that the standards are there to support this. But smartphones are just Internet browsers so it just comes back to the robustness of your Internet interface and global paying is secured using digital certificates. So it’s got a very high user authenticity attached to it and we know who’s contacting us from strong encryption wrapped around digital certificates.”

Costly business
Banking software provider Temenos claims that a drawback to creating a streamlined financial supply chain could be the cost of integrating corporate systems, and the difficulty of giving a corporate access to the information needed, as well as to connect and manage the supply book.

If the banks fail to deliver such services the result will be: “Client erosion – plain and simple. They will lose market share and therefore profit,” says Temenos product manager in the corporate banking division, Darryl Proctor.

He believes that banks are lacking in the adoption of standards. “The IT systems that are out there, especially those that are bespoke, home-grown, usually don’t conform to industry standards and this makes integration with package software difficult. They need to adopt systems that are easy to integrate, contain rich functionality across broad banking products, helping to deliver the kind of service that a corporate is looking for.”

Steven Murphy, research director (wholesale banking) at analyst TowerGroup, says that a number of tech vendors and service companies have been pulling together supplier networks or buyer-centric solutions that provide the tools for a fully electronic ‘order origination to settlement’ experience – including Ariba, GXS and OB 10 and many others in a fragmented but growing electronic delivery landscape.
Whilst financial institutions are partnering where necessary to provide some of the tools required in end-to-end delivery, some are keeping key areas such as payments and supply chain finance capabilities within their own solutions.

“There are no truly global standards in the financial supply chain nor is there interoperability expected for a number of years. We expect a fair amount of consolidation over the next five years as the number of providers in this space try to gain more scale.”

He adds that bringing global commerce into the next generation of a paperless environment is about education, to avoid confusion over the many solutions available. “The clear discussion and education of what the solutions provide and where they fit into the end-to-end chain of events is critical.”

So it would seem that now is not the time to throw the pen and paper into the bin…just yet.

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