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*connectedthinking
Banking and Capital Markets
E-invoicing:Now is the time to act*Transaction Banking Compass
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Despite the attractions of e-invoicing,adoption in Europe has been slowso far
Even among an informed banking audience,any mention of e-invoicing is likely toprompt some questions. What exactly does‘e-invoicing’ actually mean? Can it be anythingmore than a niche service? Why should thewider banking industry care? To answer thesequestions, it is helpful to begin with a review ofe-invoicing development in Europe to date.
As IT adoption has spread and internet usagehas proliferated in recent years, Europeanconsumer and enterprise behaviour haschanged rapidly. One key feature has been theability of even small businesses to developcustomer relationships over greater distancesand across international borders. Another isthat products and services are increasinglydelivered in real time and with less reliance onmanual processes.
In this environment, it is not surprising thatbusinesses are constantly seeking to improvetheir efficiency, and the European Associationof Corporate Treasurers (EACT) has beenstressing the potential benefits of e-invoicingfor several years. In simple terms, e-invoicingrepresents the replacement of manual paper-based billing processes with electronic ones.Because invoices are a crucial link betweenthe physical and financial aspects of business,and must meet both operational and legalrequirements, e-invoicing adoption can also bean important step towards the development ofentirely virtual supply chains.
In 2001 the European Commission issued aDirective in response to this demand. Thisaimed to kick-start the development of aEuropean market for e-invoicing and took
account of VAT requirements in particular.The driver for this effort was an expectationthat wider e-invoicing adoption would generatea number of important benefits including:
• more integrated supply chains;
• more efficient use of working capital;
• fewer failed transactions;
• more rapid trade flows;
• improved customer care;
• better risk management; and
• more effective cross-selling.
Overall, it was hoped that the adoption ofe-invoicing would achieve billions of Euros inefficiency gains. The quantum of potential
savings is a matter of debate, but a recentreport from the Euro Banking Association (EBA)and Innopay reports estimates ranging from€135bn (from a University of Hanover study) to€243bn (from the EACT) per annum across theEU.1
Whatever the expected benefits, the 2001Directive proved to be something of a falsestart. European e-invoicing adoption levelsremain low; according to the EBA’s estimates,only 2.2% of European invoices were genuinelydematerialised in 2007. What’s more, this figurehides some wide variations. While the Nordicstates and Switzerland are believed to beamong the leading adopters of e-invoicing, inthe more populous states e-invoicing platformsare more fragmented and adoption isconsequently lower (see Figure 1).
E-invoicing offers many potentialbenefits to users and the economyat large, but adoption in Europe hasbeen generally slow owing to avariety of technical and behaviouralobstacles. However, a growing rangeof initiatives are underway to breakdown those barriers and encouragethe e-invoicing market to develop.Banks are uniquely placed to shapeand profit from the development ofe-invoicing, but they need to avoidbeing left behind by competitors andnew entrants. Now is the time forthe business bankers inside banksto act, to make the case and toachieve change.
PricewaterhouseCoopers Transaction Banking CompassE-invoicing: Now is the time to act
Pieter Breyne+32 9 268 [email protected]
Peter Simon+44 20 7213 [email protected]
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1 ‘E-Invoicing 2008’, EBA and Innopay – 02.08
Figure 1: European e-invoicing penetration rates 2007 ■ >10% ■ 3–10% ■ 1–3% ■ <1%
B2B B2C
Source: ‘E-invoicing 2008’, Euro Banking Association (EBA) and Innopay
PricewaterhouseCoopers Transaction Banking CompassE-invoicing: Now is the time to act HomeQuitPrint
There also tends to be greater adoptionamong large companies than among smalland medium-sized enterprises (SMEs), asdemonstrated by data from Switzerlandanalysed by the EBA and Innopay (seeFigure 2).
The hesitant start reflects acombination of technical andbehavioural obstacles
So what have been the barriers to e-invoicingadoption so far? If the service genuinely offersso many potential benefits, why has it not beena greater success? The answers to thesequestions can be grouped under the headings
of technical obstacles and behaviouralresistance. Together, they have stood in theway of a critical mass of initial e-invoicingtake-up.
Technical obstacles to e-invoicing adoption inEurope are due in large part to differingpractices among EU member states. The mostnotable involve lack of cross-border agreementon VAT rules, uncertainty about the legalvalidity of electronic documents, differingstandards for the recognition of electronicsignatures, the variety of Electronic DataInterchange (EDI) standards in use, and thelack of standardised invoice formats.
Archiving is another tricky area; some statesrequire hard copies of invoices to bemaintained for years, even if the original waselectronic. Until recently, many EuropeanSMEs were also relatively poorly served by ITinfrastructure and did not have access tobroadband. In short, many potential usersare unsure about the validity, security orpracticality of e-invoicing, and country-specificpractices are restricting the development ofcross-border activity.
There has also been behavioural resistanceto e-invoicing. This is less about legal ortechnological barriers and more aboutsentiment. Wider adoption of e-invoicingamong SMEs will require financial investment,management impetus and open thinking bysuppliers and customers alike. This level ofconfidence naturally takes time to build,especially when potential users are a large andfragmented group, technology is unfamiliar andthere is a proliferation of service platforms.
Large private sector companies are currentlymaking good use of B2C e-invoicing,especially for bill presentment. However, thecompanies best placed to build confidence ine-invoicing – the banks themselves – haveoften hesitated to make what look like risky,unilateral investments, given the need formultilateral action to break down barriers toe-invoicing adoption.
The link between risk and reward has alsosometimes been less than clear. However,this has now changed. Put into the contextof a transaction banking business which is ableto link cash management, technologyand infrastructure more easily and effectivelythan before, a clear business case beginsto emerge.
Efforts to overcome e-invoicingbarriers are becoming more forceful
Considering the factors that have held backe-invoicing to date, is there any real prospectof the concept taking off in the near future?In fact, there are several initiatives underwayat European level to break down technicalobstacles and drive adoption forward.
• One European body focused on e-invoicingadoption is the European Committee forStandardisation (CEN). CEN is responsiblefor the development of technicalstandards which promote free trade andinteroperability, and has set up a series ofworkshops to identify the biggest barriersto e-invoicing adoption, such as theproliferation of standards in Europeanmember states.
• To address the obstacles identified byCEN and other bodies, the EuropeanCommission has set up an Expert Groupon e-invoicing. The Group is tasked withestablishing a European e-invoicingFramework (EEIF) by the end of 2009.The Framework is intended as a conceptualstructure that will support the developmentof e-invoicing, and thus form a basis forlegislative and procedural change.
• In its turn, the European Commission isconsidering potential revisions to the2001 Directive, which are expected toincorporate the Expert Group’s proposalsto simplify legal, tax and regulatoryframeworks in the EU.
Figure 2: Invoicing between economic segments, based on Swiss figures
B2B
Large companies(>250 employees)
Con
sum
ers
Medium-sized companies(10–249 employees)
Small companies(1–9 employees)
B2C
10%
12%
7%
8%0%
2%
1%
3%
43%
5%
2%8%
Source: ‘E-invoicing 2008’, Euro Banking Association (EBA) and Innopay
PricewaterhouseCoopers Transaction Banking CompassE-invoicing: Now is the time to act HomeQuitPrint
• As well as acting as a facilitator, theEuropean Commission has taken a directrole in pushing forward e-invoicingadoption, via its own pilot project fore-invoicing and e-procurement. It is alsooverseeing a large-scale pilot project whichinterconnects several member states’e-procurement systems. These pilots areintended not only to broaden e-invoicingadoption, but also to raise awarenessamong potential users.
There are also other changes afoot in theEuropean payments environment which shouldhelp to overcome behavioural resistance bystimulating demand for e-invoicing.
• Most notable is the introduction of theSingle Euro Payment Area (SEPA) and theprospect of a common set of paymentinstruments across the Eurozone.Facilitating e-invoicing was one of the keyrationales for SEPA, and a much broaderadoption of the virtual supply chain wouldbe an encouraging sign that nationalpayments infrastructures were finally beingdisplaced by pan-European ones.
• Initiatives from various associations ofEuropean banks aimed at improving thespeed and ease of use of electronicpayments – such as Faster Payments in theUK – should also stimulate long-termdemand for e-invoicing.
• Further stimulus is likely to come fromsimple environmental factors, such as theever-increasing spread of broadband andadoption of online banking amongEuropean consumers and businesses.
Opportunity knocks for the banks
Whatever the public sector impetus,broadening e-invoicing adoption in Europe willrequire serious effort from the private sector.Banks have a vital role to play, and there areunprecedented opportunities to seize. Of allprivate sector institutions, they are probably thebest placed to shape the development ofe-invoicing, and consequently to profit from it.
Banks’ larger and blue chip corporatecustomers present an immediate opportunity.Many already use e-invoicing, either ‘billerdirect’ as practised by many public utilitycompanies, or ‘buyer direct’ as when retailgroups require suppliers to deliver e-invoiceson their own systems. Large companies withretail customer bases that have not yetadopted e-invoicing might welcome a singlebank service that could integrate e-invoicingwith cash management and treasury services.
The relatively low adoption of e-invoicing bySMEs represents a larger but less easilyaccessible opportunity. Banks naturally haveclose financial connections with large numbersof businesses and consumers, especially inconcentrated banking markets such as the UKor the Netherlands. Consequently, they are wellplaced to reach out to potential new adopters.In the SME market banks could act asinvoicing consolidators, connecting anddistributing e-invoices on behalf of a range ofbillers and buyers. The banks would no doubtface competition from IT providers and others,but their ability to integrate e-invoicing withpayments and cash management should givethem a golden opportunity to build largeproprietary platforms.
Crucial to the success of any such scheme isinteroperability. A degree of interoperability hasalready been achieved by various banks andbank collective schemes, but this variesbetween countries and is often limited toproviding interfaces between relatively smallnumbers of platforms. Nonetheless, banks’customer relationships, capital resources andexperience of payment networks shouldleave them well placed to achieve trueinteroperability. This could take place viaproprietary systems that connect closed-ende-invoicing networks, or by communicatingwith other consolidating hubs in ‘clearinghouse’ or ‘roaming’ mechanisms.
Now is the time to act
E-invoicing in Europe has developed slowly sofar, and barriers to wider adoption remain real.Nonetheless, there is growing public sectorimpetus behind e-invoicing and clear scope forthe private sector – and banks in particular –to benefit from its future development.Conversely, banks distracted by higher priorityor ‘mandatory’ tasks run the risk of missing outon future revenue streams and losing out toclose competitors, to new entrants such asPayment Institutions or to different sectors.
Since many banks are likely to be compelled toinvest in meeting new technical standards, theyshould at least consider how to turn theinvestment to their advantage. Many may wishto consider what they can do to capture ascale position in the nascent e-invoicingmarket, instead of risk being left behind byearly adopters, or leapfrogged by other serviceproviders such as retail payment networks ortelecommunications companies.
Every bank should formulate a deliberatestrategy for the e-invoicing market. Even if thechoice is to wait it out for now, this shouldbe a conscious decision reached after fullconsideration of the potential risks andbenefits. As in other areas of transactionbanking, a coherent strategy will require clearvision, financial investment and support at thehighest level.
Informed consideration and a cleardecision are needed.
PricewaterhouseCoopers Transaction Banking CompassE-invoicing: Now is the time to act HomeQuitPrint
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ContactsTo discuss any of the issues raised in more detail, please speak to your usual PricewaterhouseCoopers contact, the authors of this article or one of the people listed below:
Transaction Banking Practice Lead (Europe)
Julian Wakeham+44 20 7804 [email protected]
Transaction Banking Practice Lead (US)
Patrick Giacomini+1 646 471 [email protected]
Cards
Jonathan Turner+44 20 7213 [email protected]
Payments
Mark Hale+44 20 7804 [email protected]
Securities
James Chrispin+44 20 7804 [email protected]
Trade Services
Peter Simon+44 20 7213 [email protected]
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Transaction Banking Compass: Regulation dominates the transactions agenda is produced by experts in their particular field at PricewaterhouseCoopers, to address important issues affecting the transaction banking industry. It is not intended to provide specific advice on any matter, nor is itintended to be comprehensive. If specific advice is required, or if you wish to receive further information on any matters referred to in this publication, please speak to your usual contact at PricewaterhouseCoopers or those listed in this publication.
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