focus on regional banking: meeting the connectivity needs of commercial clients

Patricia Hines, CTP

Director, Financial Services Industry Marketing, GXS

Focus on Regional Banking: Meeting the Connectivity Needs of Increasingly

Sophisticated Commercial Clients

September 5, 2013 | Slide 2 © 2013 GXS, Inc.

About GXS

Industry Trends

Connectivity Options

SWIFT for Corporates

Regional Bank Case Studies

Q&A

Session Agenda


Treasury & Cash

Management

Card Issuing &

Merchant Services Trade & Commercial

Finance

• Integrated Payables

• Consolidated

Receivables

• SWIFT Connectivity

• Multi-Bank

Payments

• Merchant

Enablement &

File Integration

• PCI Compliance

• ERP Integration

• Factoring

• Supply Chain

Finance

• Inventory Finance

• Dealer Floor

Planning

GXS in the Financial Services Sector Enabling Connectivity and STP Across Industry Segments

Securities

• Connectivity for

Counterparties

• Order to Settlement

Lifecycle

Management

• Post-Trade

Exceptions

Group Benefits &

Employer Services

• Client Integration

for Group Insurance

• Payroll File

Transmission

• Claims Payment

Remittances


Industry Trends


• Maintaining Liquidity: Ensuring the company is able to meet current

and future financial obligations

• Optimizing Cash Resources: Minimizing non-earning cash balances

while providing adequate liquidity, and maximizing use of excess cash

balances

• Maintaining Access to Financing: Establishing financing alternatives

for working capital (short-term borrowing) and capital raising (medium to

long term debit or equity)

• Managing Controls and Risk: Monitoring and controlling exposure to

interest rate, foreign exchange and other financial risks

• Managing Bank Relationships: Selecting financial services providers,

monitoring provider performance, managing day-to-day operations

Treasury Managers Wear Lots of Hats


How do Corporates Connect to their Banks?

ERP Systems – SAP, Oracle

Treasury Management Work Stations (TWS/TMS)

File Formats Multiple Banking Relationships

Payments

Leased Line

Web Portal

Internet FTP

B2B Gateway

Connectivity Options

Corporate-to-Bank Connectivity (C2B)

Cloud-Based ERP and Accounting Solutions

Business Accounting Software


Corporate Treasury Technology Spectrum Implications for Corporate-to-Bank Integration

Note: SaaS = software as a service, eBAM = electronic bank account management.

Exhibit #: 66:07W-E1

Heavy use of specialized treasury technology and ERP solutions

Use of intraday bank feeds for cash position, liquidity management

Multibank payment initiation files and use of online for exceptions

Emerging need for frequent status updates

Increasing use of integration for trade finance activity

Large Corporate

Use of statements/ online banking reports to reconcile with accounting system

Initiation of payments online or through service bureau

Heavy reliance on spreadsheets

Minimal use of bank data files to update accounting package

Basic Cash

Management

Operations (SMEs) Growing adoption of technology for cash management and forecasting (SaaS)

Use of daily bank feeds for reconciliation (online and/or B2Bank connectivity)

Initiate payments (online and/or B2Bank)

Reliance on lead bank for multibank reporting

Middle-Market Treasury

with Primarily Domestic

Operations

Multibank integration

Many banking relationships across multiple regions

Focus on managing global liquidity positions

Demand for consistent use of global standards

Reliance on treasury system for controls, workflow, and “single source of truth”

Demand for eBAM

Integration for more complex services (e.g., trade confirmations)

Complex Global

Treasury

Customers’ Increasing Sophistication and Needs

Source: TowerGroup, B2Bank Integration: Ignore One-to-One Connectivity at Your Peril, Susan Feinberg, 01/31/11, Ref # V66:07W


22,110

3,575

968 617 475

82

17

Number of US Firms (Thousands)

Non-Employer Firms 0 to 4

5 to 9 10 to 19

20 to 99 100 to 499

500 or more (large businesses)

5,926 6,359

8,288

18,554

15,869

54,997

Number of Employees

Small Businesses Are More Plentiful, but Larger Businesses Dominate


Middle-Market and Small Business Clients Drive Revenue for Tier 2 Banks

Large Corporate

Middle Market

Small Business

Top 5 29% 27% 13%

Next 15 26% 32% 18%

Peers 2 & 3 13% 40% 35%

2011 Total 26% 30% 17%

Share of fee-equivalent revenue by customer segment

Source: Ernst & Young 29th Annual Cash Management Services Survey

Source: GE Reports


Revenue from Electronic Products driving Cash Management Growth

11.0% -6.0%

-3.0% -2.5%

0.5% -0.5%

0.5% 1.5%

3.5%

6.0%

11.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

Check CDA DDA RLBX C&C WLBX ARP Info Rpt ACH/EDI Wire P Card

Source: Ernst & Young 29th Annual Cash Management Services Survey

Revenue growth rates for cash management products


Payment Products Used in North America Corporates with less than $1B in revenue

6%

15%

16%

17%

18%

27%

30%

32%

32%

34%

43%

53%

58%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mobile payments

SEPA direct debit

Other local or niche products

Bankers drafts

Online payment services providers

Bank checks

Same day ACH

Travel & entertainment cards

Purchasing cards

SEPA credit transfers

ACH debits

Checks

ACH credits

Bank wire transfers

Source: gtnews 2013 Payments Survey


Corporate-to-Bank Connectivity Options


What are the Challenges?

Backlog & Slow

Client On-Boarding

Multiple File

Formats

Complex

Connectivity

Aging In-House

Technology

New Product

Development

An external service provider can easily adapt to changing

business conditions such as new clients, technologies,

acquisitions, transaction types, etc.

Data integration is challenging, complex and costly to

implement and maintain. We shield this complexity and

reduce overall costs, while improving business performance

Clients with unique file formats, communications protocols,

security needs and testing requirements require

integration experts to handle complex onboarding.

Managing clients across industry segments and

geographies results in multiple file formats and transaction

types with different business rules.

Connecting and on-boarding new clients takes months,

often resulting in backlogs. We can help to accelerate

time-to-revenue.


Challenges with Bank Interfaces Treasury Organizations Want Real Time Information & Payment Execution

Traditional Bank Interfaces

Unique

connection and

file format for

each banking

relationships

Connectivity,

testing and

certification

required for each

bank

Leased

Line

Web

Portal

Internet

FTP Fax

Standards Complexity • Inflexible file format options and lack of ERP

integration (SAP, Oracle)

• Limited internet protocol support for AS2, MQ,

HTTPS, SFTP

• Rigid security policies (encryption, firewalls,

audits)

Operational Constraints • Performance and capacity constraints

• Lengthy implementation times

• Limited knowledge of corporate ERP

• Varying capabilities and support processes

across differing regions (Asia-Pacific, Latin

America)

Lack of Integrated Interfaces • Reconciliation challenges

• Limited visibility to cash and payment status

• Distinct interfaces per product line (Cash, FX,

Trade Finance, Securities Services )


Multiple C2B Integration Options

Direct Integration (DIY) Concentration Bank Integration

SWIFT Integration Hybrid: SWIFT & Direct Integration

SWIFT

Service

Bureau

C2Bank

Integration

Service

Higher TCO, multiple standards Constrained by bank’s capabilities

SWIFT bank data through concentration bank

Bank neutral, limit is bank SWIFT readiness

May use SWIFT Service Bureau

Lower TCO, global reach

Bank neutral, maximum flexibility


SWIFT Corporate Access A Single Global Standard

Post Web

Portal Internet

FTP Fax

FX

Confirmations

Investment Trade

Confirmations

ACH Payments

Wire Payments

Prior / Current

Day Statements

Prior Day

Balances

Company Financial Systems

Treasury A/P

A/R Other

Multiple Connections & Formats

Bank Mandates

Signature

Cards

FX

Confirmations

Investment Trade

Confirmations

Bank Mandates

Signature

Cards

Company Financial Systems

Treasury A/P

A/R Other

Standard Connections & Formats

ACH Payments

Wire Payments

Prior / Current

Day Statements

Prior Day

Balances


What is SWIFT?

Society for Worldwide Interbank

Financial Telecommunications

• Consortium of member financial

institutions

• Started in 1973 to automate the telex

• Premier financial messaging standards

body

• Powers real-time gross settlement

systems globally called “market

infrastructures”

• >2.5B messages exchanged between

10,000+ financial institutions and

corporates in over 210 countries – largest

financial messaging network and

community in the world

• SWIFT develops and defines messaging

and standards for the financial services

industry

Source: SWIFT Standards Overview

Market Infrastructures

• Central Banks

• Settlement Systems

Customer Solutions

• TRCO

• MA-CUG

• SCORE

SWIFTNet

• 10,416

Correspondents

• 213 Countries

SWIFT Solutions

• FileAct

• Accord

• Trade Services Utility

• … and more

Secure

Financial Messaging

Global Financial

Standards

“The global provider of secure financial

messaging services”


SWIFT for Corporates Adoption


Trends Driving SWIFT Adoption

Interest in SWIFT

Emerging Standards Better Risk

Management

Improved Cash

Management

Infrastructure

Changes


• Corporate Drivers

– Increased SWIFT marketing

– Growing adoption among

corporates

– Single network to streamline

messaging and formats

– Centralizing treasury operations

– New products: AllianceLite2,

3SKey, eBAM, SWIFTRef,

Watch Analytics

Interest in SWIFT



– Better visibility and more efficient

deployment of cash

– More frequent reconciliation of

balances

– Grow balances through interest rate,

currency hedging, derivatives, etc.

management

Improved Cash Management



– FIN MT to MX message

standard evolution

– ISO 15002 to ISO 20022 for

Corporate Actions

– European Union’s migration

to SEPA compliant

payments

Emerging ISO 20022 XML Standards



– Simplifying, optimizing, and/or

diversifying banking relationships

– Being more nimble to make

changes

– Sensitivity due to Global Financial

Crisis of 2008

Better Risk Management



– Upgrading or consolidating

treasury technology infrastructure

– Replacing Treasury Management

System

– Marketing influences from SWIFT

(Alliance Lite2) and other Service

Bureaus

Infrastructure Changes


187 282

402

579

726

902

1,035

2006 2007 2008 2009 2010 2011 2012

Growth Driven by Corporate Adoption of SWIFT

Number of Registered

Corporate Entities on SWIFT

Source: SWIFT


SWIFT for Corporates Geographical Split

72%

19%

9%

EMEA Americas Asia Pacific

Source: SWIFT


4.0

4.4

4.6

5.0

2010 2011 2012 2013 Est

SWIFTNet FIN Annual Traffic Millions of messages

Growth in SWIFT Messaging Driving Adoption by Corporates of All Sizes

+ 3.6%

+ 9.9%

SWIFTNet FileAct Traffic Average daily kilocharacters

Source: SWIFT in Figures

3.9

5.0

6.9

7.7

2010 2011 2012 2013 est

+ 28.8%

+ 76.4%

+ 8.7% + 53.9%


SWIFT for Corporates – Beyond Payments

Business area Description Details Messages

Payments High-value & bulk

payments

Local formats and FIN

MT formats

FIN MT 101

FileAct for all formats

Bank Account Reporting Intraday and end-of-day

statements

Account statements

available in MT or

ISO20022 format

FIN MT 9xx

File Act for all formats

Bank Account

Management

Account-opening,

account-closing and

reporting

Electronic management

with ISO20022

FileAct and ISO 20022

Exceptions &

Investigations

Processing of

investigations

STP and efficient

processes

FileAct and ISO 20022

Trade Finance LCs, Guarantees One message for all

needs

FIN MT 798 and/or

FileAct

Foreign exchange deals Deal confirmations Optional matching FIN MT 3xx

Securities Orders, corporate

actions, etc.

All processes covered

with FIN messages

FIN MT 5xx

Source: SWIFT


SWIFT Connectivity Options


Alliance Access

Alliance Access

SWIFT Alliance Solution Set In

sti

tuti

on

Siz

e / M

es

sa

ge

Vo

lum

es

Automation, Integration, Customization

Alliance Lite2 Alliance Gateway

SWIFTNet Link

HSMs

Alliance Messaging Hub (AMH)

Alliance Access Integration Platform

Source: SWIFT


SWIFT Connectivity Options

• Customer-Owned

– Specific security requirements

– Full control over IT environment

including data storage

– Supports high traffic volumes

• Outsourced “Off-the-Shelf”

– Clear ramp-up path

– "Peace-of-mind" solution

– Scalable to your needs

• Outsourced Tailored

– IT environment managed by third party

– Using a shared infrastructure is not

critical

– Traffic requires medium to high volume

infrastructure

Source: SWIFT


SWIFT Outsourcing Trends

66%

26%

8%

Service Bureau

AllianceLite / Lite 2

Member-Concentrator

Source: SWIFT


Alliance Lite2 – How it Works

Source: SWIFT


Leased

Line

Alliance Web Platform

SWIFT Interface

VPN Box

SAA

ALLIANCE ACCESS

SAG SWIFT

ALLIANCE GATEWAY

HSM Box

SNL SWIFT Net Link

Visibility & Message

Management /

Monitoring

SWIFT Alliance Access Solution Components

Client Systems

Licensed from SWIFT

• Primary Dual leg HA

• DR Infrastructure

• Both have 2 leased lines

to SWIFTNet

SOAP


Choosing a SWIFT Service Bureau

• Can be daunting – almost 120 organizations worldwide have service

bureau offerings

• SWIFT recently rolled out a new Shared Infrastructure Programme

(SIP), to certify service bureaus that offer third-party connectivity to the

SWIFT network

• A list of SWIFT Service Bureau meeting the various operational levels

defined by SIP can be found using SWIFT’s Partner Locator


Regional Bank Case Studies


Single-Sign On / Multi-Factor

Authentication Portlet

Large Regional Bank Extending Capabilities to Small/Medium Enterprises

Messaging Service

DataPool

(Unisys) CIPG

(EG)

Customer Communication Facility

(CCF)

Bank

Online Banking for

Business Portal

Business Issue

• The bank wanted to extend the ability to upload payment files

and download information reporting files to small to medium

enterprises (SMEs)

• Legacy solution called File Transfer Facility (FTF) no longer

supported by vendor

• Need for low-cost Internet solution for small to medium business

customers not able to exchange files using machine-to-machine

solutions

• Multi-factor authentication required to comply with FFIEC

standards for online security

• Requirement for single sign-on to FTF solution through bank’s

online business banking portal

Solution Deployed

• Deployed Intelligent Web Forms (IWF) and Trading Grid for Excel

(TG4E) in the bank’s messaging service to provide SME client

access for file transfer

• Implemented multi-factor authentication and single-sign to allow

the bank’s clients to access the new file transfer client access

tools through the bank’s online cash management portal

Bank Clients


Top Tier Global Bank Overcoming Legacy System Limitations

Business Challenge

• This global bank’s core deposit system can

only generate information reporting (current/

prior day) in BAI2 format.

• Multi-national corporate clients require SWIFT

formatted files for integration with their back-

office financial systems

GXS Solution

• Translation from BAI2 to MT940 / MT942

• Delivery to clients via SWIFT Service Bureau

using SWIFTNet File Act

Business Benefits

• Outsourcing corporate on-boarding = faster

time to revenue

• Translation into global formats improves ability

to win multi-national corporate business

• External SWIFT solution eliminates need for in-

house hardware, software and technical staff

Corporate Clients

Managed Services

SWIFT

Service Bureau

BAI2 MT940

MT942

SWIFTNet File Act


US Regional Bank Winning Large Corporate Clients

Business Challenge

• Meeting SWIFTNet delivery and SWIFT

format requirements of multi-national

corporate clients for wire payments and

balance reporting

• Bank applications unable to consume

SWIFT formats

• Imminent go-live deadline

GXS Solution

• File translation

MT101 – EDI 820

BAI2 – MT940 / MT942

• Connectivity via SWIFT Service Bureau

• Corporate on-boarding

• Enables additional large corporate

business

Corporate Clients

SWIFT

Service Bureau

MT101

Managed Services

MT940

MT942

820 BAI2


Take-Aways

• Middle market commercial and small business banking

clientele have more sophisticated bank connectivity

requirements

• To meet these requirements,

regional banks must be well-

versed in the complexity of

corporate-to-bank

connectivity

• Ever-evolving financial

messaging standards

increase the complexity on an

ongoing basis


To Learn More

General Information:

• Corporate-to-Bank Connectivity: http://www.corporatetobank.com

• SWIFT for Corporates: http://www.swift.com/corporates

• gtnews SWIFT Service Bureau Buyer’s Guide:

http://www.afponline.org/pdf/2013_gtnews_SWIFT_Buyers_Guide.pdf

Formats:

• ISO 20022 for Dummies: http://www.iso20022.ch/iso_dummies.pdf

• SEPA Overview: http://www.europeanpaymentscouncil.eu

• SWIFT Common Global Implementation (CGI):

http://www.swift.com/corporates/cgi/index

• Balance and Transaction Reporting Standard (BTRS):

https://www.x9.org/btrs

http://www.corporatetobank.com/

http://www.swift.com/corporates

http://www.afponline.org/pdf/2013_gtnews_SWIFT_Buyers_Guide.pdf

http://www.iso20022.ch/resources/iso_dummies.pdf

http://www.europeanpaymentscouncil.eu/content.cfm?page=sepa_vision_and_goals

http://www.swift.com/corporates/cgi/index

https://www.x9.org/btrs/


Thank You and Q&A

Patty Hines, CTP Director, Financial Services Industry

Marketing

Office: +1 704 969 0763

E-mail: [email protected]

mailto:[email protected]

focus on regional banking: meeting the connectivity needs of commercial clients

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