Sunday, September 30, 2007

Full SEPA brings the business case

Nordic Focus – 2nd contribution.

Full SEPA brings the business case.

The first article that caught my eye was by George F. Thomas dealing with the needed enhancements of the US wire transfer systems and ISO20022. ( 17 Apr 2007). His conclusion states as follows: “Banks have demonstrated over the years that they will only act when forced to. They do not perform enough research; they do not listen to their customers very well; and have a reputation for milking the product until the bitter end. A prime example is the neglect of the wire transfer business…”

My reaction was that this cannot be a fair statement – few industries have created more global and local standards and thus created the basis for strong level playfield competition in a multitude of areas. Prime examples are the global payment system, card payments and acquiring, foreign exchange, equity, bond and derivatives trading and trade finance. In the Nordic area we have seen that this approach has led to further dimensions of standardization – more “radical sharing” - creating new corporate value by networked solutions. Prime examples here are e-identification, e-signature, e-salary and above all payments-integrated e-invoicing. It has been very encouraging to see that the public sector has seen networking with the financial sector as the only fast and especially cost-effective way to further the e-society.

My second reaction was that more should be done. The economy is moving faster to become networked on a global scale and banks need to expand their service scopes accordingly. To be successful this means more co-operation and investments in the standardization field. Enlightened policy makers and enterprise customers realize that the immense new value created by automation of business processes cannot be achieved without corresponding new income for the service providers.

The other article was from Aite Group stating that e-invoicing is likely to become important for banks in the US as 67% of small enterprises expressed some level of interest in the service already last year. Bank of America was the first bank to offer this services in June 2006 and other are likely to follow as “winning the wallets of small business customers has become a top priority for most U.S. banks.” Small business is now seen as important potential revenue generators. “Small businesses already spend US$353 billion on financial products. By cross-selling additional services like EIPP, banks will not only increase their spend, but they will better meet the needs of this important customer segment.”

This certainly corresponds to my own experience from launching e-invoicing as a payments and e-banking integrated service first in Finland and then in other Nordic countries. Once a common open standard was launched by the banks it did not take long for IT-solution providers to adjust their ERP-systems for used by large companies and as the corporate mass market segment could join without any investments using e-banking templates an immediate take-off was possible with the help of the massive sales force ordinary bank branches represent.

What this takes from banks is an open innovative mind towards the new opportunities and demands from new increasingly interoperable technology and globally networked business and corresponding efforts to standardize the messaging. The public sector should naturally be a part of the networking and forcefully drive re-use of existing competition based commercial solutions instead of trying to build expensive separate ones for seldom needed services.

There is hardly any need to argue that SEPA in its core version is not a good business case – certainly not for banks and thus not for their customers and thus not for Europe. Cross border payments have already been speeded up and prices regulated to domestic levels. The rest of the improvements in productivity will have to come from higher degrees of automation in corporate reconciliation processes, more competition from standardized corporate to bank interfaces and consolidation of clearing systems - this will be a slow process.

Full SEPA – using this unique integration opportunity to also include e-invoicing as a first step - would make the needed difference. The European Association for Corporate Treasurers for example states that yearly corporate savings in process costs could exceed 200bn€. What other services could produce anything near this? But then banks need to include this into their ordinary portfolio of standardized payment solutions.

Bo Harald is head of Executive Advisors, TietoEnator, Helsinki

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