Payments and Banking Archives - Page 53 of 53 - treasuryXL

The purpose of payment transfers

| 13-11-2018 | François de Witte | TreasuryXL |

1. Purpose of payments

The payment is the act of paying money to someone or of being paid. Payment transactions (payables, disbursements) can traditionally be split along the way the way the money is transmitted. The most important transmission means are:

The physical cash
The bank transfer and its variances
The card payments.

We have also observed in the last years new payment forms coming up, such as the telecom payments, the mobile payments, e-wallets and the cryptocurrency payments,

Bank transfers (and its variances) can traditionally be split in:

Domestic transfers: payments within a country, with the currency of the country
Cross-border transfers: payments outside the country or using a foreign currency

In this first article on payments, we will focus on the domestic bank transfers, including the current types payments, their advantages and the attention points, and some other concepts.

2. Domestic Transfers

2.1. Bank or Credit Transfer:

If A needs to pay money to B, then he will send a payment order to his bank (ordering bank), who will in turn debits the account of company A and sends the payment order to bank of the beneficiary (B’s Bank) through the clearing, asking to B’s bank to credit the beneficiary’s account.

The following drawing illustrates the flows:

2.2 Clearing:

Clearing is the system, by which an organization (the clearing house) acts as an intermediary in a transaction, to process reconcile orders between paying and receiving parties. Clearing houses provides smoother and more efficient payment markets as parties can make transfers to the clearing house rather than to each individual party with to whom they pay or from which they receive payments.

Within payments we have the difference between the gross and the net settlement:

Net settlement (also known under the name ACH – Automated Clearing House): This is the traditional Approach, whereby the amounts to be paid and received are netted. After agreed upon clearing cycles, the clearing house will pay a net amount to each of the participants, offsetting incoming and outgoing payments. The advantage of this clearing is that it is processed in batch payments and is less expensive. The drawback is that the finality of the payment is only at end of “clearing period”, and that it creates intra-day exposures.
Examples: UK cheque clearing, BACS, ACH in USA, EBA Step 2 and STET for SEPA payments

Gross settlement (also known under the name RTGS – Real Time Gross Settlement): Each payment settles singly and bilaterally across accounts at the settlement bank, usually the central bank. The advantage of this method is that it is more rapid and eliminates settlement risk. However, it is more expensive than the ACH clearing, and hence will be used more for high value and treasury payments.
Examples: Fedwire in the USA, CHATS in Hong Kong, TARGET in Europe, CHAPS in the UK, DEBES in Denmark, RIX in Sweden and SIX in Switzerland

Illustration of the RTGS system:

2.3 Standing order (also called “recurrent payment”):

This a preauthorised payment under which an account holder instructs his bank to pay on a regular basis a fixed amount from his account to a defined beneficiary. Standing orders are used typically for recurring, fixed-amount expenses (e.g. rental payments, loan or mortgage instalments). They are cancellable at the accountholder’s request.

2.4 Direct debit: Direct Debit:

This is another type of preauthorised payment under which an account holder authorizes his bank to accept debit instructions on his account towards a defined account of a defined creditor. A direct debit is based upon a mandate which is held either by the bank of the debtor or by the creditor. Circumstances in which the funds are drawn as well as dates and amounts are agreed upon between the payee and payer.

This type of payments is typically used for recurrent payments with fluctuating amounts, such as utilities, phone, insurance, credit cards, etc. The payer can cancel the authorization for a direct debit at any time. In addition, several legislations foresee refund periods, enabling the account holder to ask a refund of the amount debited from his account (in the EU for authorized direct debits 8 weeks and for unauthorized direct debits 13 months).

2.5 Urgent versus non urgent-payments:

Most payments are processed as “non-urgent”, enabling the instructing bank to process the payment in batches through the ACH clearing and to take some float. However, for time critical payments, the instructing party can as to his bank to treat the payment order as “urgent”. Urgent payments are usually cleared through the RTGS clearing. If the ordering party respects the cut-off time of his bank (see down below), for domestic payments, the beneficiary is credited the same day with no float. Banks usually charge a higher payment commission for urgent payments.

2.6 Instant credit transfers:

Are a variance of the urgent bank transfer, whereby the money is made available within seconds on the account of the recipient, 24 hours a day, 365 days a year. In some countries, this is already possible.

Example: SEPA Credit Transfer Instant, Faster Payments Service in the UK, The RTP system which will be launched early 2019 in the US.

3. Some other concepts:

Settlement date is the date on which funds become unavailable for the paying party, or available to the beneficiary party.

Value dating: applying a certain value date on a transaction:

Forward value dating (of Future dating): is the value dating at a moment which occurs after the date that the bank is notified of the transaction
Back value dating: is value dating which is retroactive, i.e. prior to the moment of the effective transaction.

Float: the “Bank Float” is the time that elapses between the moment that the funds are unavailable funds for the payer and the moment that the funds available to the beneficiary.

Cut-off time for payments: the point in time before which electronic payments, such as a RTGS or ACH payment, must be submitted to a processing bank for entry into the interbank clearing system. If the payment order is submitted thereafter, it will be executed the next day. The cut-off time is a function of the cut-off time of the clearing system and of the processing time of the ordering bank. In Europe, most banks foresee cut-off times around 15 p.m. for processing ACH or RTGS orders.

4. Some statistics and concluding remarks:

Each year, Cap Gemini and BNP Paribas publish a survey with interesting statistics about payment methods in the world. In their 2018 survey they point out that whilst credit transfers and direct debits remains important in Europe (46 % of the non-cash payment volumes), we see that card payments are becoming more and more important (50 % of the non-cash payment volumes in 2016).

Source: Cap Gemini and BNP World Payments Report 2018

In my next contribution I will go more in detail in the card payments and on cross border payments.

François de Witte

Founder & Senior Consultant at FDW Consult

Managing Director and CFO at SafeTrade Holding S.A.

How to connect to your bank electronically

| 26-10-2017 | François de Witte |

One of the main challenges in treasury is ensuring the connectivity with your banking partners. Currently corporates use the e-banking, or “electronic banking” channels. ‘Electronic banking’ can be defined as the way in which a company can transmit transactions and obtain reporting instructions to a bank remotely and electronically.

In the present article about bank connectivity, we will outline the current types of e-banking channels in the market, their advantages and the attention points.

Interactive banking channels

For interactive e-banking channels, typically the communication is initiated by the corporate client from a PC within the finance department and the instructions are transmitted to the bank through the internet.

Banks are developing their portals more and more: ING Business Payment, Connexis, KBC-Online, IT Line, RABO Corporate Connect, etc. They also provide a full range of services through them.

Illustration of the interactive electronic banking channel:

Currently the interactive- banking channels are widely used by corporates and other organizations, because they are easy to implement, user-friendly, enable to work on a standalone basis and less expensive. However, the drawbacks are that they are not always that suited for mass payments, and that each bank has its own system. Consequently, if you work with different banks, you will have different electronic banking channels for each bank, which adds to the complexity.

In some countries, the banks have put their efforts together to create a multibank interactive electronic banking channels (e.g. Isabel 6 in Belgium and Multiline in Luxembourg).

In my view, the interactive e-banking channel is best suited for corporates having not too high volumes of transactions and working with only few banks, or in countries were multibank electronic banking channels are available.

Host to host electronic banking channels

Some corporates or public institutions have very high volumes to treat, and will need for this a specific direct connection with their bank, a so-called “host to host” (H2H) connection. This is an automated solution for high volume data transfer between banks and their corporate clients.

Sophisticated H2H connectivity solutions give banks the flexibility to exchange information with their corporate clients in preferred file formats, agreeing on network protocols, and security standards.

The following figure illustrates this type of e-channel:

H2H e-banking channels allows for automated payments and collections, attended (where the client needs to take an action) or unattended (directly initiated by the IT system) connection / authorization. They can treat very high volumes, and to integrate the data into ERP systems.

However, they are also more expensive, because they require a specific IT set-up and usually the services of a middleware provider to ensure the connectivity between your ERP or IT system and the bank.

Up to some years ago, corporates had to set up H2H connections with each of their banks, but now several multibank H2H solutions have been developed by the TMS (Treasury Management Systems) providers or by other multibank providers such as TIS, MultiCash and Power2Pay.

In some countries, the banks have set up common interbank protocols enabling an easier and standardized connection. The best know is EBICS, which is currently in use in Germany and France.

In my view, the host to host banking e-channel is best suited for corporates having very large volumes of transactions and requiring a high level of integration with their ERP or IT systems.

SWIFT e-banking

SWIFT has extended from a bank-to-bank platform to a corporate-to-bank platform, and has also launched its own bank connectivity solution, SCORE (Standardized Corporate Environment). SWIFT enables hence to replace the various e-banking systems with a single, bank-neutral multibank e-channel. This means that treasurers and finance managers can connect with their banks worldwide in a consistent way using industry-recognized standards.

Outline of a SWIFTNET Multibank set-up (source SWIFT):

Companies can connect to SWIFT in many ways. One option is to establish a direct connection to SWIFT, but this can be a technically complex exercise. As a result, many of the companies connecting to SWIFT do so via a SWIFT service bureau. In such a set-up, most of the technical challenges are resolved by the service bureau

The third SWIFT connectivity option is Alliance Lite2. This solution enables corporates to connect to SWIFT in a quicker and less expensive way.

The SWIFT channel offers, beside the multibank character, many other advantages, such as the SWIFT standards, services beyond payments, such as FX and deposit confirmation and securities transactions, and an improved security / reliability compared to the classic e-banking systems

However, the Swift e-banking solution is not easy to implement, and can be quite expensive (in particular for the direct connection and the connection through a service bureau. Hence this solution is more suite for very large corporates and institutions, working with many banks.

Conclusion:

When looking at setting up the e-banking connectivity, several factors need to be taken into consideration, such as the number of banks and transactions, the complexity of the organization and the treasury. Smaller organization can perfectly work with the interactive e-banking channels, whilst larger and more complex organizations need to consider the multibank H2H connections or a SWIFT setup.

In the framework of PSD2, with the XS2A (access to accounts), banks in the EU/EEA will have to provide access to authorized third parties. I expect that thanks to PSD2 the cost of multibank e-banking platforms will go down, which is good news for corporates.

François de Witte

Founder & Senior Consultant at FDW Consult

Going cashless or not – will we have a cashless world?

|30-8-2017 | Olivier Werlingshoff | GTNews |

In their article ‘Going cashless or not: are Central Banks resigning facing private companies?‘ GTNews and author Nathan Evans depict an image of a cashless world and the decline of Central Banks. With online shopping sites or GAFA companies (Google, Amazon, Facebook, Apple) taking over with cashless payments because, as Nathan Evans writes, ‘the more cash disappears from our economies, the more money falls into their virtual pockets’ will we have a cashless world? We asked our expert Olivier Werlingshoff to give us his opinion about a possible disappearance of cash.

Alliance

According to Nathan Evans a surprising alliance is slowly coming together, in the global war on cash. Large internet-based companies and commercial banks are mixing interests with top-level governmental bodies to press for the disappearance of hard currency, and speed up the digital transition towards a cashless world. On the losing end of the intended shift, central banks which seem to be putting up feeble resistance. Private banks are fed up with the high costs and low profitability of managing cash and its expensive security services.The EU Commission discretely published its anti-cash measures on its website: “The establishment of a common cash control strategy upon entering or leaving the territory of the EU was a decisive step in the EU policy aimed at the strengthening of measures to prevent money laundering, terrorist financing and other illegal activities. One would have imagined that central banks and mints would be the first on the barricades to defend the national symbols bequeathed upon them , as they cease to exist if coins and banknotes dissappear. But so far, they have been remarkably feeble in their resistance.

Our expert Olivier Werlingshoff has read the articel and comes back with the following remarks:
I don’t think cash payments will disappear soon. At this moment 60% of all payments in Europe are done with cash. A few positive aspects of cash are:

It is anonymous
Secure
A save haven
It is a direct transaction
And it helps budgeting

Two years ago I set up a test at a shop B2C to see what happened if during six weeks cash payments were not accepted. What happened was that the number of contactless payments increased but the total turnover of the shop decreased. After the test when cash was again accepted the turnover didn’t reached the level of before the test.

A few customers decided during the test to look for other shops where they could still pay with cash and decided after a few weeks not to come back.

For more information about this topic you can visit de website of G4S for the cash report: http://www.g4scashreport.com/

If you are interested to read the complete article at GTNews, please click on this link.

Olivier Werlingshoff

Owner of Werfiad

Instant payments for treasurers

| 31-03-2017 | Alessandro Longoni |

Building on the ideas shared in a previous article about Cash Conversion Cycle on treasuryXL, this piece focuses on the developments that new European laws will bring in the areas of Instant Payments and how this will affect Treasury.

As part of further standardization within the union, European regulators mandated the industry to develop an “instant payments” product aimed to making the funds available on the receiving side “within a maximum execution time of ten seconds”. The SCT Inst scheme has been developed to allow for consumer payments (C2C, C2B) in Euro for the SEPA and will be an optional scheme – meaning that PSPs and Banks are not obliged to join.

Practical Use Cases

From a cash management perspective, Instant Payments open an array of new possibilities for merchants, especially for those operating eCommerce operations. Currently if a customer places an order on a friday late afternoon, the funds are made available (earliest) on monday evening, while the order is most likely processed and delivered by Saturday afternoon. With SCT Inst, if the order is placed on friday at 21:00, the funds will be received (maximum) at 21:00:10 and already available to pay suppliers if needed.

From a treasury perspective, Instant Payments will also allow for more transparency on transactions and easier reconciliation, but time needs to be devoted to update the current tools to facilitate for this. As Instant Payments will gain customer adoption, the incoming payments cash account will be filled with hundreds or thousands of transactions per day, as opposed to one per day coming from your Payment Service Provider. Having direct access and insight in each single transaction will make it easier to reconcile it with the relative order, check the amount and book it in the general ledger, but the sheer number of lines in the system requires current tools to be updated to cope with the increased volume and speed.

Pros and Cons

There are several benefits this new payment method brings to the table, including a strong reduction of working capital trapped to fund operations, however, in order to extract all the benefits, ERP systems need to be updated to check the status of transactions in real-time instead of intervals. Without investing in developing the current tools further, companies risk missing out on the new opportunities to deliver better customer service and create additional efficiencies in cash management.

Alessandro Longoni

Managing Consultant at Proferus

Best Practices in Bank Account Management

| 29-09-2016 | TIS (Treasury Intelligence Solutions) | sponsored content |

This article aims to describe the current “eBAM Market Best Practice” that can be achieved by using the TIS (Treasury Intelligence Solutions GmbH) cloud-based electronic Bank Account Management (eBAM) platform.

Corporates and the eBAM project

Many corporates are in need of a comprehensive tool for managing banks and bank account related information and processes. Typically, the main requirements are to have visibility and control over the bank accounts maintained globally and the ability to effectively store bank account related information and documentation, as well as centrally managing the processes on the lifecycle of this information. Furthermore, a typical requirement is for a system that corporates can use for electronic opening, closing and maintenance of bank accounts, including generation of audit reports. In the chapters to follow, TIS provides detailed information about the eBAM Market Best Practice and how the TIS Bank Account Management SaaS (Software as a Service) can fully cover the requirements as well as provide further added-value services to our customers.

The Market

Corporations worldwide face tremendous challenges to cope with an ever increasing volume of information. As more and more internal governance and compliance regulations receive high-level attention, it is essential to have this information at hand, quickly and at the push of a button. Managing bank accounts is one of the main drivers that encourage CFO and Treasurers alike to minimise risks and adopt automated processes. In addition, the accounting teams that manage this data on a daily basis are often under pressure to optimise their own processes as well.

Effective and structured Bank Account Management is understood to be one of the main steps Treasury Departments should take to fulfill governance and compliance regulations. In addition, by implementing a central bank account repository, both data and processes can be optimised and the performance can be measured and monitored. We are also seeing an increasing demand for banks to make use of an electronic exchange of Bank Account Management (eBAM) information.

eBAM is based on the exchange of 15 standardised ISO 20022 XML messages, developed by SWIFT, which mainly cover the processes of opening, closing and changing bank accounts and mandates.

The key advantages and acknowledged benefits in adopting an eBAM solution are:

Complete overview, control and management of all bank relationships, including bank accounts and their legally binding documents
Compliance fulfillment through automated approval workflows for requests to open, close and change bank accounts and the respective mandates
Secure processes for exchanging messages with banking partners, including a complete audit trail
Complete integration with existing back-office infrastructures: ERP, TMS, HR, etc.
Improved efficiency and cost reduction through automating manual processes and monitoring their performance
Easy access to real-time information for strategically supporting all involved departments Recognition of the necessity for eBAM has recently picked up speed in the market, especially within large corporations. The business case is now becoming fundamental at a growing number of companies across all sectors in resolving governance and compliance issues as well as minimising risk.

The Challenge

So what is the main problem? What are the biggest challenges corporates are facing? The most painful issues can be summarised as follows:

No single source of truth for all bank-related data across the entire group
Non-standardised, non-transparent processes scattered across the corporation, especially regarding bank accounts, signature authorisations or limits
Signatory information in e-Banking tools often differs from internal data (e.g. after an employee has left the company)
Risks of legally binding (paper-based) bank account documentation being stored locally at subsidiary or branch level, no central access and control over such documentation
No guarantee of a strict four-eye-principle, central governance is impossible
Information about a segregation of duties within each entity or across the whole organisation cannot be easily obtained globally
Decentralised manual and time-consuming processes, both often non-auditable and non-compliant
Exchange of information via fax, mail or courier
Costly archiving, printing and posting to internal (ERP etc.) systems
Different processes in many countries, based on local customs or even bank specifics
No central overview of the conditions agreed upon with a bank and the actual costs that are being billed
Bank account related information and documentation needs to be published in various back-end systems, usually the information is manually maintained with high effort
No central governance and control over of the information distributed in the company group, including IT systems

Together with the financial crisis of the recent years, this has encouraged many organisations to steer towards a professional – and ideally electronic – Bank Account Management strategy. (e)BAM adoption often accompanies the fundamental new approach corporates must adopt in assessing financial risk today

The “Status Quo” graphic in Figure 1 (page 4) represents these challenges.

Bam Evolution

The evolution of a Bank Account Management can be divided into three main phases:

PHASE 1 (Status Quo for majority of corporates):
Manual, paper-based and non-transparent processes for managing bank accounts and mandates

PHASE 2 (Bank Account Management):
Implementation of a web based “Software as a Service” (SaaS) BAM solution to automate and streamline internal processes and make them transparent. This includes a centralised document management internally and externally, towards the banks

PHASE 3 (eBAM):
Evolving towards an extensive eBAM solution where electronic and automated workflows also used for the external communication with banks.

The manual and paper-based workflows used to communicate with the partner banks regarding bank accounts and mandates have a long and familiar history. One of the main disadvantages is that these are critically slow and error-prone processes, often leading to governance issues. They do not support today’s auditing, compliance and regulatory requirements and include the use of:

Microsoft Excel as a database for bank account information
Inventory processes via e-mail and Excel, if existing
Shared directories for document storing, spread across the enterprise
E-mail/fax messages adopted as workflows for opening and closing bank accounts On top of that, these processes create enormous amounts of paper that are stored physically (and often locally). A central overview of signatory powers and bank account processes is hardly achievable (also see Chapter 4 “The Challenge”)

Phase 2 – Bank Account Management

Introducing a web-based SaaS Bank Account Management (BAM) solution provides a clear approach to obtaining the required overview of all banks and bank accounts. Globally, this is a centralised and audit-proof solution, including accurate master data management and electronic workflow based processes for requests to open/close/change bank account activities. The main aspects are as follows:

Master data and inventory – ensuring an up-to-date data base with real-time access as well as the integration of bank and account related information into various backend (ERP) systems
Workflow and four-eye-principle – gaining control over streamlined internal processes and authorizations
Insights into the process landscape – allow a tight monitoring and performance analysis
Reporting and audit trails – adhering to internal compliance and regulatory guidelines
Document Management – clear overview and workflow of legally binding and account specific documentation
Extensibility – the solution can be extended to a full “Partner Management” as well as enhanced by a Bank Fee Management solution to monitor costs and processes.

Phase 3 – Electronic Bank Account Management

By moving towards an eBAM solution, additional benefits can be achieved.
The main added-value is a straight-through-process (STP) with participating banks. A set of 15 standardized ISO XML messages can be exchanged on an eBAM platform to cover all main bank account and mandate workflow (opening, changing, closing, confirming).

In addition to the advantages of phase 2 this enables corporates to also streamline and automate the external communication with their banks. The painful and laborintensive paper-based workflow is substituted by electronic communication. Currently, this only works for existing corporate-to-bank relations. The Know-Your-Customer (KYC) process at the beginning of a relationship cannot be accomplished electronically yet. The key eBAM benefits are described in chapter 6 “Best Practice Processes”.

Best practice processes

In our view and based on customer feedback, the new TIS eBAM solution (as shown below in figure 2) currently represents the best practice in the market.

Our model

The TIS model is based on key elements that are part of efficient, low-risk business workflows also embedding current regulatory requirements. Bank accounts can be managed globally, regionally or on division/entity level, with a clear segregation of duties and a customisable notification/alerting functionality:

Best Practice Governance Processes – Master Data & Inventory
Electronic business workflows provide an overview of group-wide requests for opening, changing or closing bank accounts, keeping all master data up to date in a central repository. This also enables real-time access to any related information at the push of a button. All information is made centrally available and integrated with various back-end (ERP) system which require information, such as account data, authorisation rights and daily limits.
While workflows can be automated and delegated to the responsible employees, the solution provides a constant overview of the master data and user permissions on a central level. With the electronic and customisable inventory process local or entity managers can be obligated to confirm the accuracy of the relevant data.

Centrally Managed Authorisations – Workflow & Authorisation
All relevant bank account processes, including authorised signatory details, can be confirmed and monitored in an audit-proof, compliant and customisable way, including a four-eye principle. By guiding and enforcing the approval and change management processes for bank-and account data, internal audit requirements are also met.
Levels of restrictions, signature cards, digitalised signatures and credentials, legally binding country- and bank-specific documentation are all managed and securely stored in a central repository.

Integration
Centralisation of information, documents and processes delivers great benefits; however, eBAM reaches its full potential if all the information can be integrated with the various business systems used in the company, such as ERP or treasury systems. These systems usually depend on – or even are the source of – the information, which is centrally managed. The integration also facilitates the decentralised maintenance and usage of information and at the same, enables complete central governance. Integration scenarios include central approval of accounts which are created within the ERP systems, distribution of signature authorisations or limits as well as account data.
Certified integration capabilities, such as offered by TIS (e.g. SAP certification), ensure that the functionality meets the quality requirements of the vendors and compatibility of the integration scenarios with new releases.

Benefits

The eBAM advantages meet all challenges outlined in chapter 4. This best practice approach can be summarised as follows: Automated, flexible and consistent STP processes for opening, maintenance and closure of bank accounts, providing clear global visibility, accurate accountability

Audit-proof and highly secure, ISO 20022 compliant and ISO 27001 certified processes, providing a real-time alerting functionality allowing for timely responses to any issues
Rapid access to up-to-date master data bank (account) information – including mandates – globally and group- wide, enabling efficient workflows across the entire organisation
Exchange of standardised ISO XML message with the relevant banks
Complete integration with existing back-office infrastructures is possible
Fulfillment of both internal and external audit and regulatory requirements
Enabling the Treasury Department to delegate processes in an audit-proof manner and monitor them centrally. This also frees up time to focus on more strategic topics
Reduced complexity and increased process automation on all levels lead to significant cost savings across the group

Requirements

Regarding an eBAM implementation strategy, we recommend that some key elements are taken into consideration in order to realise a flexible and customisable multi-bank and multichannel integration:

Define eBAM in the context of a group-wide bank and bank account strategy, taking advantage of trusted expertise on best practice project implementation.
Ensure a strong partnership between the involved parties: corporate, banks and solution provider.
Project management and subject matter expertise: having the right level of expertise at the table in aiding the management of the eBAM Project

TIS (Treasury Intelligence Solutions)