This brief provides a quick overview of the dramatic transformations occurring in the finance, accounting and treasury organizations of multi-national companies. It then discusses the implications for how banks and corporate clients will use technology to integrate.

1. A GX S I N S IG HTS ART ICLE
Ten Forces Transforming Corporate
Banking Connectivity
GXS Market Perspective
regardless of their country of citizenship and the location of
The past five years have witnessed the emergence of a
their bank account. As a result, citizens and corporations will
number of new operational models, regulatory changes
be able to make payments in any Eurozone country as easily
and technology paradigms in the corporate treasury
and cost-effectively as they could in their home nation. With
and banking sector. The result is radical changes to the
a harmonised approach to payments across Europe, corpora-
structure of treasury functions within multi-national cor-
tions will begin to shift their country-specific finance,
porations. The changes are also impacting the relation-
accounting and treasury functions to broader Pan-European
ships between corporations and banks—both the way
models. Additionally, selection criteria for banking partners
in which banking products are selected and the service
and products will evolve as financial institutions expand their
level expectations treasury organisations hold for finan-
geographic footprint and introduce new, low-cost cross-bor-
cial institutions are evolving. There is also a significant
der payment services.
paradigm shift in the technical approaches used to
exchange information between corporations and their
2 Payment Factories—Historically, corporations have main-
cash management banks.
tained separate Accounts Payable (A/P) organisations in each
country to provide the necessary local tax and payment
GXS has compiled a list of the ten primary forces trans-
expertise. However, there is a growing trend towards central-
forming the way in which corporations and banks com-
ising A/P functions into shared service centers, otherwise
municate electronically. The list is based upon studies
known as “payment factories.” The shared service centers
of market-leading multi-national corporations based in
enable opportunities for higher levels of efficiency in the
Western Europe and the United States. The ten forces
back-office. Productivity improvements can be gained by
are not mutually exclusive, but rather interdependent.
eliminating country-level staffing and by embracing best
Five of the forces outlined are changes that affect over-
practices on a regional level. Further savings can be gained
all corporate banking practices—new organisational
by relocating A/P functions to either captive or outsourced
structures, payment strategies and management mod-
service centers in lower cost geographies. Transitions to
els. The remaining five are technology developments
centralised, payment factories require staffing and procedural
that are impacting the electronic communications
changes, and standardisation of A/P applications. Many
between banks and corporate clients.
multi-national corporations are re-evaluating their approach
Transforming Corporate Banking to payment processing as they transition to shared service
centers.
Practices (#1-5)
3
1 Centralised Treasury—In addition to creating shared service
Single European Payments Area (SEPA)—Starting in
centers for A/P corporations are re-evaluating organisational
,
the 1990s, the European Union began the SEPA initiative
models for the treasury function. Many multi-national enter-
to harmonise and simplify payments across the 15 coun-
prises are centralising treasury groups on a regional or global
tries which have embraced the Euro as the national cur-
basis. Historically, corporations allowed each country to
rency. The goal of SEPA is to establish a common set of
manage its cash needs locally. Centralisation enables a num-
regulations, processes, standards and technologies for mak-
ber of efficiencies in the areas of cash forecasting, foreign
ing payments across the Eurozone. Consumers and corpo-
exchange and cross-border payments. However, to realise
rations will enjoy consistent pricing and service levels

2. A GX S I N S IG HTS ART ICLE
Ten Forces Transforming Corporate Banking Connectivity • page 2
consolidation and local funding techniques are exam-
the benefits, corporate treasury organisations need
ples of services provided by an in-house bank.
access to real-time information on account balances,
investment holdings and securities prices from their
5
financial institution. Consequently, the transition to Consolidation of Banking Relationships—Along with
centralised treasury models is driving higher demand centralisation of internal functions, multi-national cor-
for straight-through processing of information between porations are also rationalising the number of banking
corporations and financial institutions. relationships they maintain. Changing regulations in
the US, the European Union and countries such as
4 China have enabled numerous financial institutions to
In-House Banking—Many large corporations are estab-
develop a global footprint. Consequently, multi-national
lishing in-house banks to complement centralised trea-
corporations no longer need to establish local banking
sury functions. These banks are not officially regulated
relationships in each country of operation. Instead, cor-
or licensed financial institutions. However, they act
porations can consolidate banking providers to the
much like a commercial bank by offering payment pro-
minimal number appropriate to cover the necessary
cessing, liquidity management and collections functions
geographic footprint and offer the appropriate product
to various subsidiaries of a large, global corporation.
features. As part of the consolidation process, corpora-
The creation of an in-house bank substantially impacts
tions are demanding that financial institutions provide
the corporate banking interface. Instead of each operat-
lower processing fees, higher service level agreements
ing company routing payment transactions directly to a
and stronger technical integration. Corporations are
local bank, all disbursements are channeled through the
mandating a minimal set of technology requirements
in-house bank at headquarters. Centralised payment
which financial institutions must comply with in order
processing applications managed by the treasury group
to compete for global banking contracts.
are configured to evaluate opportunities to reduce
banking fees. Multi-lateral netting, supplier payment
Ten Forces Transforming Corporate Banking Connectivity
6
2 3 1
Conversion of
CENTRALISED TREASURY
PAYMENT ERP SINGLE EUROPEAN
Cheques to EFT
FACTORIES CONSOLIDATION PAYMENTS AREA
Regional Shared Standardised ERP
8
Service Centers Applications
RTGS
ACH
for A/P
ISO 20022 XML
for Payments and
Statements
4
IN-HOUSE BANKS
7
Primary Bank #1
BANK
RELATIONSHIP
10 MANAGEMENT
SOFTWARE
SWIFT Primary Bank #2
CONNECTIVITY
5
SWIFT Network
9 for Routing
CONSOLIDATION
Large File Transfer
MULTI-BANK CASH OF BANKING
of Cheque Images
REPORTING RELATIONSHIPS

3. A GX S I N S IG HTS ART ICLE
Ten Forces Transforming Corporate Banking Connectivity • page 3
banking standards (e.g., BAI, SWIFT FIN) to exchange
Transforming Corporate Banking
information with financial institutions. The file formats
Connectivity (#6-10)
used to send payment instructions and receive account
6 statements vary from bank to bank. In some cases, cor-
ERP Consolidation—Most multi-national corporations
porations are required to send more than one type of
have a project underway to standardise and consolidate
file format to different divisions of the same bank. The
the various ERP applications being utilised within their
UNIFI vision is for corporations to be able to utilise
enterprise. Historically, different brands, operating com-
one message schema to exchange information with any
panies and legal entities have operated autonomously
bank in the world.
with their own enterprise systems. Fragmentation of
ERP platforms prohibits sharing of information across
9 Multi-Bank Cash Reporting—One of the key benefits
divisions and with headquarters. Standardisation of
achieved from centralising treasury functions is the
ERP onto a common platform (e.g., Oracle 11i) enables
improved cash management capabilities. Treasury per-
consistent business practices across divisions and the
sonnel with visibility to all cash positions at bank
utilisation of shared service centers for back-office func-
accounts worldwide are better equipped to perform
tions. As multi-national corporations consolidate and
cash forecasting, borrowing and investment activities.
standardise their finance, accounting and treasury mod-
Treasurers must be able to easily collect account bal-
ules, IT organisations are re-evaluating their approach
ance information from all bank accounts in all coun-
to bank connectivity.
tries. Multi-bank reporting applications developed by
7 financial institutions and technology providers offer
SWIFT Connectivity—Several hundred large corpora-
account aggregation services. The services consolidate
tions have registered to participate in SWIFT’s corpo-
end-of-day and intra-day balances for all accounts onto
rate access programs. SWIFT connectivity can reduce
a single web portal or channel the information directly
the costs and complexity associated with corporate
into a treasury workstation. Corporations armed with
banking communications. Corporations utilise a num-
enhanced cash visibility can make borrowing or invest-
ber of different transmission mechanisms to exchange
ing decisions earlier in the day, reduce probability of
data with their banks. High volume data transfers typi-
overnight idle balances and accelerate the processing
cally occur over private lines or Internet-based file
of exception items.
transfer. In some cases, older technologies such as dial-
up connections and fax transmissions are still in use
10 Bank Relationship Management Software—
by smaller corporations. Web portals have become an
Bank connectivity has become such a complex issue
increasingly popular option for bank interfaces recently.
for corporations that several ERP vendors have intro-
With SWIFT access, corporations can replace the broad
duced specialised software modules to simplify integra-
mix of connectivity mechanisms with a single standard-
tion. SAP recently introduced its “Bank Relationship
ised approach. Messages and files can be sent to
Management” application. The SAP module offers
SWIFT for routing to any of the over 7,000 banks
native support for ISO 20022 XML and SWIFT
on SWIFTNet reducing cost and complexity.
corporate access. Furthermore, the SAP application
has seamless integration with the vendor’s treasury and
8 ISO 20022 XML—Otherwise known as the Universal
accounting modules thereby lowering the barriers to
Financial Industry (UNIFI) standard, ISO 20022 XML
straight-through processing with financial institutions.
is designed to replace the myriad of local file formats
Out-of-the-box support for emerging standards from
used for payment processing around the world with a
major ERP vendors will accelerate adoption by multi-
single, global message schema. T oday, most corporations
national corporations.
utilise EDI (e.g., EDIFACT, ANSI X12), country-specif-
ic ACH formats (e.g., NACHA in the US) or legacy

4. A GX S I N S IG HTS ART ICLE
Ten Forces Transforming Corporate Banking Connectivity • page 4
than with cheques. For large multinationals, the net
Additional Forces
increase in number of payment messages sent to banks
The ten factors listed above are revolutionising the way could be in the millions per year.
corporations interface with their cash management banks.
The list could be further extended to include technological • Large File Transfer—Corporate treasury groups are
forces such as Large File Transfer, conversion from cheques to seeking more information in faster time frames than
Electronics Funds Transfer (EFT), and banking innovations ever before. For example, in the US the rapid growth of
such as Payments Hubs. image-based cheque substitution is driving demand for
copies of cheque images to be distributed to corpora-
• Conversion from Cheques to EFT—Corporations are tions. Collections organisations retain the cheque
rapidly migrating away from cheques and paper instru- images for customer service, record-keeping and
ments to Electronic Funds Transfer (EFT). The most exception processing purposes. T oday, cheque images
significant transition is occurring in the US, which his- are burned onto a CD-ROM and shipped via courier
torically utilised cheques as the primary B2B and B2C to a corporation. The CD-based distribution is becom-
payment instrument. Credit cards, debit cards, online ing too cumbersome and complex for most corpora-
bill pay and lockbox-based image conversion are rapidly tions to manage. Consequently, financial institutions are
driving B2C payments to EFT. Adoption of EFT in the migrating towards Internet-based file transfer of cheque
B2B payments segment has been slower. However, pro- images. However, many banks and corporations lack the
curement cards and Automated Clearing House (ACH) technology infrastructure to support such high volumes
are quickly becoming the primary payment instruments of data exchange. New low-cost, high-volume services
for large corporations. The result is that corporations for Large File Transfer are emerging, promising to fur-
must communicate a significantly higher volume of ther simplify corporate banking communications.
electronic payment instructions to financial institutions
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