12 Apr 2011
Filipe Simão, BNP Paribas- 22nd March 2011
The payment factory concept has been around for some time, with US multinationals trailblazing the way last century in an attempt to increase control and rationalise payment and collection costs. The large US corporates were faced with an enormous, yet fractured, domestic market and saw the huge potential in optimising this area of their business.
When these companies expanded across the Atlantic, they were confronted with more of the same in Europe, with an absence of standardised processes and numerous file formats. Today, there have been some important developments in the market to drive forward harmonisation and many corporates, including European ones, are having a fresh look at payment and collection factories. The reason for this renewed interest is three-fold.
First, today’s technology is much more mature. An example of this is SWIFTNet, which is promoted as a single pipeline to many banks and is now more available to corporates with the new SWIFT service bureaus connectivity model. In the gtnews Payments Survey 2010, just under half (48%) of the organisations surveyed indicated they use SWIFT services to process payments. However, among the organisations that do not use SWIFT, more than half (55%), would consider using SWFT in the future.
The service bureau model has the potential to dramatically lower SWIFT implementation and running costs, as well as reduce the level of internal expertise that a company needs to have.
Second, increased regulation and the corresponding need for internal control are driving companies to look at payment factories. Beginning with collapse of Enron, the past 10 years has seen regulators ramp up pressure on companies to document the way they operate. Increasingly there are regulations coming out of the US, such Sarbanes-Oxley (SOX), which require detailed and complex audits. Corporates are realising that the more disparate their processes and technology, the more difficult, cumbersome and lengthy audits will be.
The third reason for the rising interest in payment factories is the single euro payments area (SEPA), which is a banking initiative - alongside the legal framework, the Payment Services Directive (PSD) - to support payment harmonisation across Europe.
Interestingly, SEPA affects a wider area than simply the eurozone. This is because once a company begins harmonising its payments processes, it may as well go a little further and use the same technology to harmonise the non-SEPA processes. Many corporates are using SEPA as an impetus to put in place a worldwide payments factory.
These are three reasons why companies are now having a fresh look at payments and collections factories. The background of all this activity is the global economic slowdown, although now the outlook is one of “cautiously optimistic”, as BNP Paribas’ chief executive officer (CEO) Baudouin Prot puts it.
The effects of the current economic situation could go either way: some may argue that it is a bad environment to reorganise part of the company that is not core business, i.e. treasury, but others argue that it is an opportunity to drive payment costs down.
As companies scrutinise cost areas, many are developing a business case for a payment factory from a cost-cutting perspective. They are coming to the conclusion that, despite the economic turmoil, the investment is worth the return, with a breakeven point of approximately two years.
From both an economic and a control perspective, the old trend towards increased centralisation is rising, regardless of whether the company is traditionally more centralised or decentralised. All corporate treasuries are moving closer to a centralised structure, allowing for increased control.
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