If banks are to develop any effective payments standards, they must actively engage their corporate customers in the process, according to a new study from Gartner (Stamford, Conn.), "Banks Must Directly Engage Commercial Customers to Advance Payment Standards."
"Banks have to drive this as part of their service value," says Douglas McKibben, research vice president, banking, and one of the authors of the report. "Corporations don't care what standard it is -- they just want a standard. It's solving a business problem."
According to Gartner, corporates consider it the banks' responsibility to standardize payments and enable compatibility with internal corporate systems. Banks, however, would like corporates to take a more proactive approach.
"People would embrace standards if they came," a payments executive from a top 10 U.S. bank recently told BS&T. "But what's the rallying cry?" he asked. "It's hard to tell corporates to change their invoices to global standards. Its hard to get corporates to make the investment."
To get corporates to invest in standards, Gartner's McKibben says, banks have to communicate the business benefits of payments standards. "One reason for the lack of interest is that [corporates] don't fully understand the benefit of standards," he contends. "Treasury managers at corporations aren't going to buy a standard -- they are going to buy a solution."
That solution, McKibben continues, is better financial supply chain integration. The biggest benefit of standards to banks and corporates is the potential for complete automation of the financial supply chain, he explains. "The absence of a standard format makes straight-through processing elusive," McKibben says.
In addition, banks that take a lead in implementing standards could gain more business, while those that don't could see corporate clients migrate to competitors. According to Gartner, effective standards could potentially reduce the number of bank relationships a corporation would need.
ISO 20022: Possible Solution?
The Geneva-based International Organization for Standardization (ISO) brought together the four leading standards organizations -- IFX (Wakefield, Mass.), OAGi (Chicago), Twist (London) and Swift (Brussels) -- to create a standard messaging format based on XML syntax known as ISO 20022, or the Universal Financial Industry (UNIFI) messaging scheme. "It was created to solve the content differences between the groups," Gartner's McKibben explains.
Included in the ISO UNIFI standard is a "core payments kernel" for corporate-to-bank payments. Several banks -- including Bank of America (Charlotte, N.C.; $1.3 trillion in assets), JPMorgan Chase (New York; $1.4 trillion in assets) and ABN Amro (Amsterdam; US$1.2 trillion) -- helped develop the payments kernel. Currently, Bank of America and ABN Amro are piloting the ISO 20022 payment kernel with several of their largest corporate customers, according to McKibben. And SAP (Walldorf, Germany) is going to include the payment kernel in its 2008 software release.
However, standards alone won't streamline the financial supply chain dynamic, McKibben says. Individual silos of payments functions -- credit cards, cash management, checks, wire transfers -- make it difficult for banks to obtain a clear picture of a commercial customer's relationship with the institution. As a result, many banks are trying to gain an enterprisewide view of their payments functions by creating payments "hubs." Without standards, however, banks will have trouble creating such hubs, McKibben points out.
--With additional reporting by Maria Bruno-Britz