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Financial Supply Chain Management Continues to Evolve

Financial supply chain management continues to evolve as a promising business line for banks, particularly as corporate clients look to maximize efficiencies during the economic downturn. But creating connections among all the participants in the supply chain remains a challenge.

SEPA: Simplifying FSCM

One initiative that may simplify FSCM is the Single Euro Payments Area. Now that SEPA has officially gone into effect, corporations that do business throughout the European Union not only receive a more equitable price on cross-border payments, they also may be able to more easily trim their banking relationships. There also is hope for banks in simplifying their payments infrastructures to accommodate the more commoditized system -- at least for those banks that can see beyond losing a source of fee revenue, experts say.

Celent's Camerinelli says SEPA goes hand in hand with FSCM. "SEPA offers a common [payments] platform so that banks can concentrate on offering more-valuable services and more STP," he comments. "The value of SEPA is full supply chain integration -- everything becomes easier from a technology perspective."

Sterling Commerce's Gahagan agrees that SEPA will have an impact on the FSCM area. "This is going to help simplify and unify things onto a single set of standards for transacting business across borders," he contends. "It's going to enable the physical and financial supply chains to converge." But, he points out, "Just because SEPA is 'official' doesn't mean everyone is using it yet."

Eventually, however, SEPA will help strengthen the supply chain, JPMorgan's Quinn suggests. The initiative promotes the use of standards and, ultimately, will help streamline FSCM, he says.

But Aaron McPherson, Financial Insights' practice director in payments and security, says banks are simply not ready for SEPA. "What the banks have been able to muster so far are consolidated payments in the EU," he says. "There are large cost savings there. This is good because SEPA provides efficiency. But no European banks are using it as a driver for financial supply chain management. Deutsche Bank is probably the furthest along with SEPA, but they haven't hooked it up with their financial supply chain management platform. They can do both, but they're not on a unified platform yet."

Moving Beyond the Concept Stage

McPherson says FSCM is in a similar place in its development to where enterprise payments were four years ago. "There's still a lot of debate around what kind of information and services to include and a lot of skepticism over whether banks can get their acts together," he explains. "In about three to five years we'll see some real movement here because it's still in the concept stage. It will take time to do all the integration."

One idea McPherson believes will help more banks expand their supply chain services is to enable e-invoicing using the check image exchange networks. "There's a lot of potential here for the image exchange networks to hold images of paper invoices to serve as a bridge technology," he explains. "The image archives might want to get in on this kind of business as check volumes and [transaction revenue] go down."

He adds that just as Check 21 allowed the image archives to provide a transition between paper and electronic check clearing, perhaps the same can be done for e-invoices. "Using this approach will pay dividends in the financial supply chain area," McPherson says. "It might be a good compromise since a typical buyer may have some suppliers that are more electronically enabled than others."

Leveraging existing technologies and bringing them into the FSCM space is also the way Cynthia von Hollen, principal for financial services with SAP (Walldorf, Germany), sees things evolving. "I think we always see a big focus on innovative payments at the consumer level," she relates. "As these new technologies advance, I think they will move into the corporate area as well. So how will mobile payments, standard payments formats such as ACH IAT [international ACH standard] or RFID [remote frequency identification] work on the supply chain side?"

Although there are many possibilities for new technologies to crop up around FSCM, BofA's Baker thinks the market will see an evolution of existing technologies. "The challenge will be to build an end-to-end global solution that leverages the infrastructure and to bring best-in-class services to clients. It will require more integration of systems and a refinement of existing technology into a cohesive whole so they can be deployed globally. Most of the technology is there, but not everyone is able to use it."

KeyBank's Grace says he will keep a sharp eye on any new technology developments in the FSCM area since the bank is preparing to relaunch its FSCM business in the coming months. But he also believes most advances will involve tweaking existing technology. "There are certainly other technologies that will be available. But I think the next big thing will be around creating even further integration into clients' ERP systems and their everyday operations," he comments.

According to SWIFT's Conn, the biggest challenge to the development of FSCM as a profitable business line for banks is the number of parties involved. "There are millions of individual players in hundreds of countries. But we see banks as the entry point in many respects. As banks come on board and provide services, they will need to be tailored to the needs of the various end points," he says. "Standardization will lead to greater adoption and maturation of financial supply chain management."

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