There are also national initiatives that not only take the domestic interbank traffic but also have aspirations to go global or at least regional. One of these is in Brazil and demonstrates the innovation that exists in developing countries. The country's interbank funds transfer system, Camara Interbancaira de Pagamentos (CIP, translates as Interbank Payment Clearing House), has been around since 2001 and is an integral part of the payment infrastructure. It is a non-profit entity which comprises 42 shareholder banks. It is also a board member of the International Payments Framework Association (IPFA).
'Brazilian banks position themselves as service providers to industries, not just lenders and borrowers of money,' said Joaquim Kiyoshi Kavakama, CIP's CEO. 'So our interbank payments industry is very strong.' A unique payment instrument for commercial collections was introduced in Brazil a few years ago and is still the only one of its kind in the world today. 'It looks like an invoice but it is an instruction for payment. And we were able to make that the standard for the entire country. Its distinct feature is that it can be paid at any bank in the country. In this arrangement, there is a clear need for interbank settlement, and this is where CIP comes in.
We actually manage the money between a bank that issues a payment and a bank that receives it.' In
2009, there were around two billion invoices issued through the system.In October 2009, CIP introduced Debito Directo Autorizado (DDA), a country-wide electronic system for billing and invoicing. Around the same time it joined Swift, taking Alliance Lite. The technology behind DDA is provided by Sterling Commerce, now part of IBM. On the first day alone, DDA had 1.2 million customers.
A notable feature of the set-up is that it covers both business to business (B2B) and business to consumer (B2C), the latter, for example, being around insurance and e-commerce. CIP is now bringing utility bills payment onto the solution and is collaborating with the Brazilian Banking Association on working out the details.
Kavakama believes that the DDA concept can be applied in other countries across the world, so too the wider payments system set-up created in Brazil. 'We are the only country that has integrated the whole payment industry, including central counterparty clearing and central bank.' The country's financial crisis in the 1990s, he noted, resulted in establishing 'a sound payment system, with strong risk practices in place, which is more crisis-proof than its counterparts in other countries'. DDA has the potential of becoming a global solution, 'for any invoice anywhere in the world', he believes.
More generally, in terms of threats to Swift, the lower-cost alternative bank-to-bank and bank-to-corporate messaging protocol, Ebics (Electronic Banking Internet Communication Standard), is gaining ground. It is based on an exchange of keys between counterparties and was defined by the German banking community.
Adoption is now under way in France and there has been activity elsewhere, particularly from German-speaking Europe and French-speaking North Africa.
In Germany, banks were contractually obliged to support the old protocol until the end of 2010. Some banks, particularly government-owned ones, including Ebics advocate, Deutsche Bundesbank, decided that support would end on 1st January.
However, others showed more flexibility, with continued support for both. For bank-to-bank messaging, Ebics is heavily used in Germany. In France, CFONB, the standardisation office in the banking sector, designated Ebics as the follow-up standard for the discontinued Etebac protocols. A number of vendors have worked with the protocol in Germany and France. In the latter
country, Clear2Pay, for instance, has worked with five or six clients, including several Japanese banks and La Banque Postale.
The most secure form of the Etebac protocol (Etebac5, as opposed to Etebac3), using electronic signatures, is due to be discontinued in mid-2011.
Ebics is less expensive than Swift and banks are tending to offer both. At present, given the limited geographical coverage, Swift remains prevalent for cross-border messaging. Vendors have reported interest from beyond Germany and France. This includes Austria, particularly among banks that do a lot of business with German corporates, and Switzerland. Frédérique Saint-Denis, sales and marketing director for Clear2Pay France, said in September 2010 that some banks in France had been considering Ebics for other countries, as it is an easy and secure protocol which does not involve a major project or cost. One UK-based client was evaluating it for European adoption, so too one Japanese client, for its UK operation.
Clear2Pay had also received one request from Spain. An Algerian bank, an existing Clear2Pay client, had signed and there had also been requests from Morocco.
One reaction by Swift to the pressure has been its Lean programme, with a big push to improve efficiency and reduce headcount, combined with its 2015 Strategy. Lean was a two-year McKinsey driven project to cut 17 per cent from Swift's cost base. When Swift was able to announce in October 2010 at Sibos a 15 per cent rebate for 2010, following on from a recent average 20 per cent price cut for FIN messaging, it was a 'reflection that Lean is kicking in', said Swift's head of marketing,
Gottfried Leibbrandt.
Swift has also made a big push for new participants, having gone after the securities sector for a number of years and more recently turning to corporates, after some of the bank-imposed shackles came off. There were 700+ on board by Sibos 2010 and Swift had ambitions to push this number to 5000 by 2015. To a degree, the corporates' reignited enthusiasm for multi-bank relationships plays into Swift's hands. Corporate-derived FIN traffic is increasing 50 per cent, year on year, with FileAct
volumes doubling.
In Swift's next SwiftNet release, R7 (the first for a few years and due to be implemented in June 2011), corporates will be able to directly send FileAct messages. This is perhaps a bit worrying for those banks that still fear a loosening of the traditional ties to their corporate customers but most have concluded that connectivity is not an area of differentiation.
The diversification of Swift, part of the 2015 roadmap, was seen most clearly in its afore-mentioned acquisition of Sungard's Ambit Messaging Hub in mid-2010. The resultant subsidiary competes directly with some long-established suppliers.
Leibbrandt pointed out that Swift had always competed with its interface devices, but the arrival of a solution intended for more complex banks clearly extends the overlap with partners.
Swift's consulting arm is also moving into new sectors, bringing it into competition with existing consultants. And Swift's noises about offering outsourcing have become clearer. It will focus on taking over the Swift infrastructure of high-end customers, a move that was touted as a direct response to customer requests, with the claim at Sibos 2010 that a number were close to
signing.
Swift is seeking to emphasise that this complements the existing third-party service bureaux and that partners are an integral part of the overall 2015 plan. Nevertheless, Swift's decentralisation, within which it is seeking to move closer to its customers, has seen the abrupt termination of a number of long-term partnerships of late.
The ever heightened challenge of meeting and staying in line with regulatory requirements would look to add weight to the argument to outsource. Clearly some banks do delegate but it is surprising in some ways the extent to which so many banks still do everything themselves. To a degree, the fragmentation and 'spaghetti interfaces' described above are reasons for this. It is difficult to outsource in such an instance because there will still need to be interfaces from the outsourcer back into the customer and there are unlikely to be efficiency gains if the internal processes and architecture are not streamlined.
The likes of Equens, Vocalink and SIA in Italy (the latter also has software) have set out their outsourcing stalls, so too individual banks (Deutsche Bank has made a big play of its SDD service, for instance). However, announcements of deals have been few so this looks to be another area where there is a gap between theory and reality.
'Brazilian banks position themselves as service providers to industries, not just lenders and borrowers of money,' said Joaquim Kiyoshi Kavakama, CIP's CEO. 'So our interbank payments industry is very strong.' A unique payment instrument for commercial collections was introduced in Brazil a few years ago and is still the only one of its kind in the world today. 'It looks like an invoice but it is an instruction for payment. And we were able to make that the standard for the entire country. Its distinct feature is that it can be paid at any bank in the country. In this arrangement, there is a clear need for interbank settlement, and this is where CIP comes in.
We actually manage the money between a bank that issues a payment and a bank that receives it.' In
2009, there were around two billion invoices issued through the system.In October 2009, CIP introduced Debito Directo Autorizado (DDA), a country-wide electronic system for billing and invoicing. Around the same time it joined Swift, taking Alliance Lite. The technology behind DDA is provided by Sterling Commerce, now part of IBM. On the first day alone, DDA had 1.2 million customers.
A notable feature of the set-up is that it covers both business to business (B2B) and business to consumer (B2C), the latter, for example, being around insurance and e-commerce. CIP is now bringing utility bills payment onto the solution and is collaborating with the Brazilian Banking Association on working out the details.
Kavakama believes that the DDA concept can be applied in other countries across the world, so too the wider payments system set-up created in Brazil. 'We are the only country that has integrated the whole payment industry, including central counterparty clearing and central bank.' The country's financial crisis in the 1990s, he noted, resulted in establishing 'a sound payment system, with strong risk practices in place, which is more crisis-proof than its counterparts in other countries'. DDA has the potential of becoming a global solution, 'for any invoice anywhere in the world', he believes.
More generally, in terms of threats to Swift, the lower-cost alternative bank-to-bank and bank-to-corporate messaging protocol, Ebics (Electronic Banking Internet Communication Standard), is gaining ground. It is based on an exchange of keys between counterparties and was defined by the German banking community.
Adoption is now under way in France and there has been activity elsewhere, particularly from German-speaking Europe and French-speaking North Africa.
In Germany, banks were contractually obliged to support the old protocol until the end of 2010. Some banks, particularly government-owned ones, including Ebics advocate, Deutsche Bundesbank, decided that support would end on 1st January.
However, others showed more flexibility, with continued support for both. For bank-to-bank messaging, Ebics is heavily used in Germany. In France, CFONB, the standardisation office in the banking sector, designated Ebics as the follow-up standard for the discontinued Etebac protocols. A number of vendors have worked with the protocol in Germany and France. In the latter
country, Clear2Pay, for instance, has worked with five or six clients, including several Japanese banks and La Banque Postale.
The most secure form of the Etebac protocol (Etebac5, as opposed to Etebac3), using electronic signatures, is due to be discontinued in mid-2011.
Ebics is less expensive than Swift and banks are tending to offer both. At present, given the limited geographical coverage, Swift remains prevalent for cross-border messaging. Vendors have reported interest from beyond Germany and France. This includes Austria, particularly among banks that do a lot of business with German corporates, and Switzerland. Frédérique Saint-Denis, sales and marketing director for Clear2Pay France, said in September 2010 that some banks in France had been considering Ebics for other countries, as it is an easy and secure protocol which does not involve a major project or cost. One UK-based client was evaluating it for European adoption, so too one Japanese client, for its UK operation.
Clear2Pay had also received one request from Spain. An Algerian bank, an existing Clear2Pay client, had signed and there had also been requests from Morocco.
One reaction by Swift to the pressure has been its Lean programme, with a big push to improve efficiency and reduce headcount, combined with its 2015 Strategy. Lean was a two-year McKinsey driven project to cut 17 per cent from Swift's cost base. When Swift was able to announce in October 2010 at Sibos a 15 per cent rebate for 2010, following on from a recent average 20 per cent price cut for FIN messaging, it was a 'reflection that Lean is kicking in', said Swift's head of marketing,
Gottfried Leibbrandt.
Swift has also made a big push for new participants, having gone after the securities sector for a number of years and more recently turning to corporates, after some of the bank-imposed shackles came off. There were 700+ on board by Sibos 2010 and Swift had ambitions to push this number to 5000 by 2015. To a degree, the corporates' reignited enthusiasm for multi-bank relationships plays into Swift's hands. Corporate-derived FIN traffic is increasing 50 per cent, year on year, with FileAct
volumes doubling.
In Swift's next SwiftNet release, R7 (the first for a few years and due to be implemented in June 2011), corporates will be able to directly send FileAct messages. This is perhaps a bit worrying for those banks that still fear a loosening of the traditional ties to their corporate customers but most have concluded that connectivity is not an area of differentiation.
The diversification of Swift, part of the 2015 roadmap, was seen most clearly in its afore-mentioned acquisition of Sungard's Ambit Messaging Hub in mid-2010. The resultant subsidiary competes directly with some long-established suppliers.
Leibbrandt pointed out that Swift had always competed with its interface devices, but the arrival of a solution intended for more complex banks clearly extends the overlap with partners.
Swift's consulting arm is also moving into new sectors, bringing it into competition with existing consultants. And Swift's noises about offering outsourcing have become clearer. It will focus on taking over the Swift infrastructure of high-end customers, a move that was touted as a direct response to customer requests, with the claim at Sibos 2010 that a number were close to
signing.
Swift is seeking to emphasise that this complements the existing third-party service bureaux and that partners are an integral part of the overall 2015 plan. Nevertheless, Swift's decentralisation, within which it is seeking to move closer to its customers, has seen the abrupt termination of a number of long-term partnerships of late.
The ever heightened challenge of meeting and staying in line with regulatory requirements would look to add weight to the argument to outsource. Clearly some banks do delegate but it is surprising in some ways the extent to which so many banks still do everything themselves. To a degree, the fragmentation and 'spaghetti interfaces' described above are reasons for this. It is difficult to outsource in such an instance because there will still need to be interfaces from the outsourcer back into the customer and there are unlikely to be efficiency gains if the internal processes and architecture are not streamlined.
The likes of Equens, Vocalink and SIA in Italy (the latter also has software) have set out their outsourcing stalls, so too individual banks (Deutsche Bank has made a big play of its SDD service, for instance). However, announcements of deals have been few so this looks to be another area where there is a gap between theory and reality.
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