It's a problem with which corporate treasurers have struggled for years: the accounting systems they use to manage their company's money don't easily talk to their banks' software. When they receive electronic bank statements, they tend to need to manually reconcile them with the company's accounts payable, accounts receivable and treasury systems. And when they receive a payment through their bank, they don't always know what that payment is for.
Some corporates upload and receive files from their banks using the electronic data interchange document standard, but this tends to be a cumbersome and time-consuming process.
In the hopes of streamlining such chores for their corporate customers, Citi is announcing today that it has subscribed to the SAP Financial Services Network. The setup will let the bank's corporate customers send transaction information to Citi directly from their SAP enterprise resource planning software, using a data formatting standard for financial services messaging called ISO 20022. The standard helps the receiving application read and understand the message using commonly understood XML tags attached to each data field.
Citi is expected to make its live debut on SAP FSN by the end of the year.
As Citi's corporate clients grow and expand into new markets in new countries, they tire of having to upload EDI files to their online banking account and prefer to send transaction data directly to their banks from their ERP software with host-to-host connectivity, explains Hubert Jolly, managing director at Citi.
Under the new arrangement, Citi customers will send transaction information from their SAP system to their bank using the ISO standard. SAP will perform any reformatting or data cleanup that needs to occur to make the information directly readable by Citi's computers, and the bank will process the transactions immediately.
"One of our clients' biggest pain points was high-volume connectivity — how to get large files to Citi — and they had to do that multiple times with multiple banks," Jolly says. "We knew that if a client wanted to work with Citi across a region, it would take months for them to connect each of their individual ERP instances into Citi. It was a major effort and pain point for them, and an expense for us as well."
The key benefit to Citi's corporate customers in signing up for the SAP Financial Services Network is they'll be able to send transactions to the bank in real time rather than batch files. "The other big benefit is we'll be able to exchange better data back to our clients," Jolly says. "We can get data back to them in such a rich way that they can reconcile their books end to end," he says. "They might have to clean up one to two percent of their transactions."
Such streamlined processes should give the bank faster time to revenue, Jolly says. It should also reduce the number of phone calls corporate clients make to the bank. "While I want our clients to call us, I don't want these to be service calls," Jolly says.
Citi's portal to SAP's new Financial Services Network and other networks, which is called CitiConnect, is interoperable with the bank's other digital channels for corporates: CitiDirect BE online, mobile and tablet. If a funds transfer that a customer sends through the SAP FSN requires approval, for instance, the customer could grant that approval using his smartphone, tablet or desktop computer. Statements and reporting will also be passed between SAP FSN and the bank's digital platforms. A rules base ensures that the proper policies are followed throughout.
Citi was in a good position to create its connector to SAP's new network, Jolly says, because the bank already has a single data warehouse for all its products for 96 countries. That enables it to receive instructions from SAP, process transactions and store them in a data warehouse for reporting back to the clients.
"You need to have pretty good data quality and data standards to use SAP's FSN," Jolly says. "Since we already have these two pillars, the rest is more about working with SAP and having them do what they can do from an ERP standpoint."
The Financial Services Network itself came about through conversations SAP had with banking and corporate customers. "A common pain point was, how can banks more efficiently do business with corporates?" recalls Sanjay Chikarmane, senior vice president and general manager, Global Technology Solutions at SAP. "Corporate banks have thousands of corporate clients, and they found it prohibitively complicated to not only establish connectivity with corporates but also to be able to tightly integrate with ERP systems."
The need among corporate treasurers was also strong because after the financial crisis of 2008, most large corporates wanted to spread their counterparty risk and do business with multiple banks, he says. "Some of the very large corporates do business with 15 to 18 banks, global and regional," Chikarmane says. "They were having problems not just connecting to these banks, but every bank required a different way of sending data. The last-mile integration into their financial processes was a problem."
Two years ago, SAP formed a group of banks that includes Bank of America, Citi, JPMorgan Chase, Deutsche Bank, Royal Bank of Scotland, HSBC, Standard Chartered Bank and Bank of Tokyo Mitsubishi, to collaborate on the new Financial Services Network, which SAP built and operates. The network went live in March. Citi is the first to sign a formal commercial agreement; others are testing the service, Chikarmane says.
In many corporate accounting departments today, the last two hours of the day are reserved for collecting payments and uploading files to the bank, according to Chikarmane. "We automate and streamline that whole process straight from the ERP system," he says.
As bank statements, status messages, or other documents come from the bank, they'll be delivered in a format that can be automatically reconciled in the company's ERP system. "When the treasurer or the head of accounts payable shows up in the morning, those statements have already been put through the system and automatically reconciled," Chikarmane says.
The third thing SAP FSN will do is provide remittance advice captured from the ERP system to whomever is getting paid. "This type of information normally doesn't pass through the banking network," Chikarmane says. "But through FSN we make that available to the recipient."
SAP is one of the three top providers of ERP software to Citi's target corporate banking market, multinational Fortune 3000 corporations. Citi is also talking with the other two major vendors — Oracle and Microsoft — as well as smaller providers, to create similar digital links for bank customers that use those ERP programs.
Another alternative approach to connecting companies with their banks is offered by Swift.
"With Swift for Corporates, like the SAP FSN network, the main benefit to the corporate is the multi-bank connectivity," Jolly says. "And the use of standardized communications protocols to communicate with Citi and other banks on the Swift network or the SAP Financial Services Network."
Citi is not going to try to force its clients on one platform or another, Jolly asserts. "We want to give them the choice. They may be more comfortable working with SAP because they have an SAP instance, or they may want to have Swift connectivity," he observes.
It could appear counterintuitive for Citi to participate in networks that include other banks that could poach pieces of its client relationships.
But the bank acknowledges the reality that institutional clients have multiple bank relationships. "Our clients are going to have three or more corporate relationship banks around the world, that's the way they operate," Jolly says.
People have asked Jolly if he worries about SAP disintermediating Citi and other banks on the new network. He does not.
SAP is not a bank, it's not in the business of processing payments, it's not taking deposits, and it's not in the business of handling AML and compliance with other rules, he points out. "What they're doing is addressing a client pain point," he says.
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