Published: November 01, 2011
Statoil has always been a company that aims to pioneer industry best practices, leveraging technology to create greater efficiency, automation and business success. This is apparent in our corporate functions, such as treasury and cash management, just as much as in our exploration and production activities. For example, we implemented SAP across our finance function around 10 years ago, and achieved a very high degree of centralisation, including an in-house bank and payments factory. Prompted by the recognition that our middleware was becoming obsolete, and in order to maintain our competitive position, we launched a cash management optimisation project in 2009 comprising four key elements: bank connectivity; bank account management; review of liquidity structures and banking partners, and optimising our in-house bank. We are currently in the bank connectivity implementation phase, with bank account management to follow.
We have relatively few banking partners at Statoil, with four primary cash management banks, to whom we connect through host-to-host connections historically. We also work with a variety of banks that provide domestic services in locations not covered by our key banking partners. Although these banks play an important part in supporting our business strategy, currently we do not have automated payment processes with them. We have enjoyed long-term relationships with our banking partners, and we regularly review performance of the four primary cash management banks, including key performance indicators.
Late in 2010, we made the decision to replace our host-to-host connections with SWIFT connectivity. Despite the longevity of our bank relationships, we wanted to create bank independence, and make it easier to connect to new banks in the future. In addition, we recognised that maintaining a single channel would be easier to maintain and enable a more consistent approach to business processes and security.
We explored different connectivity options, specifically whether to manage the SWIFT infrastructure in-house or to outsource this to a service bureau. Although Statoil is a highly technologically competent organisation, we realised that it would be more cost-effective and resource-efficient to work with a service bureau, particularly bearing in mind what is the relatively small scale of our treasury and payments operation compared with Statoil’s core activities. We also made the decision to implement XML-based ISO 20022 for payments, as by standardising the file format used for payments, we could automate our processes independently of individual bank formats.
We have now completed the SAP elements of the project, and we are converting the formats to ISO 20022 on a country by country basis. As we convert each country format, taking the opportunity to include other improvements such as reduction of payment methods per subsidiary, we are then migrating it to the new SAP platform, so we are currently maintaining both the old and new infrastructures (figure 1) during the transition period. Eleven countries are now live, and we are starting on the second phase which comprises five or six countries. Currently we are migrating to XML, still on host-to-host connections, and we will start the XML conversion with at least one of the Nordic banks before we are live on SWIFT. These will take a little longer to implement as we have retail as well as wholesale activity, which is more complex.[[[PAGE]]]
We implemented version 2 of ISO 20022, because at that stage we felt that version 3 was not mature enough. We will upgrade to version 3 when the opportunity is there. We found that there were some parts of the message format that banks interpreted differently, so we brought together our primary banks to try and harmonise the way that the standard was implemented at Statoil. While this approach was generally successful, some variations still remain, between countries as well as between banks. Some types of payments are not yet supported through ISO 20022, so currently we are using a combination of ISO 20022 and our current format, EDIFACT, with very occasional use of local formats in some countries. We have also found that the banks have different degrees of expertise relating to ISO 20022, including those that claim to be pioneering the use of the standard. Even amongst banks with the right expertise, the relevant resources are often scarce.
We are also about to complete the contracting process with our service bureau. While indirect connectivity is undoubtedly the best route for our business, the process has taken a little longer than we anticipated. It is important to find a service bureau with the right coverage and experience working in the relevant countries. We also needed to be very clear and detailed in the request for proposal about our requirements, and engage our banking partners at an early stage. From a contract perspective, this takes time, so this should be started early, including internal legal support and with particular attention paid to liabilities.
While it is currently too early to determine the outcomes of the project, we anticipate that we will be successful in fulfilling our business objectives of increasing operational efficiency and reducing costs, as well as achieving more strategic benefits such as bank independence and a robust infrastructure for the future.
The next phase in our cash management project will be electronic bank account management (eBAM). Our aim is to eliminate manual processes and paperwork as far as possible, establish a single platform and process across our banks and reduce the time taken to open new accounts. Ideally, we will leverage our existing SAP and SWIFT infrastructure to achieve this. We have started on the internal elements of this project but not yet launched it externally. This will comprise two parts: firstly, automating and streamlining bank account management and adding electronic signatures and improving process efficiency internally. As a company committed to leading-edge technology to enhance our business, we already have the internal infrastructure in place to facilitate secure, automated bank account management processes, including encrypted email and ID cards that have been approved by the Norwegian authorities as a legal signature. At the very least, we will be able to use this signature mechanism for our accounts in Norway but we are hoping to extend its use to other countries as well.[[[PAGE]]]
Secondly, we hope to increase visibility and auditability of bank charges using the Bank Services Billing Standard developed by TWIST, and we are working with our four main banks to achieve this, which will be augmented with eInvoicing for greater control and automated posting in our ledgers. Again, our aim is to leverage our existing SAP and SWIFT infrastructure for this purpose.
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