Published: October 01, 2010
On 29 January 2010, Orange Business Services stated that its X25 network would be decommissioned on 30 September 2011. This will impact most organisations with entities in France, as X25 is used for data exchange with their banks, as part of the ETEBAC protocol. French-standard file formats supported by ETEBAC will remain available, although organisations will have to migrate to XML-based formats to benefit entirely from SEPA.
With a 30-year track-record of file delivery, personal digital signatures, high availability, data security and near 100% market acceptance, ETEBAC was adopted by most entities of large organisations and this means approximately 95,000 entities from large multinationals to small and medium-sized enterprises have less than 12 months to re-evaluate and re-design their bank integration.
The immediate alternatives to X25 for most organisations are the web-banking platforms offered by their banks, as these typically support the French-standard file formats and, with three million corporate organisations registered in France, electronic banking is the most popular means of communicating with a bank for bulk payments, domestic and cross-border wires, SEPA Credit Transfers, electronic bills of exchange, direct debits and bank account reporting. In addition to this service, the French Banking Federation, through its standardisation body (CFONB), also recommends either EBICS or SWIFTNet as alternatives to ETEBAC.
Electronic Banking Internet Communication Standard (EBICS) is a protocol originally developed in Germany that has been amended to meet specific requirements in France, and enables information to be exchanged over the internet in a secure fashion. While the intention is to make EBICS a European standard for bank connectivity, it has not yet been adopted by countries other than Germany and France. Furthermore, the modifications that were required to meet the specific formatting in France have temporarily made the French and German versions of EBICS incompatible, limiting the ability to leverage common investment or achieve standardisation.
Initially, EBICS is offering functionality similar to ETEBAC, e.g., cash transaction initiation and reporting. It supports the existing file formats used in France, as well as XML messages required for SEPA payments. However, corporates’ connectivity solutions still require modification or upgrade to connect to banks via EBICS, and ETEBAC signature cards cannot be used.
SWIFTNet offers two services: FIN and FileAct. Between the two, FileAct is the closest alternative to ETEBAC as it allows the secure exchange of files of various formats (including French formats) with guaranteed delivery. In addition, structured SWIFTNet FIN messages bring added functionality that is not available in ETEBAC, like the confirmation of market trades via MT3XX messages.
Compared to ETEBAC, SWIFT connectivity also offers high market acceptance, has a strong track record amongst banks and benefits from significant ongoing investment in infrastructure, solutions and security. Most financial solutions offer compatibility with SWIFT standard MT940 account statement reporting and MT101 payment messaging.
While expertise on SWIFTNet is widely available, SWIFTNet is often perceived as a bank-to-bank connectivity, expensive and cumbersome to maintain. Market education via conferences and meetings, outsourcing solutions via service bureaus, aggregation of flows by Member Concentrators and new lighter connectivity to the network have all contributed to revising that perception.
From a cost perspective, the total cost of ownership needs to be viewed in terms of the overall project objectives. Once legal costs for documentation, internal software upgrade, middleware costs, etc. have been taken into account, which need to be performed whatever connectivity is selected, physical corporate-to-bank connectivity often represents less than 5% of the overall cost of large connectivity re-engineering projects.
While EBICS is often considered by the French banking community to be the replacement to ETEBAC, adoption has so far been very slow. Until the next version is released (expected by year-end), which will support digital signatures, EBICS does not yet compare favourably to ETEBAC, especially the most recent version, ETEBAC 5, which was recognised until recently to be the most secure protocol available in Europe.
As of July, 15 months before X25 is discontinued, software vendors had yet to experience a rush of users seeking system upgrades. It is estimated that fewer than 5,000 organisations have started an EBICS project so far, and fewer than 300 are actually using EBICS, primarily for retrieving statements from banks in France.
When communicating with multiple banks, larger organisations are generally opting for SWIFTNet via a service bureau in order to benefit from a standardised approach to connectivity across all banks without the need to maintain the infrastructure internally. The migration to SWIFTNet amongst these organisations is well under way, and French companies now represent around a third of all new BICs issued by SWIFT to corporate entities globally over the past year. While many of these organisations had set up multiple ETEBAC connections, such as for accounts payable, treasury, etc., migrating to SWIFT has enabled companies to consolidate their bank connectivity across all entities and all departments, not only in France but often globally. Centralisation of connectivity and operations is, in many cases, acting as a catalyst for re-engineering of payment processes and bank account reporting, the introduction of specialised middleware to convert and to distribute files between the various systems/banks, and the rationalisation of banking relationships for cash management to achieve greater standardisation.[[[PAGE]]]
While connectivity projects appear technical in nature, much of the implementation time and complexity of both EBICS and SWIFTNet projects is actually the contractual negotiations with software vendors, bureaus, SWIFT, and the various banks involved. The technical set-up itself is typically achieved within a couple of weeks. However the negotiation of SCORE (standardised corporate environment) agreements with multiple banks can take considerably longer, each having different requirements depending on the information being exchanged and geographical scope.
In addition to banks’ proprietary electronic banking systems, EBICS and SWIFTNet, a few multinational companies and public sector entities have opted for host-to-host connectivity. This is a direct, ‘hard-wired’ connection between companies’ ERP or finance systems and the bank. The benefit of this approach is the degree of control over the interface, and the ability to leverage the technical expertise of the company’s IT department, by using familiar protocols such as FTP. This can simplify set-up and maintenance for companies with a small number of cash management banks, and often brings lower ongoing costs when the number of connections increases.
As companies in France have no choice but to revisit their bank connectivity, there is the opportunity to combine a connectivity replacement project with the migration to SEPA, particularly SEPA Credit Transfer (SCT). SCT is a new payment instrument allowing euro transfers within SEPA (mainly EU countries plus Iceland, Liechtenstein, Norway and Switzerland), across borders or domestically.
The attraction is the potential for lower ACH costs and EUR cross-border transaction fees and achieving standardisation of payments and collections across Europe. However, transitioning from domestic ACH to SCT is not necessarily a straightforward process. BIC and IBAN data needs to be collected from all suppliers and customers, and software solutions often need to be upgraded to support the new features of SCT, such as longer reference fields.
Smaller organisations may face resourcing bottlenecks if trying to tackle both connectivity and SEPA migration at once, as both projects are resource intensive, require similar technical expertise and project and change management disciplines. The preference tends to be to address connectivity first and then move on to SEPA migration.
For larger organisations that have opted for centralised connectivity, combining connectivity and SEPA brings early benefits, which can help to justify the overall centralisation project: lower transaction costs, standardisation of payment processes across multiple countries, economies of scale and concentration of expertise are all sources of immediate and tangible financial benefits. For example, with SCT costing 40-50 times less than standard euro cross- border wires, the simple migration of domestic payment types to SCT can save thousands of euros each year. It can be estimated that an average European company can save at least 30% on current transaction costs by converting to SEPA for cross-border payments and by centralising cash management activities through two or three banks. The estimated benefits can be even greater if payments are made through a single bank, as set-up and ongoing costs are reduced, and treasuries benefit from increased visibility, consistency and scalability.
Citi has had a presence in France since 1906 and is well-positioned to assist treasurers and finance managers, both in France and beyond, to address connectivity challenges on a local, regional or global basis. With more than 200 employees in France, Citi provides a full range of financial services to French multinationals and their subsidiaries, medium-sized companies, public sector bodies and financial institutions.
Payments efficiency is a particularly topical issue. Treasurers want to get maximum value out of their investments in ERP and TMS by streamlining both incoming and outgoing payments. The discontinuation of ETEBAC is an opportunity to further improve payments and reporting efficiency. Through Citi’s continued investment in new technologies, technical and business expertise and longstanding track record in transaction banking, Citi is well-positioned to support companies in their connectivity, centralisation and SEPA migration initiatives, and help to deliver substantial benefits.
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