Interview – Gilles Bourron

Treasury Manager, PMU (Pari Mutuel Urbain)

“Sepa, an opportunity to reduce the impact of cash-flow on internal information systems”

Could you give us a brief description of PMU?

Founded in 1931 and formed as an Economic Interest Grouping in 1985 with 51 betting companies as members, PMU arranges bets on horse racing in a mutual fashion, that is to say without taking any risks, by acting as the clearing house. It contributes to the development of the equestrian industry network which employs nearly 75,000 people in France. PMU arranges two networks: one a physical network, representing 90% of our activity and made up of over 10,000 outlets held by independent traders using PMU licences, the other long-distance sales, especially over the internet, which represent 10% of our activity and are experiencing great growth. In 2009, the accumulated stakes rose to EUR 9.3bn, of which 75% was returned to the punters, 12% to the State and the balance, EUR 736m, returned to betting companies, after deducting PMU’s operating expenses.

Presumably the business is directly affected by the recent liberalisation of online gaming?

It really is greatly affected, as with 300,000 online clients and EUR 661m  staked in 2009, PMU is already of course one of the principal betting operators in France, but also in Europe, even though our customers are exclusively French. As you can imagine, the company largely anticipated the effects of the law of the 12 May 2010 which opened the online gaming sector to competition, aiming to become a global games operator by offering from the outset sporting bets and poker in addition to horse racing. For the latter two activities, our policy was to establish agreements with operators who already had recognised technical expertise - with Paddy Power, the principal Irish bookmakers, for betting activity at fixed odds, and for poker, with Party Gaming. This meant that PMU was able to make one of the best offers on the market to its customers as soon as the licence had been obtained from ARJEL – the authority that controls online gaming in France.

How is the cash flow managed?

For the physical network, our system of taking bets via terminals is totally centralised and allows us to know, in real time, the cash balance of our 10,000 outlets. Centralisation of treasury is ensured by a system of cash pooling by which, three times a week, the managers of each outlet pay their surplus into an account in one of the ten authorised bank networks. This system of concentration of liquidity, which allows us to have at our disposal funds between two and four days after deposit, generates almost a million withdrawals a year. If there is a case where the bank rejects a transaction, bet-taking at the outlet concerned is suspended while awaiting clarification. Despite the fact that the risks linked to cash are relatively well-distributed because of the size of the network, PMU has recently further reduced them by implementing a totally integrated electronic banking system.

Our system of taking bets via terminals is totally centralised and allows us to know, in real time, the cash balance of our 10,000 outlets.

This project, for which I have direct responsibility, began at the end of 2007 with an analysis phase, which opened with an invitation for tender, at the end of which we retained Monext, ex-Experian, for the global management of the system. We introduced a system of Ingenico Axis C3 bank card machines, piloting Pinpads connected to game stations or to terminals. The system was rolled out over a 12-month period in two phases to reach the current level of 9,500 equipped outlets, managed by one system, which must place PMU among the big players in France. The medium-term objective is to get to the stage where around 10% of receipts in our network of physical terminals are made by bank card. On the subject of online activity, which grew by more than 20% in 2009, players have a game account linked to a bank account and topped up by bank card, and from where withdrawals are made by transfer. Globally, PMU’s treasury is therefore a treasury of cash flow, on an extremely short cycle, of which the most important aspect is the regularity of collection of money, since PMU pays the winnings, the racing companies and the State within a short period. The surplus capital that the system frees up, on average between EUR 200m and 300m, is placed in 15 banks or investment management companies in products whose maturity does not exceed one year: monetary UCITS, certificates of deposit and fixed-term deposits.

How did you tackle the transition to Sepa?

With ten banks providing our cash pooling, the transition to Sepa seemed at first sight technically delicate. At the end of a study launched very early on and before the transition, we opted to entrust the flow of transfers and withdrawals to a specialised payment services contractor who will be responsible for the banking transition – the change to Ebics - then cash flow management on target. We issued an invitation to tender at the beginning of the year, and there are two big players in this field still in contention. The contractor whom we eventually retain will manage these cash flows in SaS mode and in the context of a commitment to good service. The contractor will be responsible for a progressive transition, bank by bank, cash flow by cash flow, up until 2012, which will be start with SCTs, then the SDDs. Globally, the Sepa scheme also presents PMU with an opportunity to rationalise its methods of cash-flow management and to minimise their impact on internal information systems. In addition, when it comes to competencies, it make us technically capable of managing our customers in the same way across the entire Eurozone to accompany a possible international development.[[[PAGE]]]

Taking into account the structure of your clientele, you must be interested in the consequences of the adaptation of the directive on payment methods to French law?

This directive encourages the emergence of players proposing services such as pre-paid cards or electronic ‘purses’, which we are looking at carefully because these tools are already present in the world of online gaming. Acceptance of these alternative methods of payment has been made possible by the French law on online gaming, and these products can be of interest to a sector of our clientele who do not wish to use their bank cards for gaming. We are, therefore, currently in contact with new contractors, but for the moment, I must say I am very surprised by the proposed business model, especially by the issuers of anonymous prepaid cards. In fact, this model is currently based on prohibitive costs for internet merchant participators – in the range of 5% to 10% of the transaction! – and the slowness of the credit transactions – completed in 30, or even 45 days in some cases - which are two points that are in my opinion unacceptable for a method of payment. This is a topic which should interest the community of treasurers, who would have every interest in getting together in order to raise awareness among these new payment services contractors that what they offer, as things currently stand, do not meet the expectations of online commerce in general, and of online gaming carried out in a legal context in which the margins are weak and the cycles of payment are very short.

The medium-term objective is to get to the stage where around 10% of receipts in our network of physical terminals are made by bank card.

How is your treasury structured?

The service consists of nine people, four of whom are in charge of monitoring incoming cash flow, one who deals with treasury management en date de valeur, another who monitors electronic banking flow and fraud prevention, as well as Valérie Durand, my assistant. As for me, other than supervision of the treasury, I have responsibility for insurance and financial monitoring of risk management and of sporting bets made through our partner Paddy Power.

What was your career path before your arrival at PMU?

I began my work at PMU at the end of 1999. Before that, my career was in banking, which was a natural progression from my studies – the Paris Institute of Political Studies and a masters in Financial Techniques at Essec Business School.