In large organizations, the tendency is to select large scale ERP systems to support as much of the organization's business processes within this system. This is a goal that is driven typically by the IT department as this approach reduces the number of different technologies and minimizes the integration between systems. Such a streamlined and simplified system architecture looks to mitigate risk by reducing the potential points of failure and total cost of ownership.

Over the years the treasury department has at times chosen to rather deploy “best of breed” treasury management systems and integrate this separate system to the ERP system. The treasury business processes and therefore systems also come with some significant integration points in terms of trading platforms, market data and bank integration for tasks such as trade confirmations, payments, bank statements and payment monitoring messaging.

The IT department may view this integration complexity as an opportunity for simplification if the ERP systems are able to provide acceptable treasury and risk management functionalities. Especially if some of the integrations that the treasury requires does overlap with the needs of the rest of the business – i.e. payments, bank statements and market data.

Meanwhile, the treasury department will want to ensure that they have as much straight through processing and automation as possible with robust integration. Since their high value transactions are time sensitive, a breakdown in processing would result in negative transactional cost implications with their bank counterparts.

Deciphering Treasury System Selection: Below the Surface 

The decision-making process for selecting a system for treasury operations is complex and involves various factors. Some are very much driven by unique financial business risks, leading to a functional based decision process. However, there are often underlying organizational challenges that play a far more significant role in this process than you would expect. Some challenges stem from behavioral dimensions like the desire for autonomy and control from the treasury. While others are based on an age-old perception that the “grass is greener on the other side” – meaning the current system frustrations result in a preference to move away from current systems.

An added and lesser appreciated perspective is that most organizations tend to mainly focus on technical upgrades but not often functional upgrades on systems that are implemented.  Meaning that existing systems tend to resemble the version of the system based on when the original implementation took place. This will also lead to a comparison of the current (older version) system against the competing offerings latest and greatest.

Another key observation is that with implementing integrated TMS solutions like the SAP TRM solution in the context of the same ERP environment, the requirements can become more extensive as the possibilities for automating more with all source information increase. Consider for example the FX hedging processes where the source exposure information is readily available and potential to access and rebalance hedge positions becomes more dynamic.

Closing thoughts

There is no single right answer to this question for all cases. However, it is important to ensure that the process you follow in making this decision is sound, informed and fair. Involving an external specialist with experience in navigating such decisions and exposure to various offerings is invaluable.

To support these activities, Zanders has also built solutions to make the process as easy as it can possibly be, including a cloud-based system selection tool.

Moreover for longer term satisfaction, enabling the evolution of the current treasury system (be it best of breed or integrated) is essential. The system should evolve with time and not remain locked into its origin based on the original implementation. Here engaging with a specialist partner with the right expertise to support the treasury and IT organizations is key. This can improve the experience of the system and this increased satisfaction can ensure decision making is not driven or led by negativity.

In support of this area Zanders has a dedicated service called TTS which can come alongside your existing IT support organization and inject the necessary skill and insight to enable incremental improvements alongside improved resolution timeframes for day-to-day systems issues.

For more information about out Treasury Technology Service, reach out to Warren Epstein.

Economic instability, a pandemic, geopolitical turbulence, rising urgency to get to net zero – a continuousstream of demands and disruption have pushed businesses to their limits in recent years. What this has proven without doubt is that treasury can no longer continue to be an invisible part of the finance function. After all, accurate cash flow forecasting, working capital and liquidity management are all critical C-suite issues. So, with the case for a more strategic treasury accepted, CFOs are now looking to their corporate treasurer more than ever for help with building financial resilience and steering the business towards success.

The future form of corporate treasury is evolving at pace to meet the demands, so to bring you up to speed, we discuss in this article five key observations we believe will have the most significant impact on the treasury function in the coming year(s).

1. A sharper focus on productivity and performance

Except for some headcount reductions, treasury has remained fairly protected from the harsh cost-cutting measures of recent years. However, with many OPEX and CAPEX budgets for corporate functions under pressure, corporate treasurers need to be prepared to justify or quantify the added value of their function and demonstrate how treasury technology is contributing to operational efficiencies and cost savings. This requires a sharper focus on improving productivity and enhancing performance.

To deliver maximum performance in 2024, treasury must focus on optimizing structures, processes, and implementation methods. Further digitalization (guided by the blueprint provided by Treasury 4.0) will naturally have an influential role in process optimization and workflow efficiency. But to maintain treasury budgets and escape an endless spiral of cost-cutting programs will take a more holistic approach to improving productivity. This needs to incorporate developments in three factors of production – personnel, capital, and data (in this context, knowledge).

In addition, a stronger emphasis on the contribution of treasury to financial performance is also required. Creating this direct link between treasury output and company financial performance strengthens the function’s position in budget discussions and reinforces its role both in finance transformation processes and throughout the financial supply chain.

2. Treasury resilience, geopolitical risk and glocalization

Elevated levels of geopolitical risk are triggering heightened caution around operational and financial resilience within multinationals. As a result, many corporations are rethinking their geographical footprint and seeking ways to tackle overdependence on certain geographical markets and core suppliers. This has led to the rise of ‘glocalization’ strategies, which typically involve moving away from the traditional approach of offshoring operations to low-cost destinations to a more regional approach that’s closer to the end market.

The rise of glocalization is forcing treasury to recalibrate its target operating model to adopt a more regionalized approach. This typically involves changing from a ‘hub and spoke’ model to multiple hubs. But the impact on treasury is not only structural. Operating in many emerging and frontier markets creates heightened risks around currency restrictions, lack of local funding and the inability to repatriate cash. Geopolitical tensions can also have spillover effects to the financial markets in these countries. This necessitates the application of more financial resilience thinking from treasury.

3. Cash is king, data is queen

Cash flow forecasting remains a top priority for corporate treasurers. This is driving the rise of technology capable of producing more accurate cash flow predictions, faster and more efficiently. Predictive and prescriptive analytics and AI-based forecasting provide more precise and detailed outcomes compared to human forecasting. While interfaces or APIs can be applied to accelerate information gathering, facilitating faster and automated decision-making. But to leverage the benefits of these advanced applications of technology requires robust data foundations. In other words, while technology plays a role in improving the cash flow forecasting process, it relies on an accurate and timely source of real-time data. As such, one can say that cash may still be king, but data is queen.

In addition, a 2023 Zanders survey underscored the critical importance of high-quality data in financial risk management. In particular, the survey highlighted the criticality of accurate exposure data and pointed out the difficulties faced by multinational corporations in consolidating and interpreting information. This stressed the necessity of robust financial risk management through organizational data design, leveraging existing ERP or TMS technology or establishing a data lake for processing unstructured data.

4. The third wave of treasury digitalization

We’ve taken the three waves of digitalization coined by Steve Case (former CEO of US internet giant AOL) and applied them to the treasury function. The first wave was the development of stand-alone treasury and finance solutions, followed by the second wave bringing internal interfaces and external connectivity between treasury systems. The third wave is about how to leverage all the data coming from this connected treasury ecosystem. With generative AI predicted to have an influential role in this third phase, corporate treasurers need to incorporate the opportunities and challenges it poses into their organizations' digital transformation journeys and into discussions and decisions related to other technologies within their companies, such as TMS, ERP, and banking tools.

We also predict the impact and success of this third wave in treasury digitalization will be dependent on having the right regulatory frameworks to support its implementation and operation. The reality is, although we all aspire to work in a digital, connected world, we must be prepared to encounter many analogue frictions – like regulatory requirements for paper-based proof, sometimes in combination with ‘wet’ signatures and stamped documents. This makes the adoption of mandates, such as the MLETR (Model Law on Electronic Transferable Records) a priority.

5. Fragmentation and interoperability of the payment landscape

A side effect of the increasing momentum around digital transformation is fragmentation across the payments ecosystem. This is largely triggered by a rapid acceleration in the use of digital payments in various forms. We’ve now seen successful trials of Central Bank Digital Currency, Distributed Ledger Technology to enable cross border payments, a rise in the use of digital wallets not requiring a bank account, and the application of cross border instant payments. All of these developments lead us to believe that international banking via SWIFT will be challenged in the future and treasurers should prepare for a more fragmented international payment ecosystem that supports a multitude of different payment types. To benefit from this development, interoperability will be crucial.

Conclusion: A turning point for treasury

A succession of black swan events in recent years has exposed a deep need for greater financial resilience. The treasury function plays a vital role in helping their CFO build this. This is accelerating both the scale and pace of transformation across the treasury function, with wide-ranging effects on its role in the C-suite, position in finance, the priorities and structure of the function, and the investment required to support much-needed digitalization.

For more information on the five observations outline here, you can read the extended version of this article.

Mid 2023, Bolt successfully implemented its new full-fledged treasury management system (TMS). With assistance of Zanders consultants, the mobility company implemented Kyriba – a necessity to support Bolt’s small treasury team. As a result, all daily processes are almost completely automated. “It's about reliability.”

Bolt is the leading European mobility platform that’s focused on more efficient, convenient and sustainable solutions for urban travelling. With more than 150 million customers in at least 45 countries, it offers a range of mobility services including ride-hailing, shared cars and scooters, food and grocery delivery. “Bolt was founded by Markus Villig, a young Estonian guy who quit his school to start this business with €5,000 that he borrowed from his parents,” says Mahmoud Iskandarani, Group Treasurer at Bolt. “He built an app and started to ask drivers on the street to download it and try it out. Now we have millions of drivers and passengers, almost 4,000 employees and several business lines. Last August, we celebrated our 10th anniversary. So, we have one of the fastest growing businesses in Europe. And our ambition is to grow even faster than so far.” 

Driven by technology 

Because of its fast growth, Bolt’s Treasury team decided to look for a scalable solution to cope with the further expansion of the business. Freek van den Engel, Treasury manager at Bolt: “We needed a system that could automate most of our daily processes and add value. Doing things manually is not efficient and risks are high. To help us scale up while maintaining efficiency, we needed our Treasury to be driven by technology.” 

Iskandarani adds: “Meanwhile, our macro environment is changing and we had some bank events. In the past years, startups or scale-ups have seen big growth and didn't focus too much on working capital management. Interest rates were low, which made it easy to raise money from investors. Now, we need to make sure that we manage our working capital the right way so that we can access our money, mitigate risks, and that we get a decent return on our cash. That’s when it's controlled by Treasury and invested correctly.” 

Choosing Kyriba

Van den Engel led a treasury system selection process three years ago for his previous employer, where he also worked together with Iskandarani. “That experience helped us to come up with a shortlist of three providers, instead of having a very long RfP process looking at a long list of vendors. We started the selection process in June 2022 and two months later we chose Kyriba because of its strong functionality. Also, it’s a solution offered as SaaS, which means we don't have to worry about upgrades – a very important reason for us. Kyriba has been working with tech companies similar to ours. Another decisive factor was their format library, called Open Format Studio. It allows us to use self-service when it comes to configuring payment formats, reducing our costs and turn-around time when expanding to new geographies.” 

Implementation partner 

For Bolt, Kyriba will function as in-house bank system, and support its European cash pool. During the selection process, the team had some reference calls with other Kyriba users to discuss experiences with the system and the implementation. “One piece of feedback we received was that it works very well to bring in implementation partners to complete such a project successfully. Zanders stood out, because of its proven track record and the awards it had won. Also, Mahmoud and I both had experience with Zanders during some projects at our previous employer. That’s why we asked them to be our implementation partner.” 

In October 2022, the implementation process started. In July 2023, the system went live. Kyriba’s TMS solution covered all treasury core processes, including cash position reporting (including intra-day balance information), liquidity management, funding, foreign exchange with automatic integration to 360T and Finastra, investments, payment settlements and risk management.  

Trained towards independency 

As part of the implementation process, Zanders trained Bolt on how to use the new tool, and assisted in using the Open Format Studio. In this way, the team built the knowledge and experience needed to roll out to new countries more independently.  

Van den Engel: “We aimed to be independent and do as much as possible ourselves to reduce costs and build up in-house expertise on the system. Zanders helped us figuring out what we wanted, explained and guided us, and showed what the system can do and how to align that with our needs in the best possible way. Once we were clear on the blueprint, they helped us with our static data, connectivity and initial system set-up. After the training they led, we were able to do most of it ourselves, including the actual system configuration work, for which Zanders had laid the foundation.” 

Rolling out the payment hub 

With assistance of Zanders consultants, Bolt also set up a framework to roll out the payment hub, for the vendor payments from its ERP system called Workday and its payroll provider, Immedis. The consultants assisted with configuration of initial payment scenarios and workflows. “We made the connections, tested them and did a pilot with Workday last summer. After training and with the experience that we've built up using Open Format Studio, we can roll out to new countries and expand it ourselves. Starting in August, we continued to roll out Kyriba’s payment hub to more countries, and to implement Payroll. With the payment hub we are now live in 16 countries and that's basically fully self-serviced. Apart from some support for specialized cases, we don’t need support anymore for the payment hub.” 

Many material benefits 

Having a small hands-on project team meant no need for a complex project management organization to be set-up. Naturally Bolt and Zanders started using agile project management, with refocus of priorities to different streams as necessary. The Kyriba implementation project was closed within the set budget in 9 months’ time.  

Iskandarani is happy with the results. “It is clear there are benefits of this implementation when it comes to efficiency and risk management. We now have the visibility over our cash and the fact that we have a system telling us that there’s an exposure that we should get rid of, that has a lot of value. Also, we have some financial benefits that we could not have achieved without the system. Today we can pool our cash better, we can invest it better, and we can handle our foreign exchange in a better way. Before this, we have overpaid banks.” 

Reliability and control 

“We could have hired more people”, Van den Engel adds. “But some things are just very difficult to do without this system. It's also about reliability. Even if you have a manual process in place that works, you will see it breaking down from time to time. If someone deletes a formula, or a macro stops working, that becomes very risky. It’s also about the control environment. As a company we're looking to become more mature and implement controls that should be there – that too is very difficult to do without a proper system that can generate these reports, be properly secured with all the right standards that we need to adhere to, or do fraud detection based on machine learning in the future. It's impossible to do all that manually. Those are material benefits, but hard to quantify.”

But what happens after implementation, when the project team has packed up and handed over the reins to the employees and support staff? 

The first months after a system implementation can be some of the most challenging to a business and its people. Learning a new system is like learning any new skill – it requires time and effort to become familiar with the new ways of working, and to be completely comfortable again performing tasks. Previous processes, even if they were not the most efficient, were no doubt second nature to system users and many would have been experts in working their way through what needed to be done to get accurate results. New, improved processes can initially take longer as the user learns how to step through the unfamiliar system. This is a normal part of adopting a new landscape and can be expected. However, employee frustration is often high during this period, as more mental effort is required to perform day-to-day tasks and avoid errors. And when mistakes are made, it often takes more time to resolve them because the process for doing so is unfamiliar. 

High-risk period for the company 

With an SAP system, the complexity is often great, given the flexibility and available options that it offers. New users of SAP Treasury Management Software may take on average around 12 – 18 months to feel comfortable enough to perform their day-to-day operations, with minimal errors made. This can be a high-risk period for the company, both in terms of staff retention as well as in the mistakes made. Staff morale can dip due to the changes, frustrations and steep learning curve and errors can be difficult to work through and correct. 

In-house support staff are often also still learning the new technology and are generally not able to provide the quick turnaround times required for efficient error management right from the start. When the issue is a critical one, the cost of a slow support cycle can be high, and business reputation may even be at stake. 

While the benefits of a new implementation are absolutely worthwhile, businesses need to ensure that they do not underestimate the challenges that arise during the months after a system go-live. 

Experts to reduce risks 

What we have seen is that especially during the critical post-implementation period – and even long afterward – companies can benefit and reduce risks by having experts at their disposal to offer support, and even additional training. This provides a level of relief to staff as they know that they can reach out to someone who has the knowledge needed to move forward and help them resolve errors effectively. 

Noticing these challenges regularly across our clients has led Zanders to set up a dedicated support desk. Our Treasury Technology Support (TTS) service can meet your needs and help reduce the risks faced. While we have a large number of highly skilled SAP professionals as part of the Zanders group, we are not just SAP experts. We have a wide pool of treasury experts with both functional & technical knowledge. This is important because it means we are able to offer support across your entire treasury system landscape. So whether it be your businesses inbound services, the multitude of interfaces that you run, the SAP processes that take place, or the delivery of messages and payments to third parties and customers, the Zanders TTS team can help you. We don’t just offer vendor support, but rather are ready to support and resolve whatever the issue is, at any point in your treasury landscape. 

As the leading independent treasury consultancy globally, we can fill the gaps where your company demands it and help to mitigate that key person risk. If you are experiencing these challenges or can see how these risks may impact your business that is already in the midst of a treasury system implementation, contact Warren Epstein for a chat about how we can work together to ensure the long-term success of your system investment. 

In this article, we explore this stablecoin payments trial, examine the advantages of digital currencies and how they could provide a matching solution to tackle the hurdles of international transactions.  

Cross-border payment challenges 

While cross-border payments form an essential part of our globalized economy today, they have their own set of challenges. For example, cross-border payments often involve various intermediaries, such as banks and payment processors, which can result in significantly higher costs compared to domestic payments. The involvement of multiple parties and regulations can lead to longer processing times, often combined with a lack of transparency, making it difficult to track the progress of a transaction. This can lead to uncertainty and potential disputes, especially when dealing with unfamiliar payment systems or intermediaries. Last but not least, organizations must ensure they meet the different regulations and compliance requirements set by different countries, as failure to comply can result in penalties or delays in payment processing. 

Advantages of digital currencies 

Digital currencies have gained significant interest in recent years and are rapidly adopted, both globally and nationally. The impact of digital currencies on treasury is no longer a question of ‘if’ but ‘when’, as such it is important for treasurers to be prepared. While we address the latest developments, risks and opportunities in a separate article, we will now focus on the role digital currencies can play in cross-border transactions.  

The notorious volatility of traditional crypto currencies, which makes them less practical in a business context, has mostly been addressed with the introduction of stablecoins and central bank digital currencies. These offer a relatively stable and safe alternative for fiat currencies and bring some significant benefits. 

These digital currencies can eliminate the need for intermediaries such as banks for payment processing. By leveraging blockchain technology, they facilitate direct host-to-host transactions with the benefit of reducing transaction fees and near-instantaneous transactions across borders. Transactions are stored in a distributed ledger which provides a transparent and immutable record and can be leveraged for real-time tracking and auditing of cross-border transactions. Users can have increased visibility into the status and progress of their transactions, reducing disputes and enhancing trust. At a more advanced level, compliance measures such as KYC, KYS or AML can be directly integrated to ensure regulatory compliance. 

SAP Digital Currency Hub 

Earlier this year, SAP launched its Digital Currency Hub as a pilot to further explore the future of cross-border transactions using crypto or digital currencies. The Digital Currency Hub enables the integration of digital currencies to settle transactions with customers and suppliers. Below we provide a conceptual example of how this can work. 

1. Received invoices are recorded into the ERP and a payment run is executed. 
2.  The payment request is sent to SAP Digital Currency Hub, which processes the payment and creates an outgoing payment instruction. The payment can also be entered directly in SAP Digital Currency Hub. 
3. The payment instruction is sent to a crypto exchange, instructing to transfer funds to the wallet of the supplier. 
4. The funds are received in the supplier’s wallet and the transaction is confirmed back to SAP Digital Currency Hub.  

In a second example, we have a customer paying crypto to our wallet: 

1. The customer pays funds towards our preferred wallet address. Alternatively, a dedicated wallet per customer can be set up to facilitate reconciliation. 
2. Confirmation of the transaction is sent to SAP Digital Currency Hub. Alternatively, a request for payment can also be sent. 
3. A confirmation of the transaction is sent to the ERP where the open AR item is managed and reconciled. This can be in the form of a digital bank statement or via the use of an off-chain reference field. 

Management of the wallet(s) can be done via custodial services or self-management. There are a few security aspects to consider, on which we recently published an interesting article for those keen to learn more. 

While still on the roadmap, SAP Digital Currency Hub can be linked to the more traditional treasury modules such as Cash and Liquidity Management or Treasury and Risk Management. This would allow to integrate digital currency payments into the other treasury activities such as cash management, forecasting or financial risk management. 

Conclusion  

With the introduction of SAP Digital Currency Hub, there is a valid solution for addressing the current pain points in cross-border transactions. Although the product is still in a pilot phase and further integration with the rest of the ERP and treasury landscape needs to be built, its outlook is promising as it intends to make cross-border payments more streamlined and transparent. 

Additionally, business partners are essential in SAP for recording information related to securities issues, such as shares and funds. 

The SAP Treasury Business Partner (BP) serves as a fundamental treasury master data object, utilized for managing relationships with both external and internal counterparties across a variety of financial transactions; including FX, MM, derivatives, and securities. The BP master data encompasses crucial details such as names, addresses, contact information, bank details, country codes, credit ratings, settlement information, authorizations, withholding tax specifics, and more. 

Treasury BPs are integral and mandatory components within other SAP Treasury objects, including financial instruments, cash management, in-house cash, and risk analysis. As a result, the proper design and accurate creation of BPs are pivotal to the successful implementation of SAP Treasury functionality. The creation of BPs represents a critical step in the project implementation plan. 

Therefore, we aim to highlight key specifics for professionally designing BPs and maintaining them within the SAP Treasury system. The following section will outline the key focus areas where consultants need to align with business users to ensure the smooth and seamless creation and maintenance of BPs. 

Structure of the BPs: 

The structure of BPs may vary depending on a corporation's specific requirements. Below is the most common structure of treasury BPs: 

Group BP – represents a parent company, such as the headquarters of a bank group or corporate entity. Typically, this level of BP is not directly involved in trading processes, meaning no deals are created with this BP. Instead, these BPs are used for: a. reflecting credit ratings, b. limiting utilization in the credit risk analyzer, c. reporting purposes, etc. 

Transactional BP – represents a direct counterparty used for booking deals. Transactional BPs can be divided into two types: 

   - External BPs – represent banks, financial institutions, and security issuers. 

   - Internal BPs – represent subsidiaries of a company. 

Naming convention of BPs 

It is important to define a naming convention for the different types of BPs, and once defined, it is recommended to adhere to the blueprint design to maintain the integrity of the data in SAP. 

Group BP ID: Should have a meaningful ID that most business users can understand. Ideally, the IDs should be of the same length. For example: ABN AMRO Group = ABNAMR or ABNGRP, Citibank Group = CITGRP or CITIBNK. 

External BP ID: Should also have a meaningful ID, with the addition of the counterparty's location. For example: ABN AMRO Amsterdam – ABNAMS, Citibank London – CITLON, etc. 

Internal BP ID: The main recommendation here is to align the BP ID with the company code number. For example, if the company code of the subsidiary is 1111, then its BP ID should be 1111. However, it is not always possible to follow this simple rule due to the complexity of the ERP and SAP Treasury landscape. Nonetheless, this simple rule can help both business and IT teams find straightforward solutions in SAP Treasury. 

The length of the BP IDs should be consistent within each BP type. 

Maintenance of Treasury BPs 

1. BP Creation: 

Business partners are created in SAP using the t-code BP. During the creation process, various details are entered to establish the master data record. This includes basic information such as name, address, contact details, as well as specific financial data such as bank account information, settlement instructions, WHT, authorizations, credit rating, tax residency country, etc. 

Consider implementing an automated tool for creating Treasury BPs. We recommend leveraging SAP migration cockpit, SAP scripting, etc. At Zanders we have a pre-developed solution to create complex Treasury BPs which covers both SAP ECC and most recent version of SAP S/4 HANA. 

2. BP Amendment: 

Regular updates to BP master data are crucial to ensure accuracy. Changes in addresses, contact information, or payment details should be promptly recorded in SAP. 

3. BP Release: 

Treasury BPs must be validated before use. This validation is carried out in SAP through a release workflow procedure. We highly recommend activating such a release for the creation and amendment of BPs, and nominating a person to release a BP who is not authorized to create/amend a BP.  
BP amendments are often carried out by the Back Office or Master Data team, while BP release is handled by a Middle Office officer.  

4. BP Hierarchies: 

Business partners can have relationships as described, and the system allows for the maintenance of these relationships, ensuring that accurate links are established between various entities involved in financial transactions. 

5. Alignment: 

During the Treasury BP design phase, it is important to consider that BPs will be utilized by other teams in a form of Vendors, Customers, or Employees. SAP AP/AR/HR teams may apply different conditions to a BP, which can have an impact on Treasury functions. For instance, the HR team may require bank details of employees to be hidden, and this requirement should be reflected in the Treasury BP roles. Additionally, clearing Treasury identification types or making AP/AR reconciliation GL accounts mandatory for Treasury roles could also be necessary.  

Transparent and effective communication, as well as clear data ownership, are essential in defining the design of the BPs. 

Conclusion 

The design and implementation of BPs require expertise and close alignment with treasury business users to meet all requirements and consider other SAP streams.  

At Zanders, we have a strong team of experienced SAP consultants who can assist you in designing BP master data, developing tools to create/amend the BPs meeting strict treasury segregation of duties and the clients IT rules and procedures. 

But the adoption of ISO 20022 XML messaging goes beyond SWIFT’s adoption in the interbank financial messaging space – SWIFT are currently estimating that by 2025, 80% of the RTGS (real time gross settlement) volumes will be ISO 20022 based with all reserve currencies either live or having declared a live date. What this means is that ISO 20022 XML is becoming the global language of payments. In this fourth article in the ISO 20022 series, Zanders experts Eliane Eysackers and Mark Sutton provide some valuable insights around what the version 9 payment message offers the corporate community in terms of richer functionality.  

A quick recap on the ISO maintenance process?

So, XML version 9. What we are referencing is the pain.001.001.09 customer credit transfer initiation message from the ISO 2019 annual maintenance release. Now at this point, some people reading this article will be thinking they are currently using XML version 3 and now we talking about XML version 9. The logical question is whether version 9 is the latest message and actually, we expect version 12 to be released in 2024. So whilst ISO has an annual maintenance release process, the financial industry and all the associated key stakeholders will be aligning on the XML version 9 message from the ISO 2019 maintenance release. This version is expected to replace XML version 3 as the de-facto standard in the corporate to bank financial messaging space.

What new functionality is available with the version 9 payment message?

Comparing the current XML version 3 with the latest XML version 9 industry standard, there are a number of new tags/features which make the message design more relevant to the current digital transformation of the payment’s ecosystem. We look at the main changes below:

• Proxy: A new field has been introduced to support a proxy or tokenisation as its sometimes called. The relevance of this field is primarily linked to the new faster payment rails and open banking models, where consumers want to provide a mobile phone number or email address to mask the real bank account details and facilitate the payment transfer. The use of the proxy is becoming more widely used across Asia with the India (Unified Payments Interface) instant payment scheme being the first clearing system to adopt this logic. With the rise of instant clearing systems across the world, we are starting to see a much greater use of proxy, with countries like Australia (NPP), Indonesia (BI-FAST), Malaysia (DuitNow), Singapore (FAST) and Thailand (Promptpay) all adopting this feature.
• The Legal Entity Identifier (LEI): This is a 20-character, alpha-numeric code developed by the ISO. It connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of 'who is who’ and ‘who owns whom’. Simply put, the publicly available LEI data pool can be regarded as a global directory, which greatly enhances transparency in the global marketplace. The first country to require the LEI as part of the payment data is India, but the expectation is more local clearing system’s will require this identifier from a compliance perspective.
• Unique End-to-end Transaction Reference (commonly known as a UETR): This is a string of 36 unique characters featured in all payment instruction messages carried over the SWIFT network. UETRs are designed to act as a single source of truth for a payment and provide complete transparency for all parties in a payment chain, as well as enable functionality from SWIFT gpi (global payments innovation)¹, such as the payment Tracker.
• Gender neutral term: This new field has been added as a name prefix.
• Requested Execution Date: The requested execution date now includes a data and time option to provide some additional flexibility.
• Structured Address Block: The structured address block has been updated to include the Building Name.

In Summary

Whilst there is no requirement for the corporate community to migrate onto the XML version 9 message, corporate treasury should now have the SWIFT ISO 20022 XML migration on their own radar in addition to understanding the broader global market infrastructure adoption of ISO 20022. This will ensure corporate treasury can make timely and informed decisions around any future migration plan.

Notes:

1. SWIFT gpi is a set of standards and rules that enable banks to offer faster, more transparent, and more reliable cross-border payments to their customers.

Today, we engage in a conversation with Brecht van den Driessche, a new addition to the Zanders team, to explore his motivations for joining Zanders and his vision for the future of risk management.

Q: Why did you choose Zanders?

A: I've been familiar with Zanders for over a decade, and what has consistently impressed me is the professionalism and deep expertise in Risk Management demonstrated by its people. Consultancy is inherently a people-centric business, and the combination of professionalism with an engaging and enjoyable working environment was a key factor in my decision to join the Zanders team.

Q: What are your focus areas and goals for the short term and long term?

A: The landscape of expectations for Risk Managers and their regulators is rapidly evolving. Recent events such as the collapse of Silicon Valley Bank and the takeover of Credit Suisse by UBS have highlighted the critical importance of proper Risk Management. Financial institutions must invest in a centralized risk function and supporting systems to enhance transparency and real-time Risk Management. Worldwide, there is a clear trend among banks to centralize data, improve Risk Management systems, and perform more frequent, granular, and standardized risk calculations and disclosures. Regulators are increasingly pushing banks to move away from spreadsheets and manage their financial risks with professional, often vendor-based systems. As a result, banks are moving away from legacy systems and heavily investing in new Risk Management Systems.

My primary focus is to assist our customers in embracing further digitalization to maximize the benefits of these investments. This includes strategic benchmarking, optimization, selection, and the implementation of fit-for-purpose Risk Management systems. To achieve this, we collaborate closely with a select group of world-leading suppliers of risk technology.

The ultimate goal is for Zanders to become the go-to expert for our clients, providing them with robust Risk Management systems to effectively manage financial risks and make informed decisions.

Q: How were your first weeks at Zanders?

A: Right from day one, I felt the positive energy and warmth that characterizes the Zanders team. Simultaneously, around 20 new colleagues embarked on their Zanders journeys across Europe, and the onboarding process was exceptionally smooth. I've already had the pleasure of meeting many colleagues, clients, and partners, and I am genuinely convinced that my decision to join Zanders was the perfect career move.

Q: Anything you want to share with the outside world about this career move?

A: If you're curious about our ambitions and how we can help you achieve yours, don't hesitate to reach out. Drop me a message, and let's connect.

In a world of ever-evolving risks and escalating expectations in risk management, Zanders plays a pivotal role in helping organizations navigate these challenges, propelling them toward success. With our unwavering focus on professionalism, expertise, and a commitment to embracing digitalization, we stand as a trusted partner for those in the finance industry. To learn more about us, please visit our About Zanders page.

SWIFT now supports the exchange of ISO 20022 XML or MX message via the so-called FINplus network. In parallel, the legacy MT format messages remain to be exchanged over the ‘regular’ FIN network; The MT flow for message categories 1 (customer payments), 2 (FI transfers) and 9 (statements) through the FIN network will be decommissioned per November 2025. 

As such, between March 2023 and November 2025, financial institutions need to be able to receive and process MX messages through FINplus on the inbound side, and optionally send MX messages or MT messages for outbound messaging. After that period, only MX will be allowed.  

CBPR+ and HVPS+ 

Another important aspect of the MX migration is the development of the CBPR+ and HVPS+ specifications within the ISO20022 XML standard. These specifications dictate how an XML message should be populated in terms of data and field requirements for Cross Border Payments (CBPR+) and Domestic High Value Payments (HVPS+). Note that HVPS+ refers to domestic RTGS clearing systems and a number of countries are in the process of making the domestic clearing systems native ISO20022 XML-compliant.  

Impact for Corporates 

As of today, there should be no immediate need for corporates to change. However, it is advised to start assessing impact and to start planning for change if needed. We give you some cases to consider: 

1. A corporate currently exchanging e.g. MT101/MT103/MT210 messages towards its house bank via SWIFT FIN Network to make cross border payments, e.g. employing a SWIFT Service Bureau or an Alliance connection. This flow will cease to work after November 2025. If this flow is relevant to your company, it needs attention to be replaced. 
2. Another case is where, for example, an MT101 is exchanged with a house bank as a file over the FileAct network. Now it depends purely on the house bank’s capabilities to continue supporting this flow after 2025; it could offer a service to do a remapping of your MT message into an MX. This needs to be checked with the house banks. 
3. The MT940 message flow from the house bank via FIN also requires replacement. 
4. With respect to the MT940 file flow from house bank via FileAct, we expect little impact as we think most banks will continue supporting the MT940 format exchange as files. We do recommend to check with your house bank to be sure. 
5. High Value Payments for Domestic Japanese Yen using Zengin format; the BOJ-NET RTGS clearing system has already completed the migration to ISO20022 XML standard. Check with your house bank when the legacy payment format will become unsupported and take action accordingly.  

These were just some examples and should not be considered an exhaustive list.  

In addition, moving to the ISO20022 XML standard can also provide some softer benefits. We discussed this in a previously published article. 

Impact on your SAP implementation 

So you have determined that the MT/MX migration has impact and that remediating actions need to be taken. What does that look like in SAP? 

First of all, it is very important to onboard the bank to support you with your change. Most typically, the bank needs to prepare its systems to be able to receive a new payment file format from your end. It is good practice to first test the payment file formatting and receive feedback from the banks implementation manager before going live with it.  

On the incoming side, it is advisable to first request a number of production bank statements in e.g. the new CAMT.053 format, which can be analyzed and loaded in your test system. This will form a good basis for understanding the changes needed in bank statement posting logic in the SAP system.  

PAYMENTS 

In general, there are two ways of generating payment files in SAP. The classical one is via a payment method linked to a Payment Medium Workbench (PMW) format and a Data Medium Exchange (DME) tree. This payment method is then linked to your open items which can be processed with the payment run. The payment run then outputs the files as determined in your DME tree. 

In this scenario, the idea is to simply setup a new payment method and link it to a desired PMW/DME output like pain.001.001.03. These have long been pre-delivered in standard SAP, in both ECC and S/4. It may be necessary to make minor mapping corrections to meet country- or bank-specific data requirements. Under most circumstances this can be achieved with a functional consultant using DME configuration. Once the payment method is fully configured, it can be linked to your customer and vendor master records or your treasury business partners, for example. 

The new method of generating payment files is via the Advanced Payment Management (SAP APM) module. SAP APM is a module that facilitates the concepts of centralizing payments for your whole group in a so-called payment factory. APM is a module that’s only available in S/4 and is pushed by SAP AG as the new way of implementing payment factories. 

Here it is a matter of linking the new output format to your applicable scenario or ‘payment route’.  

BANK STATEMENTS 

Classical MT940 bank statements are read by SAP using ABAP logic. The code interprets the information that is stored in the file and saves parts of it to internal database tables. The stored internal data is then interpreted a second time to determine how the posting and clearing of open items will take place. 

Processing of CAMT.053 works a bit differently, interpreting the data from the file by a so-called XSLT transformation. This XSLT transformation is a configurable mapping where a CAMT.053 field maps into an internal database table field. SAP has a standard XSLT transformation package that is fairly capable for most use cases. However, certain pieces of useful information in the CAMT.053 may be ignored by SAP. An adjustment to the XSLT transformation can be added to ensure the data is picked up and made available for further interpretation by the system. 

Another fact to be aware of is the difference in Bank Transaction Codes (BTC) between MT940 and CAMT.053. There could be a different level of granularity and the naming convention is different. BTC codes are the main differentiator in SAP to control posting logic.  

SAP Incoming File Mapping Engine (IFME) 

SAP has also put forward a module called Incoming File Mapping Engine (IFME). It serves the purpose as a ‘remapper’ of one output format to another output format. As an example, if your current payment method outputs an MT101, the remapper can take the pieces of information from the MT101 and save it in a pain.001 XML file.  

Although there may be some fringe scenarios for this solution, we do not recommend such an approach as MT101 is generally weaker in terms of data structure and content than XML. Mapping it into some other format will not solve the problems that MT101 has in general. It is much better to directly generate the appropriate format from the internal SAP data directly to ensure maximum richness and structure. However, this should be considered as a last resort or if the solution is temporary. 

As the first conference in the US since its 4-year hiatus, there was good attendance among corporates and partners. The SAP Treasury conference is an excellent opportunity for customers to see the latest developments within the S/4 HANA Treasury suite.  

Christian Mnich, VP and Head of Solution Management Treasury and Working Capital Management at SAP, gave the opening keynote titled: "SAP Opening Keynote: Increase Financial Resiliency with SAP Treasury and Working Capital Management Solutions." 

 Corporate Structure changes  

Ronda De Groodt, Applications Integration Architect at Leprino Foods, presented a case study that covered how Leprino Foods embarked on a company-wide migration from SAP ECC to S/4HANA, specifically implementing SAP Treasury, Cash Management, and Payments solutions in a 6-month time frame. The presentation also had a focus on leveraging SAP S/4HANA Cash Management and SAP machine learning capabilities while migrating to S/4 HANA. 

Trading Platform Integration 

 In a joint presentation, Justin Brimfield from ICD and Jonathon Kluding from SAP discussed the strategic partnership between the two companies in developing a streamlined Trading Platform Integration. This presentation went into detail on how SAP leverages Trading Platform Integration between SAP and ICD and the efficiencies this integration can create for Treasury. 

 Multi-Bank Connectivity (MBC) 

Another area of focus at the conference was the capabilities of SAP Multi-Bank Connectivity and how it can simplify and automate financial processes associated while having multiple banks. This was presented by Kweku Biney-Assan from HanesBrands. The presentation focused on answering some crucial questions corporates may have about SAP MBC, ranging from the possible improvements MBC can make to your Treasury Operations and Cash Management processes, to the typical timeline for an implementation. 

 Cash Management & Liquidity Forecasting 

Renee Fan from Freeport LNG, gave a presentation overviewing the challenges the company faced in terms of cash management, reporting, and analytics. She gave an overview of Freeport LNG’s Treasury Transformation Journey and insights into the upgrades they had made, as well as a further focus on the benefits they have seen as a result of their new cash and liquidity solution. 

In addition, the conference offered attendees the opportunity to share ideas, build networks, and discuss topics face-to-face. All this made this edition of the event a success!