Financial messaging providers converge
Bottomline Technologies’ acquisition of financial messaging companies Sterci and Simplex GTP could represent a new era of increased integration in the world of financial messaging.
The move by the payment and banking solutions provider, announced last week, comes at a time when the Swift service bureau market is facing a period of consolidation.
Sterci, headquartered in Switzerland, provides financial messaging, reconciliation and cloud-based services to its 330 clients, including banks, central banks and corporations, and offers a Swift service bureau solution.
Simplex is based in the UK and also acts as a Swift service bureau, as well as offering a range of services to banks and corporations, including automated reconciliation, anti-money laundering (AML) filtering, Sepa and intraday liquidity solutions. The two companies are already connected: in January 2011, Sterci announced it had acquired a majority shareholding of Simplex.
Bottomline’s purchase of Sterci has been completed, but the Simplex deal is still under way and is expected to be completed in the coming month, subject to shareholder approvals and other conditions.
As a result of the acquisitions, Bottomline hopes to create “a new global centre of excellence in financial messaging, providing solutions for banks, financial institutions and corporations around the world”.
“The financial messaging market is exciting, is dynamic, is growing,” says Matthew Stammers, marketing director EMEA at Bottomline. He adds that, with a large number of corporations entering the market, “it is a natural extension for us to expand our presence from the large payments marketplace that we’ve got and grow out the financial messaging side”.
The two deals are noteworthy as an example of a large player acquiring smaller niche vendors – but beyond this, the acquisitions could have wider consequences for the way in which connectivity develops between banks and corporations.
|Enrico Camerinelli, senior analyst at Aite Group
Enrico Camerinelli, senior analyst at Aite Group, suggests that to survive large players in this space will need to expand out of their comfort-zone activities, such as handling payment transactions, and venture into the more complex area of transactions services and connectivity between corporations and multiple banks.
Companies are focused on working with a larger number of banks to diversify risk. As a result, there is a growing interest in connecting with multiple banks in a standardized way.
Swift for corporates offers just that through its various connectivity models – setting up a direct connection to Swift, connecting via its cloud-based solution Alliance Lite2, or outsourcing connectivity via a Swift service bureau – but so far the pricing of these services has meant corporate adoption is dominated by the biggest multinationals.
Camerinelli says that while Swift does allow large corporations to connect to banks, it continues to be a bank-focused organization – and as such it might have missed an opportunity to bring mid-sized corporates on to its network.
“The way Swift is approaching corporates is still very timid,” he says. “It tends to move slowly and only go after the big ones.” He adds that, realistically, a company such as Bottomline might be in a better position to provide the type of corporate-to-bank connectivity that corporations are now looking for.
Camerinelli sees Bottomline as a first mover in an area set to develop in the coming years. “These providers of networking solutions will pick up the message that banks are trying desperately to be more interconnected with corporate clients,” he says. “At the same time, corporate clients don’t want to be restricted to one bank – they are looking for multi-banking, multi-currency, multi-country connectivity.”
In the longer term, Camerinelli adds that companies such as Bottomline could move beyond their focus on exchanging information, purchase orders and invoicing, and could begin exchanging payment instructions amongst themselves. “Banks may find that their role is limited to that of executing payments, while all the real connectivity is in the hands of companies such as Bottomline, Tieto and Sterling Commerce,” he says.
On the other hand, there are additional dynamics in play which might also be prompting Swift service bureaus to diversify their product offerings.
Some argue the arrival of Alliance Lite2 in 2012 has made this method of connecting to Swift more attractive to corporations by removing some of the barriers to adoption associated with the original Alliance Lite offering, such as low volume restrictions. It can also be argued that Lite2 effectively puts Swift in competition with service bureaus, which could lead to further consolidation in the service bureau market in the coming years.
As such, there is a greater incentive for service bureaus to concentrate on building out their capabilities beyond Swift connectivity itself and to focus on differentiating themselves by adding value with additional services in areas such as AML and data transformation services.
Earlier this year, Swift also introduced more demanding criteria and requirements with which Swift service bureaus must comply. While the changes are likely to improve the overall quality of service, the new criteria might also lead to further consolidation within the market, particularly among smaller players who might struggle to meet the new requirements.