Setting the foundations of standardization
There is much discussion around moving towards a standardized form of banking, but who is setting the standard?
The case in favour of standardization across banking is a compelling one. Whether in payments or compliance, the call again and again seems to be that if everyone can agree on a set standard of working it would make operations easier, more efficient and, ultimately, cost effective.
However, with so many different jurisdictions and regional variations to contend with, where exactly is the call for defined working practices coming from and who is making the final decision on what each strand will be like?
| It could help with the development of solutions if banks could talk directly to the law-enforcers
The benefits of this are also widely recognized and stated, whether it be streamlining services or by making processes more cost-effective, but little seems to be decided on what a standard way of working will look like.
The push forward thus far seems to be steered by the organizations representing the various areas of the industry and not the regulators, which are being slow to give any definite versions of their expectations.
Percy Batliwalla, global head of sales for large corporates and financial institutions, global transaction services, Asia Pacific, Bank of America Merrill Lynch (BAML), says Swift and Thomson Reuters are emerging as two organizations at the forefront of pushing forward standards, but they are not the only ones.
The International Chamber of Commerce has been outspoken on the need for standardization across banking, with the founding of the trade finance register to define a dictionary of terms to avoid the confusion caused by different names being used for the same products between banks and regions.
Numerous KYC registries are being launched under a standardized format in which corporates are required to input the same set of details, allowing banks to compare and contrast more easily and decide if they meet their requirements before doing business with them.
Sepa has helped here too through its use of the ISO 20022 form of messaging for all euro payments in Europe. All transactions sent have to be in the one format or they will be rejected. Europe’s relatively homogenized market helped with the rollout, with its single clearing zone giving it an advantage over comparatively disparate economies of regions like Asia Pacific.
It is an example other markets are keen to follow. For example, the uniformity of the ISO XML format could be an important tool in standardizing Asian markets, bringing in a framework which can be adopted, and in some cases already has been. Sepa also potentially has the benefit for a global corporate of creating one operational system which can be rolled out and replicated across regions.
Daniel Scanlan, regional head, transaction banking, Americas, at Standard Chartered, is also a member of the board of the Bankers Association for Finance and Trade (BAFT), which has been instrumental in working towards globally agreed ways of operating that can be replicated between jurisdictions.
“Organizations like BAFT play a significant role" says Scanlan. "It offers banks the potential to stand up as an industry group rather than as individuals. It also gives the smaller institutions an opportunity to comment. Everybody gets an opportunity to talk, but this means it will take longer.”
He notes that the regulators will always opt for the most stringent versions of the standards. It seems likely the best option for banks and corporates alike is to create their own definition.
Before agreeing on standards, Scanlan believes there would be benefit to the banking community of finding out more about what has been working to date, and adapting what hasn’t.
He adds: “It could help with the development of solutions if banks could talk directly to the law-enforcers and understand better what is helping them and what actually isn’t working.”
|Percy Batliwalla, at Bank
of America Merrill Lynch
While the change can be steered by the groups, BAML's Batliwalla says the drive towards standards must come from the banking and corporate sectors themselves, as this will mould the shape they take into something that is workable:
“It is incumbent on the financial sector to play a more strategic role in driving adoption, using its collective expertise to promote the standardization agenda from all sides so that the industry as a whole grasps its importance,” he says.
He suggests that implementing standards for purchase orders, invoices or credit memos would be very beneficial for corporates specifically.
The corporates do seem to be calling out for a greater degree of standardization too. Results from the 2014 Euromoney cash management survey showed a strong demand for the use of standardized electronic bank billing format, with 60% of treasury professionals from non-financial corporates and financial institutions calling for it.
However, any form of standards will only work if it is flexible and caters for the various needs of different regions, and that creating a standard that will work in one region alone defeats the purpose of the process if it means it is not workable.
Standard Chartered's Scanlan says: “The agreed standards will likely be dynamic. As behaviours and technology change, they will have an influence on it. It is an interesting environment and it will be changing by the day.”
The great challenge that remains is not creating a standard but ensuring it is adopted after implementation. Batliwalla adds: “Creating standards is easy - ensuring standards are adopted has always been the more challenging part of the equation.”
There still needs to be a catalyst to drive forward this adoption, and Battliwalla thinks it will come from technology, which will push the authorities in various regions to accept orders in electronic form.