the core meeting the demand of payment and securities settlement systems of the corporate community...

The Core

Meeting the Demand of Payment and Securities Settlement Systems of the Corporate CommunityBahrain, March 16th, 2005

Alberto Casagrande, The [email protected]

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¶ A general framework of analysis.

¶ The Italian case.

CONTENTS

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CONTEXT

CORPORATIONS

…demanding safe and efficient payments and securities settlement systems

Retail operators in the context of Payment Systems (PS) and Securities Settlement Systems (SSS) …

…with peculiar needs …

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MACRO PLAN TO REFORM PS AND SSS FOR CORPORATIONS*

Timing

Implementation

Activities

Phase Diagnostic Prioritization

• Two months

• For each project:- Planning- Pilot- Roll-out

• Function of the projects

• Two months

• Identification of the current status of the system

• Benchmarking with best practices

• Identification of the needs and possible initiatives

• Feasibility analysis for each possible initiative

• Prioritization• Master planning

* Corporate PS and SSS

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DIAGNOSTIC OF CORPORATE PS AND SSSMethodology

Products and channels

Trends / Needs

Players and roles

Infrastructures

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DIAGNOSTIC OF CORPORATE PS AND SSSA useful tool of analysis for corporate PS

Payments from ..

Consumersto .. Corporations Government Foreign

Corporations

Government

Foreign

Consumers

Relevant for our analysis

NOT relevant for our analysis

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DIAGNOSTIC OF CORPORATE PS AND SSSA useful tool of analysis for corporate SSS

Securities from ..


Corporations

Government

Relevant for our analysis

Foreign

Consumers


Not Applicable

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ORGANIZATION

• A National Council for Corporate Payment and Securities Settlement Systems should be setup, in order to implement reforms in this area, with the following stakeholders: corporations, banks (and other relevant financial institutions), central bank (oversight), other relevant social planners

• The Council should promote various initiatives, driven by the various stakeholders and / or through the support of ad hoc units (see below the case of ACBI for Italy)

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¶ A general framework of analysis.

¶ The Italian case.

CONTENTS

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MAIN REFERENCES FOR THE ITALIAN CASE

• Survey on ICT and the Corporations conducted by the Bank of Italy, 2004

• Red Book, Payment and Settlement Systems in Selected Countries, April 2003, CPSS

• Ad hoc interviews on main players (corporations, banking associations, central bank)

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¶ A general framework of analysis.¶ The Italian case.

• PS.– Players and roles.

Corporations (Users). PS providers. Social planners and other relevant players.

– Products and channels.– Infrastructures.– Trends / Needs.

• SSS.

CONTENTS

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BACKGROUND INFORMATION

ICT

0102030405060708090

100

MicroSMELarge

share of revenuesshare of firms

Import/ Export

• Import: 17.5% of GDP• Export: 19.9% of GDP (80% of which coming from SMEs)

Size

• High diffusion of PCs across all industries• Almost all firms connected to the Web (76% of large firms and

49% of SME own a web site)• Very limited E-Commerce activity

- 8% and 19% of firms buy and sell respectively-Volumes of E-Commerce sales and purchases both below 10%

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MULTI-BANKING

• Liquidity threats are reduced

• Cross-holdings• 14

• Geographically different opportunities

ReasonsThe evidence (Europe)

• Cost comparison with single banking>4

>1

>2

>3

• Making banks compete reduce fees

• 19

• 81• 85 %

• 52• 60

• 26• 36

2001Banks used 1995

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CASH MANAGEMENT

“Ex ante”

• Heuristic approach“Ex post”

CommentApproach

• Forecasting is not very common-Lack of relevant information from the banks-Lack of skills within corporations-Herd behavior (although supporting packages

exist and are used elsewhere)

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INTEGRATION AMONG PROCEDURES Evidence

• Strong need of integration of financial procedures with administrative, commercial and logistic procedures (integrated procedures still not available)

• Adoption of EBPP still marginal (only 7% of corporations do it)

• Availability of at least some ERP packages widespread across large firms and SME

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ORGANIZATION FOR PAYMENTS

SME

• CEO / Owner does everything, supported at times by external certified accountantMicro

CommentType of firm

• CFO is in charge, responsible for administrative and financial operations (one unit for both)

• CEO follows closely• As size increases, liquidity management is

better dealt with• Background skills: accounting or on-the-job

training

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ORGANIZATION FOR PAYMENTS (Cont.)

Large

CommentType of firm

• CFO has the responsibility, managing for it two separate departments (and two leading roles):

• Finance (Treasury)• Administrative

• Liquidity management becomes sufficiently structured

• Large groups now have a payment factory• Background skills: accounting or on-the-job

training (rarely external courses)

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• SSS.

CONTENTS

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PS SERVICE PROVIDERS

Payments from ….

Consumersto … Corporations Government Foreign

Corporations

Government

Foreign

Consumers

•Banks

•Banks•Post Office•Credit card providers

•Banks

•Banks

•Not relevant for our analysis

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PS SERVICE PROVIDERS (Cont.) Banks - General Features

• Strong competition

• Universal supply of financial products

• Low profitability

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PS SERVICE PROVIDERS (Cont.d)Banks and corporate payments

Impact of corporate payments on the bottom line

of banksIndirect

Direct

• Crucial, given the cross-selling opportunity created

• Neutral or negative, especially when dealing with sized corporations

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PS SERVICE PROVIDERS (Cont.d)Banks’ organization for corporate payments

The general model Skills

Functions involved for corporate payments

• Two models prevailing:- Product-based

organization- Client-based

(en vogue). In such model corporations are a business unit separated

• Besides various specialists, those who assist corporations on the front-office nowadays have at least a bachelor degree, and receive both on-the-job and external trainings

• IT• Back-Office• Marketing• Customer Service• Planning• Legal• Front-office

(branches always highly involved)

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PS INFRASTRUCTURE PROVIDERS

Other providers

Banking Assn.

RolesProviders

Bank of Italy

• Credit and debit cards issuers manage international credit and debit card networks

• The Italian Banking Association manage an infrastructure specifically dedicated to corporations, named CBI (see next slides)

• Bank of Italy manages main clearing and settlement procedures (see Red Book, CPSS)

• Banks manage both the ATM and POS networksBanks

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• SSS.

CONTENTS

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SOCIAL PLANNERS

Activities

• EC

Role

Antitrust • Pressure on service providers (banks mainly)

Regulation

Institution

• Bank of Italy

Oversight• ECB

• Bank of Italy

• Italian Parliament

• Active through Bank of Italy

• Bill on el. signature• Bill on EBPP

• Bank of Italy

• Data collection• “Ad hoc” investigations

• Bill on payment products

• EC

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BANKING ASSOCIATIONS

Italian Banking Association

• Initiatives to improve corporate payment system infrastructures

European Banking Federation

Contribution

• Lobbying• Initiatives to improve corporate payment

systems infrastructure- Inter-banks Corporate Banking, (CBI, see above)-Other

• Lobbying

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• PS.– Players and roles.– Products and channels.– Infrastructures.– Trends / Needs.

• SSS.

CONTENTS

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PAYMENT PRODUCTS AVAILABLE IN THE ECONOMY

• Cash• Cashier’s cheques from the Central

Bank

• Credit transfers• Bank cheques and banker’s drafts• Collection orders

-Bank receipts-Direct debits

• Payment cards-Debit and credit cards-E-money and card payments over the Internet

Non Cash payments

Cash payments

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MAIN PRODUCTS FROM CORPORATIONS

Payments from ….


Corporations •Cheques•Credit transfers

•Credit transfers

•Bank receipts

•Direct debits•Credit transfers

•Cheques

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MAIN PRODUCTS TO CORPORATIONS

Payments from ….to … Corporations

Corporations

Consumers

Government

Foreign •Credit transfers

•Cash•Payment cards•Direct debits•Credit transfers•Cheques

•Credit transfers•Cheques

•Bank receipts•Direct debits•Credit transfers•Cheques

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PAYMENT CHANNELS TO AND FROM CORPORATIONS

• Increasingly used (see also next slides)Web

• At an embryonic state, though it might become relevant to settle retail transactionsMobile

• Still predominant for most payment operations

In site

• Scarcely used for payments from and to corporations (and also in general) being considered not very safe

Phone

CommentChannelFocus

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E-BANKING % of firms

• 55

• 46

• 50

• 54

EBPP

• 2

• 2

• 3

• 4

• 12

• 4

• 7

• 9

• 83

• 66

• 71

• 77

Type of service

E-Payments E-Loans

SME

Total

Micro

Large

E-Info

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• SSS.

CONTENTS

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• In general PS infrastructures for corporations coincide with those used by other retail operators (see slides above)

• In Italy an ad hoc PS infrastructure for corporations has been created, CBI (see next slides)

PS INFRASTRUCTURES IN ITALY

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CBI Objectives and features

Objectives

• Simplify life to corporations doing multi-banking

• Transfer electronically the consequent paperwork

• It is an infrastructure for the transfer of electronic flows on the basis of “ad hoc” standards

• It allows corporations to do electronic multi-banking by dealing with just one bank

Features

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CBI Governance and Impact (YE 2003)

Impact • Over 40% of collection orders and around 15% of payment orders of all corporations are made through the service

• Over 400,000 firms use the service

Governance • Each associated bank conforms to the above standards through own (or external) technical units

• A non-profit association amongst banks (ACBI) sets standards and rules, punishing the non-compliant banks

• Over 95% of banks offer the service

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• SSS.

CONTENTS

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PLAYERS AND ROLES

• Increasingly moving their operations towards the Web• Switching to cost-efficient procedures, among which:

- End-to-end procedures - E-Commerce -Dematerialization of procedures, exploiting the new

bill on electronic signature

Banks

Corporations

• In general, adjusting the supply to the technological progress• In particular, introducing new functionalities for the

corporations, among which:- End-to-end solutions (through the CBI)- EBPP- E-Cash Management - E-Money solutions

Trends / Needs

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PRODUCTS AND CHANNELSPayment Products in the Economy

2003

1996

Cheques Collection orders

Credit transfers

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INFRASTRUCTURES

• Improve the European Payment Systems infrastructures (standardization, clearing and settlement systems)

• Support electronic multi-banking (like CBI)• Support the payment initiation (relevant for E-

Commerce)• Improve cross-border services for corporations

Interna-tional

• Introduce End-to-end functions (forthcoming)• Support settlement on Marketplaces• Improve cross-border services for firms

Italian (ACBI)

Scope Ongoing Initiatives to….

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• PS.• SSS.

– Players and roles.– Products and channels.– Infrastructures.– Trends / Needs.

CONTENTS

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CORPORATIONS (USERS) Strategies to access securities markets and organization

Large firms

• Most times aimed both at an efficient asset / liability management and at collecting funds

Micro firms

Strategies to access securities markets Organization

• In few cases aimed at an efficient ALM

• Very rarely aimed at collecting funds (less than 1% of Italian SME are listed in regulated stock markets)

SME

• In most cases dedicated corporate finance units

• Neither aimed at an efficient asset / liability management (ALM) nor at collecting funds

• No personnel dedicated to corporate finance issues

• Possibly some personnel dedicated to corporate finance issues

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Securities from ..


Corporations

Government

Foreign

Consumers

SSS SERVICE PROVIDERS

• Financial institutions

• Stock Exchanges

Not Applicable


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SSS SERVICE PROVIDERS (Cont.)Financial Institutions (FIs)

Private equities • Investors-Corporations matching• Technical assistance to access securities markets

FIs

Commercial banks

Investment banks

Venture capital

Main services provided to corporations

• All lending services• Many corporate finance services• Technical and operational assistance to access securities

markets

• Start-ups funding• Technical assistance to access securities markets

• All corporate finance services• Technical and operational assistance to access securities

markets

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SSS SERVICE PROVIDERS (Cont.) Italian Stock Exchange

• The Italian stock exchange is managed by Borsa Italiana, a private company whose shareholders include banks, investment funds, issuers and other market players

• Borsa Italiana provides for the organization and the smooth functioning of negotiations for regulated equity, bond, and derivative markets

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SSS INFRASTRUCTURE PROVIDERS

Monte Titoli

RolesProviders

Bank of Italy

• Monte Titoli is the Italian Central Securities Depository (CSD)• It plays the following roles in the securities markets:

− Clearing and settlement − Depository− Custody

• Bank of Italy plays the role of liquidity reserve provider for securities settlement procedures

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SOCIAL PLANNERS AND OTHER RELEVANT PLAYERS

Main Roles

Other players

• Bank of Italy• Consob

• Investors / Consumers associations

• Securities issuers associations

• Lobbying

• Oversight• Supervision / Market surveillance• Regulators

Institutions

Social Planners

• Italian Parliament• EC

• Regulators

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• PS.• SSS.


CONTENTS

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MAIN PRODUCTS FROM CORPORATIONS

Securities from ….


Corporations •Equities•Bonds

•Equities* •Equities•Bonds•Financial derivatives

•Equities•Bonds•Financial derivatives

*Only publicly owned corporations

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MAIN PRODUCTS TO CORPORATIONS

Securities from ….to … Corporations

Corporations

Government

Foreign



•Bonds

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• Few corporations perform their buying and selling operations directly on the web

Web

• In few cases buying and selling operations are performed on site (at FIs’ offices)

In site

• Most buying and selling operations are performed by phone (contacting officers at FIs)

Phone

CommentChannel

SECURITIES CHANNELS TO AND FROM CORPORATIONS

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• PS.• SSS.


CONTENTS

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TRENDS / NEEDS

• Some financial derivatives (mainly secondary credit market products) should be further developed and offered on a regular basis

Products and channels

• Corporations are increasingly putting more effort on their ALM procedures

• More corporations should access securities markets for funding purposes

Players and roles

Trends / NeedsContext

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