Recent Results of my last: International Banking & Cross Border Payments STP Project

Recent Results of my last:

International Banking &Cross Border Payments STP Project

By Martin Jermann – November 2004

2Prepared by: Martin Jermann

Contents Client:

Large UN Agency headquartered in Italy

Overview Actions Taken Achievements Banking Data Analysis Timeline – Project’s Progress STP Data Analysis Payment Volumes Analysis Project’s Effect on Bank Charges Recommendations Conclusions


Overview

In July 2002, management created a Vendor Bank Task Force [VBTF] with the objectives to:

Increase the STP rate [Straight-Through-Processing] Decrease banking charges Normalize/standardize banking data in Oracle Introduce banking standards to the organization

This presentation provides an overview of the accomplishments that the VBTF has achieved and its recommendations to further the success that has been achieved.


Overview

Limited validation

Prior to ERP Implementation and Upgrades

Why was the STP so low?

No Centralized Controls

Lack of Appropriate

StaffingHigh number of untrained data entry clerks

No Standardization

Legacy Systems

Antiquated Bank Research Tools

Why was the STP rate so low?


Actions Taken

Inserted country codes for banks migrating from Oracle 10.7 to 11i

Normalized banking data: Eliminated duplicate banks Determined the “Master Banks” Placed the appropriate data in the appropriate banking

data fields

Created independence from the current banks that were actually being used by the UN organization for disbursement by applying the “Over-population” approach (note : This will allow the UN Organization to be able to make a payment on any banking network from any bank in the world)

Phase I (July 02 to August 02)

Phase II (September 02 to October 04)


Actions Taken

Introduced and applied international banking standards:

CredEuro convention SWIFT MT103 and MT103+ IBAN

Trained staff in the Accounts Payable Group on:

How to research banks How to validate banking data How to set-up vendor records for “cross-border”

payments


Achievements

Increased the STP rate Decreased banking charges Reduced the number of rejected payments Reduced the time it takes to respond and/or

research a rejected payment request Documented procedures Introduced new forms Introduced new software and research tools to

validate banking data Reduced over-time to a minimum


Banking Data AnalysisSegmentation of the banking database As of July 2002 there were approximately 16.000 vendor bank

account records Of these, approximately 13.000 were migrated from Oracle 10.7 to

11i The UN organization established the following criteria to

determine whether a vendor bank record was to be reviewed and updated:

the vendor had payment activity in the last 18 months Approximately 9,000 vendor bank records met the above criteria

Of these: Approximately 6.500 (72%) were researched and updated by

the task force Approximately 2.500 (28%) were not chosen to be researched

and updated by the VBTF• (they were in countries with low payment volume activity or

their STP was deemed to be already satisfactory) As of October 2004 there were approximately 12,300 active

vendor bank accounts in this UN organization’s banking database Note: Approximately 3,400 new vendor bank account records have

been added during the life of this project by this UN organization’s Accounts Payable vendor bank update unit


Banking Data AnalysisSegmentation of the banking database


Banking Data AnalysisBanking database – Strategic approach

Banks in the following geographical regions were researched and updated by the VBTF :

Europe 17 countries

United States Canada Note:Note:

Over 75% of this UN Over 75% of this UN organization’s payment organization’s payment activity was made to activity was made to vendor banks in these vendor banks in these geographical regionsgeographical regionsThe remaining geographical areas were

not researched in a systematic manner as they either had low payment activity or they had acceptable STP rates


Timeline – Project‘s Progress

0100020003000400050006000700080009000

30-Sep-2002

31-Dec-2002

31-Mar-2003

30-Jun-2003

30-Sep-2003

31-Dec-2003

31-Mar-2004

30-Jun-2004

31-Oct-2004

Banks Researched IBAN CalculatedReviewed by Management Updated in Oracle


STP Data Analysis

0%

20%

40%

60%

80%

100%

30-Jun-2002 31-Dec-2002 30-Jun-2003 31-Dec-2003 30-Jun-2004 31-Oct-2004

STP

Rat

e

0%

20%

40%

60%

80%

100%

30-Jun-2002 31-Dec-2002 30-Jun-2003 31-Dec-2003 30-Jun-2004 31-Oct-2004

STP

Rat

e

90%

Compare this UN organization’s obtained STP to the SWIFT Worldwide STP Average


STP Data AnalysisCommon causes why some payments did not STP

ExceptionsExceptions

Use of obsolete SWIFT codes Use of obsolete SWIFT codes (SWIFT codes change on an on-(SWIFT codes change on an on-

going basis)going basis)

Correspondent bank not found Correspondent bank not found by our bankers and were by our bankers and were reported to us as non STP reported to us as non STP

(this functionality is coming soon)(this functionality is coming soon)

Certain cover SWIFT / ABA Certain cover SWIFT / ABA codes missingcodes missing

(not at present communicated to our (not at present communicated to our bankers)bankers)

Incorrect formatting of the Incorrect formatting of the beneficiary bank account beneficiary bank account number due to human error number due to human error

% Straight through processing% Straight through processing

% Exceptions% Exceptions

11%


Payment Volumes Analysis

Average number of monthly payments made per month from bank accounts were: 2.000 payments

1.100 were monthly payments made by Accounts Payable 900 were monthly payments made by Payroll

As of October 2004 950 payments STP’d that were made by Accounts

Payable 150 payments did not STP that were made by Accounts

Payable 460 payments STP’d that were made by Payroll 440 payments did not STP that were made by Payroll


Payment Volumes Analysis

0

200400

600

8001,000

1,200

1,400

1,6001,800

2,000

2,2002,400

2,600

31-Jan-2003 30-Jun-2003 31-Dec-2003 30-Jun-2004 31-Oct-2004

Nu

mb

er

of

Pa

ym

en

ts M

ad

e

0

200400

600

8001,000

1,200

1,400

1,6001,800

2,000

2,2002,400

2,600

31-Jan-2003 30-Jun-2003 31-Dec-2003 30-Jun-2004 31-Oct-2004

Nu

mb

er

of

Pa

ym

en

ts M

ad

e


Project‘s Effect on Bank Charges

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Jun-02 Dec-02 Jun-03 Dec-03 Jun-04

Co

st

in D

olla

rs

Average Cost to make a Payment Repair Portion

Average Cost tomake a Payment

9.30 8.25 7.90 7.25

Repair Portion 4.30 3.25 2.90 2.25

Jun-02 Dec-02 Dec-03 Oct-04

The repair portion of the bank charges has decreased by over 47% since Jun-2002


Project‘s Effect on Bank Charges

Bank charges have decreased by approximately 22% since 30-June-2002

The repair portion of the bank charges has decreased by over 47% since June 2002

As of:30-June 2002

As of:31-October 2004

PercentChange

Average MonthlyBank Charge $18.600 $14.500 (22.0%)

Average MonthlyPayment RepairCharge

$8.600 $4.500 (47.7%)


Steps the organization is going to take to maintain and increase thier STP rates

Publish their bank master file requirements on their internal intranet homepage in order to:

Communicate what is now required to make an effective payment

Communicate the international banking standards that they are using

Implement and make use of their new forms:

Consultant and staff member bank update form External vendor bank update form



Continue the active management of the Accounts Payable Bank Update Group:

Ensure that they have the established staff to carry out the vendor bank update function

Keep abreast of changes in the external banking environment

Analyze / Review errors reported in the monthly bank STP report as furnished by their bankers

Query the AP Oracle vendor bank database for discrepancies and/or errors

Pre-validation – require the manager of the group to pre-validate all incoming data prior to its entry into Oracle



Continuously review their bank research subscription services to ensure that they are the most relevant to use:

SWIFT – BIC Database Plus Thomson – The Global Banking Resource [TGBR] IBAN Calculator by AlMiSoft

Link their Oracle AP Vendor Bank database with the SWIFT database

Further enhance the Oracle bank module to : Make the beneficiary bank account number field link to

country specific validation Transmit the beneficiary’s legal bank account holder

name Transmit correspondent bank information Transmit “pay through bank” / “cover bank”

information


Conclusion - Benefits

Non-quantifiable benefits: By having good vendor bank records, the UN

organization is no longer locked into its current banking relationships [it is free to move]

Fewer payments are rejected Less time is spent on payment query research Staff members, consultants and vendors are happier Payments are made more quickly


Conclusion – next steps

They will extend this project / exercise to review and update their Payroll bank records

The STP for this group is extremely low They were able to determine the service levels that

they will expect from their banks (they will be built into their future bank contracts)

STP reports : to be provided on a monthly basis SLAs (Service Level Agreements) : Structured and

well defined They will continue to monitor and report internally their

STP rates and compare it to the internationally accepted banking benchmarks

They will ensure that they will have the established resources to enter and maintain the banking database


Contact Information

To discuss this presentation or my services, I can be contacted at:

Martin Jermann Via Anastasio II, 321 00165 Rome, Italy Mobile: +39 3479946432 Email: [email protected] http://xoomer.virgilio.it/mfj_consulting/

Recent Results of my last: International Banking & Cross Border Payments STP Project

Documents

Transcript of Recent Results of my last: International Banking & Cross Border Payments STP Project