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AutoBank Automatic Cash Application Cash & Liquidity Management Payment Management Treasury Management eBAM


Hanse Orga International Corp.

AFP of Arizona 2013 Annual Southwest Expo

Payment Factory: Leveraging Best Practices in Treasury

Payment Factory Presentation AFP of AZ 1 6/7/2013 Mary Ann Rydel – Director of Product Mgmt and Customer Support

Hanse Orga International Corporation


Agenda

Multiple Definitions of a Payment Factory

Why a Payment Factory?

Who is Hanse Orga?

Types of Payment Factories

What Strategy is Right for my Company?

Building a Business Case - Benefits of a Payment Factory

Other Payment Items of Note

» Connectivity Interfaces & SWIFT for Corporates

» ISO 20022 Format

» SEPA

Payment Factory Presentation – MN AFP 2 6/7/2013


What is a Payment Factory?

Many people may define a payment factory differently:

A hub to centrally manage communication to and from the banks.

A shared service center for payables.

A group responsible for optimizing the company’s disbursements on behalf of its affiliates.

A payment management solution that enables organizations to streamline payment

processing and control costs centrally.



Why do I Need a Payment Factory?

With the credit crunch, treasury departments must focus on better management of cash

» Require improved working capital

– Need to reduce costs

– Need to optimize efficiencies

» Require better control and visibility into cash forecast

To meet audit and compliance requirements, treasury organizations are being asked to tighten

controls in the financial supply chain

To achieve future growth goals, treasury departments must be able to quickly react to business

conditions

» Ability to quickly integrate acquisitions

» Ability to compete in new international markets and handle new payment types

» Ability to quickly react to issues with counterparty risk

Payment Factory Presentation – MN AFP 6/7/2013

A payment factory is one of the necessary components in achieving these strategic requirements.

4


Why do I Need a Payment Factory?

Many organizations utilize a variety of decentralized e-banking solutions

» Carries risk and is error prone

» Lacks integration with the ERP

» Carries high costs and high maintenance

The decentralized processes lack control and standardization

» No group-wide overview of all cash flows

» No standardized approval processes and workflows

The decentralized process increases inefficient manual efforts

» Time-consuming effort to manage multiple bank connections

» Manual effort to determine cash positions and create cash forecast

Payment Factory Presentation – MN AFP 6/7/2013

A payment factory is one of the necessary components in improving these operational inefficiencies.

5


Organization

HQ in Hamburg, international

offices in the Netherlands,

France, the UK and the USA

Proven sustainable growth and

profitability

Privately owned, no external

investors

Solutions are certified by SAP®

under “FinanceSuite 4.3”

Dual product strategy: Solutions

for SAP® and non-SAP® ERP

(Oracle, JD Edwards,

PeopleSoft, …)

People

200 people

Strong employee retention

Functional experts with deep

understanding of

cash management and

liquidity planning, bank

communications, payments,

treasury, cash application,

account reconciliation, eBAM

International consulting team

Strong global partners

Clients

500+ clients

Strong client retention

Clients in all industries

including: Oil & Gas,

Chemicals, Insurance, Retail,

Manufacturing, Logistics,

Government

Client size ranges from

Fortune 500 to mid-size

companies

Worldwide deployments

Who is Hanse Orga? The Hanse Orga Group



Hanse Orga FinanceSuite for SAP®


Cash & Liquidity Management

Cash Forecasting

Cash Management

Cash Position Worksheet

Cash Pooling & Concentration

Variance Analysis vs. Actuals

Intragroup Workflow

Payment Management

Ad-hoc Payments

Payment Monitor

Bank & SWIFT Connections

Payment Factory

Payment Workflows

Bank Statement Management

Treasury Management

In-House Banking

Loan Management

Limit Management

Derivatives (FX, IR, Swaps etc.)

Intercompany Netting

Treasury Accounting

eBAM

Bank Scoring & Conditions

Bank Account Administration

eBAM Messaging

Bank Performance Analysis

Workflows

Bank Relationship Management

Finance

Suite

HR IS-

U

CO FS-

CD

BW

MM

FI

SD

AutoBank

Dispute Management

Bank Statements

Optimized Post-Processing

Remittance Advices

Performance Cockpit

Lockboxes

http://upload.wikimedia.org/wikipedia/de/5/59/SAP_2011_logo.svg


Hanse Orga’s Clients (500+)



Types of Payment Factories

Focus on centralizing and standardizing payment flows enterprise-wide

» All company-wide payment flows (batch and manual) are routed through the payment factory

» All bank communication is managed centrally

» All payment formats are managed centrally

Focus on consolidation and optimization of payment processing

» Business rules are utilized to route the payment through optimal channels (e.g. transformation of cross-

border payments into domestic payments)

» Smart (re)grouping and/or aggregation of payments

» Due to tax and legal implications this setup might require the implementation of an in-house bank

Virtual or decentralized payment factory

» Roles and responsibilities are still retained at the level of the subsidiary

» Entire organization uses one central system for managing payments and bank connectivity


AutoBank Automatic Cash Application Cash & Liquidity Management

Payment Management

Treasury Management eBAM

Payment Factory Structure

Bank 2 Bank 3 Bank 4 Bank 1

Non-SAP®

Companies

Protected

Company Network

Payment Factory

Paymen

t run

file

Paymen

t run

file

Paymen

t run file

Payment

run file

Payment

run file

Payment

run file

Payment

run file

RFC

SAP® FS-CD

SAP® HR

SAP® IS-U

Payment

run file

CC 2 CC 3 CC 4 CC 5 CC… CC 1

SAP®2



AutoBank Automatic Cash Application Cash & Liquidity Management

Payment Management

Treasury Management eBAM

Payment Optimization Examples

Payments can be reformatted and rerouted in order to change payment channels.

Payments can be aggregated so that many individual payments for one creditor are

grouped and sent as one payment.

Payments can be restructured in order to route the payment to a different, cheaper

bank in a different country.

Payments with partially entered data can be programmatically completed and

delivered.

Data fields, such as a reference field, can be automatically edited in order to reduce

the data entry workload.

Urgent payments can automatically be monitored and executed.

Payments can be validated for completeness and accuracy before the files are

delivered so that unnecessary rejections and delays are avoided.

Returns processing can be enhanced by receiving, repairing, and reissuing from a

centralized point.

Internal company payments can be netted and settled internally without having to be

processed through a financial institution.



How Does In-House Banking Relate to a Payment Factory?


Bank 1

Holding

Subsidiary 5

Subsidiary 2

Subsidiary 3

Subsidiary 1

Subsidiary 4 Bank 3

Bank 2

Subsidiary 5

Subsidiary 2

Subsidiary 3

Subsidiary 1

Subsidiary 4

Bank 1

Bank 3

Bank 2

Without IHB

With IHB

Intragroup

All Payment Files

Sent Externally

AutoBank Automatic Cash Application Cash & Liquidity Management Payment Management

Treasury Management

eBAM

Benefits of In-House Banking (IHB)

Management of Intra/Intercompany Payables and Receivables

» Without an IHB, intra/intercompany payments occur through the external banking system and therefore have real transaction fees and settlement delays

» In-house banks remove the need for an external and/or individualized transfer of funds between two subsidiaries

» Instead, a netting process occurs which allows for the net value of the transactions to be exchanged between the virtual accounts of each subsidiary

Payments on Behalf of Another Entity

» Allows the parent company or subsidiary to pay on behalf of another subsidiary (e.g. Cross Border Payments)

» Multiple payment structures are possible

» Multiple accounts & interest compensations models are supported

Internal Lending

» The In-House Bank can directly loan funds to subsidiaries that have a short term cash deficit

» Borrowing internally is less expensive than paying interest to a third party.

» The In-House Bank can monitor and settle a cash pooling structure


AutoBank Automatic Cash Application Cash & Liquidity Management Payment Management

Treasury Management

eBAM

Payment Factory: Building a Business Case



What Strategy is Right for my Organization?


Centralized (IHB)

Decentralized

Sophistication

Maximize

Group’s

Return

Ensure

Liquidity

Control Lost

Opportunity

Costs

Manage

Liquidity/ Cash

Flow Forecasting

Control Manage

Cash & Bank

Infrastructure

Manage

Commercial

Payments/

Collections

Optimized

Use of Cash

Manage

Working

Capital

Integrated Finance SSC & Treasury IHB

Objectives

Typical Large Corporate

Link WCM to Performance

Manage

Bank

Relationships

Visibility Over

Bank Accounts/

Balances

Payment Factory and IHB

Central Treasury


Business Case for a Payment Factory (1 of 3)

Reduce costs with increased operational efficiencies

» Increase Straight-Through-Processing (STP)

» Reduce exception processing costs

» Reduce/eliminate costs of e-banking platforms

» Rationalize the infrastructure

» Obtain global overview of banking volumes & statistics

» Improve ability to measure Key Performance Indicators (KPI)

Reduce operational costs by eliminating manual or redundant processes

» Center of Excellence for creating or maintaining payment formats and support

» Decrease the number of required bank accounts

» Decrease auditing and compliance efforts




Meet security, audit, and compliance requirements

» Reduce fraud and risk

» Standardize audit trails across banks and payment processes

» Company-wide adoption of processing procedures

» Consolidated point of sanction screening

» Leveraging of master data

Enable flexibility to quickly adapt to changing market conditions

» Minimize reliance on a single financial institution

» Reduce time to market and promptly add new banking partners in new geographies

» More quickly integrate new acquisitions

» Effectively respond to market e-initiatives and fraudulent concerns




Improve working capital by optimizing payments

» Reduce costs of cross-border payments

» Reduce transactional processing and warehousing costs

» Reduce bank communication costs

Increase control and visibility into cash position and cash forecast

» Central visibility into real-time cash position

» Optimized liquidity management



Payment Factory: Other Items of Note



Connectivity Interfaces

Bank Proprietary

» Websites and Tokens

» FTP/SFTP/VPN -> Mailbox/Portals

» Encryption methodologies

National

» Europe – EBICS, FTX- Connector, MBS-IP, BCS

» United Kingdom – BACS

» Brazil – FEBRABAN

» Japan – Zengin

SWIFT

» MA-CUG, SCORE

» Alliance Lite, Alliance Lite2

» Service Bureaus



ISO 20022 - Format

What

» Data format standards developed by the International Organization for Standardization

» Five financial business domains in scope (payments, FX, securities, trade services, cards)

» Format management – pain, camt

Why

» To enable communication interoperability between companies and their financial partners

» Create a single standardized approach for methodology, process, and repository that can be used by

all financial standards initiatives

» Eventual elimination of the numerous other overlapping standardization initiatives

Benefits

» It allows clients to use a single, globally-recognized file format to originate multiple payment types

(e.g. wire payments, ACH credits and debits, SEPA, EDI, EDIFact, etc. payments).

» Adoption can result in reduced IT costs and increased Straight Through Processing (STP).

» Reduction in reconcilement processing and detailed matching based on field tags


http://en.wikipedia.org/wiki/File:ISO_english_logo.svg


ISO 20022 - What is XML?

<Document xmlns="urn:iso:std:iso:20022:tech:xsd:pain.001.001.02"

xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance">

<pain.001.001.02>

<GrpHdr>

<MsgId>090128349</MsgId>

<CreDtTm>2009-01-28T08:52:13</CreDtTm>

<NbOfTxs>1</NbOfTxs>

<CtrlSum>203.00</CtrlSum>

<Grpg>MIXD</Grpg>

<InitgPty>

<Id>

<OrgId>

<BkPtyId>1234512345</BkPtyId>

</OrgId>

</Id>

</InitgPty>

</GrpHdr>

<PmtInf>

<PmtMtd>TRF</PmtMtd>

<PmtTpInf>



SEPA – Objective

Uniform Currency

Uniform Standards

Uniform Legal Framework

Uniform Execution Mechanisms

Credit Transfers (SCT)

Direct Debits (SDD)

Card Payments (SCF)

Cash (SECA – Single Euro Cash Area)

Currency = Euro

Without Amount Restriction

In all 27 EU member states, the European Economic Area (Iceland, Norway, Liechtenstein),

and Monaco and Switzerland, for a total of 32 countries.

23 SEPA 07.06.2013


SEPA – New Formats

SEPA 24 07.06.2013

XML "Old"

camt.053.00x.0x (Bank to Customer Statement) MT940 (Bank Statement)

camt.052.00x.0x (Bank To Customer Account Report) MT942 (Remittance Advice)

camt.054.00x.0x (Bank to Customer Debit/Credit

Notification)

Aggregate Item/Bank

Statement Information (examples: DTI, etc.)

pain.002.00x.0x (Payment Status Report) National Transfer Protocol (examples: PTK, etc.)

XML "Old"

pain.001.00x.0x (Customer Credit Transfer Initiation) National Credit Transfer

Formats (examples: Ciri, ClieOp, SWIFT MT, etc.)

pain.008.00x.0x (Customer Direct Debit Initiation) National Debit Formats (examples: DOM80, ClieOp, SWIFT MT, etc.)

Payment Formats

Incoming Messages


SEPA – Most Important Contents of SEPA Regulation

25 SEPA 07.06.2013

*EU regulation comes into effect

Content: Valid As Of:

Reachability for Euro countries for SCT (previously not yet regulated)

31.March.2012*

Reachability for non-Euro countries for SCT (previously not yet regulated)

31.October.2016

Technical requirements for SCT and SDD 01.February.2014 (10/2016 for non-Euro countries)

Validity of mandates and reimbursement regulation 01. February.2014

IBAN conversions for consumers 01. February.2014 to

01. February.2016

National exceptions 01. February.2014 to

01. February.2016

Change of EU pricing regulation • Uniform pricing regulation without amount restriction

31.March.2012*


SEPA Affected Processes

Hanse Orga Business Briefing in Brussels 26 06/02/2013

Credit Payment

Runs

Debit Payment

Runs

Manual

Payments Approval

Electronic

Signature

Bank Communication

Payments & Bank Statements

Debtors Creditors

Validation

Splitting

Cash Allocation

Banks

Processing of

R-Messages

Master Data:

BIC & IBAN

pain.001.00x.0x

per Country

pain.001.00x.0x

per Country

Bank Protocols Significantly

Increased

Volumes

New Formats:

camt.052/053/054

Decreasing

Assignment

Rate?!

BIC & IBAN,

SEPA Manates

pain.008.001.0x

per Country Change Direct

Debit Processes



Setting up a SEPA Project: Checklist Bullet Points

Set up a Project

Team Strategic Analysis: Centralization of Payments and/or Collections?

Timing

Formats

» Country Specific Requirements

Infrastructure

Banking Landscape

Migrating to IBAN/BIC

Technical Impact of Converting

Field Usages

Execution and Cut-off Times

Special Preparation for SDD

» Mandate Management

» Creditor Identifier

» Submission Deadlines

» Return Messages

SEPA 27 07.06.2013

*no guarantee for completeness



Questions?

Thank you for your time.

Payment Factory Presentation – MN APF 28 6/7/2013

Mary Ann Rydel

Director of Product and Customer Service, North America

Hanse Orga International Corp.

Office: +1 734 302 3000

Cell: +1 847 650 2926

[email protected]