Has your French Subsidiary Talked to You about Connectivity Recently?
by Vincent Couche, EMEA Corporate Product Sales, Citi, and Nasseira Rida, Head of Cash Management for France, Citi
On 29 January 2010, Orange Business Services stated that its X25 network would be decommissioned on 30 September 2011. This will impact most organisations with entities in France, as X25 is used for data exchange with their banks, as part of the ETEBAC protocol. French-standard file formats supported by ETEBAC will remain available, although organisations will have to migrate to XML-based formats to benefit entirely from SEPA.
With a 30-year track-record of file delivery, personal digital signatures, high availability, data security and near 100% market acceptance, ETEBAC was adopted by most entities of large organisations and this means approximately 95,000 entities from large multinationals to small and medium-sized enterprises have less than 12 months to re-evaluate and re-design their bank integration.
Alternatives to ETEBAC recommended by CFONB
The immediate alternatives to X25 for most organisations are the web-banking platforms offered by their banks, as these typically support the French-standard file formats and, with three million corporate organisations registered in France, electronic banking is the most popular means of communicating with a bank for bulk payments, domestic and cross-border wires, SEPA Credit Transfers, electronic bills of exchange, direct debits and bank account reporting. In addition to this service, the French Banking Federation, through its standardisation body (CFONB), also recommends either EBICS or SWIFTNet as alternatives to ETEBAC.
Electronic Banking Internet Communication Standard (EBICS) is a protocol originally developed in Germany that has been amended to meet specific requirements in France, and enables information to be exchanged over the internet in a secure fashion. While the intention is to make EBICS a European standard for bank connectivity, it has not yet been adopted by countries other than Germany and France. Furthermore, the modifications that were required to meet the specific formatting in France have temporarily made the French and German versions of EBICS incompatible, limiting the ability to leverage common investment or achieve standardisation.
Initially, EBICS is offering functionality similar to ETEBAC, e.g., cash transaction initiation and reporting. It supports the existing file formats used in France, as well as XML messages required for SEPA payments. However, corporates’ connectivity solutions still require modification or upgrade to connect to banks via EBICS, and ETEBAC signature cards cannot be used.
SWIFTNet offers two services: FIN and FileAct. Between the two, FileAct is the closest alternative to ETEBAC as it allows the secure exchange of files of various formats (including French formats) with guaranteed delivery. In addition, structured SWIFTNet FIN messages bring added functionality that is not available in ETEBAC, like the confirmation of market trades via MT3XX messages.
Compared to ETEBAC, SWIFT connectivity also offers high market acceptance, has a strong track record amongst banks and benefits from significant ongoing investment in infrastructure, solutions and security. Most financial solutions offer compatibility with SWIFT standard MT940 account statement reporting and MT101 payment messaging.
While expertise on SWIFTNet is widely available, SWIFTNet is often perceived as a bank-to-bank connectivity, expensive and cumbersome to maintain. Market education via conferences and meetings, outsourcing solutions via service bureaus, aggregation of flows by Member Concentrators and new lighter connectivity to the network have all contributed to revising that perception.
From a cost perspective, the total cost of ownership needs to be viewed in terms of the overall project objectives. Once legal costs for documentation, internal software upgrade, middleware costs, etc. have been taken into account, which need to be performed whatever connectivity is selected, physical corporate-to-bank connectivity often represents less than 5% of the overall cost of large connectivity re-engineering projects.
Market response to connectivity dilemma
While EBICS is often considered by the French banking community to be the replacement to ETEBAC, adoption has so far been very slow. Until the next version is released (expected by year-end), which will support digital signatures, EBICS does not yet compare favourably to ETEBAC, especially the most recent version, ETEBAC 5, which was recognised until recently to be the most secure protocol available in Europe.
As of July, 15 months before X25 is discontinued, software vendors had yet to experience a rush of users seeking system upgrades. It is estimated that fewer than 5,000 organisations have started an EBICS project so far, and fewer than 300 are actually using EBICS, primarily for retrieving statements from banks in France.
When communicating with multiple banks, larger organisations are generally opting for SWIFTNet via a service bureau in order to benefit from a standardised approach to connectivity across all banks without the need to maintain the infrastructure internally. The migration to SWIFTNet amongst these organisations is well under way, and French companies now represent around a third of all new BICs issued by SWIFT to corporate entities globally over the past year. While many of these organisations had set up multiple ETEBAC connections, such as for accounts payable, treasury, etc., migrating to SWIFT has enabled companies to consolidate their bank connectivity across all entities and all departments, not only in France but often globally. Centralisation of connectivity and operations is, in many cases, acting as a catalyst for re-engineering of payment processes and bank account reporting, the introduction of specialised middleware to convert and to distribute files between the various systems/banks, and the rationalisation of banking relationships for cash management to achieve greater standardisation.