30 September, 2014 Written by David Bannister
When software and services giant SAP announced its Financial Services Network (FSN) at Sibos 2013 in Dubai, a few eyebrows were raised at the level of bank support for the project.
Citi was the headline partner, having signed a commercial agreement to use the network. The project had been in development for over a year and was pilot-tested by a group of tier-one financial institutions, including Bank of America Merrill Lynch (BAML), Deutsche Bank, Nordea, Royal Bank of Scotland and Standard Chartered.
The SAP FSN is a cloud-based, bank to corporate platform designed to cover transactions such as payments, reconciliations and remittances. Typical payments include corporate payments to suppliers, which are sent to the bank automatically via the FSN. Likewise, reconciliations are handled automatically by the platform, replacing the previous process of manually collecting paper statements.
A year since the launch there has been little in the way of fanfare announcements of further implementations – expect a few during Sibos, of course – but the potential for connecting SAP’s enterprise resource planning (ERP) customers to their banks is a clear alternative to Swift’s Alliance.
SAP has more than 100,000 customers across all industries, from multinationals such as Unilever down to small and medium enterprises (SMEs). In many cases, the SAP ERP software is a key part of their financial systems and the company has made a clear strategy of becoming an important part of their connectivity strategies.
Earlier this month SAP acquired travel expenses software firm Concur Technologies in a deal worth $8.3 billion. SAP hopes the deal will help it to unlock what it sees as a huge opportunity tied up in the $1.2 trillion corporate spend on travel worldwide. The move follows similar acquisitions – Ariba and Fieldglass – which have bolstered SAP’s reach in business to business networks.
The acquisition of Concur, which offers a cloud-based travel expense management platform, will give SAP 23,000 customers and 25 million active users in a range of verticals in more than 150 countries.
It also gives SAP a significant business to business (B2B) partner network of airlines, hotel and car rental companies.
“The acquisition of Concur is consistent with our relentless focus on the business network,” says Bill McDermott, chief executive of SAP. With Ariba, Fieldglass (acquired in March this year) and now Concur, the company will be in charge of processing nearly $10 trillion in global B2B spending, which to some extent explains its willingness to shell out such a hefty amount of cash in this latest deal.
The mouth-watering thought, for some, is the possibility of connecting all of that to the banking and payments world. For others, there is the possibility that SAP’s connectivity in the commercial world will usurp Swift’s efforts to bring corporates on to its network, which currently has some 1000 corporate members.
A third scenario is that corporates will use FSN to communicate directly with each other, even to the point of using it as an alternative payments network, though theories of how that would work in practice get very vague.
“FSN is very interesting,” says Bob Lyddon, of Lyddon Consulting Services and managing director of the Ibos Association international cash management banking club. “Where I think it is different from Swift for Corporates is that it includes corporate to corporate connectivity, at least on paper. The key linking item in there is Ariba. In principle that gives FSN a much wider sweep by allowing corporates to talk to one another over Swift.”
But he says the numerical difference between the FSN and Swift networks is less important than might at first be thought. “The fundamental of SAP is they have 100,000 corporates as opposed to Swift’s 1000, but Swift actually has 1000 BICs for corporates and that represents 40,000 legal entities that are using Swift for their business,” he says. “SAP must have many more users, but they might all be within the same group. How do you count whether they’re autonomous installations that all belong to the same group?”
SAP is also used by smaller corporates that might be classed as falling within the business banking segment rather than corporate banking.
Lyddon also has doubts about the ease of integration: “Having seen how SAP is installed, I know that no two are the same, so I’m very sceptical about whether each user of SAP will use a slightly different flavour of data,” he says. “Some reports during the migration to the single euro payments area [Sepa] were a little disappointing in terms of the amount of work the corporates were left to do. Given that each bank has a slightly different flavour, if you multiply that by the number of corporates, you end up having quite a lot of bespoke work.”
Having a translation service in the middle is a short-term expedient in his view and is expensive: “You are into a level of cost that seems to me to beg the question do you need another one? All banks have FileACT and can accept a range of formats via that. Also, importantly, it has Swift security behind it. Swift doesn’t pretend that it has put loads of intelligence on the network. It is only a transportation mechanism. SAP says it is really easy to connect to all the banks but they don’t seem to have appreciated the intelligence that is needed in the middle. Is there a realistic appreciation of the difficulties? I say there can’t be.”
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