6 November 2007

With the deadline for SEPA compliance drawing nearer, banks that respond quickly will reap the benefits. Jacqui Griffiths found out how Spanish financial group La Caixa is working with Microsoft to do just that.

The rapid rise of the Internet has had a massive impact on the way we do business, both as organisations and individuals. We are now so used to shopping around online for the best prices, and having goods and services delivered to us, that the location of the supplier is often one of the last things on our minds. And as for currency, a good exchange rate is all we want. But the slick veneer of the user interface can hide the fact that processing payments across national borders can be complex and expensive for the organisations involved, putting some countries at a competitive disadvantage.

The EU's Single European Payments Area (SEPA) seeks to remedy this by creating a standard that lets all countries in the region trade on an equal footing. With phased deadlines between 2008 and 2010 for compliance, financial institutions now need to think carefully about updating their payments systems.

"The main challenge facing any bank in preparing for SEPA is to include new services and capabilities within the current core business system, with the least impact possible," says Andreu Purroy, IT manager for clearing, settlement and Swift systems at La Caixa d'Estalvis y Pensions de Barcelona (La Caixa). "In addition, for some national banking communities, the challenge is to ensure that national regulations can coexist with the specific features of local automated clearing houses at a higher level, without losing either services or service quality."

For La Caixa, the third largest financial group in Spain and one of the most important savings banks in Europe, this was a job that needed a timely and intelligent approach. Priding itself on the key values of trust, quality and social commitment, La Caixa is privately managed and independent of any other company or institution. With a concerted branch expansion plan, La Caixa invests considerably in the innovation of products and services and multi-channel management to ensure a unique, high-quality customer experience – it is particularly proud of its multi-channel Línea Abierta home banking facility as an example of this. So the bank was not afraid to look at innovative ways to deal with the challenges presented by SEPA, in order to prepare itself for the impact of the regulation in both the shorter and longer term.

"We wanted a new payments infrastructure for ISO 20022 standards that could be easily integrated with our existing systems and would be agile enough to easily adapt to any future modifications to SEPA formats and validations," says Purroy. In order to find that solution, La Caixa knew that spending time on the selection process would pay off.

"The process for selecting a supplier was long and complex," continues Purroy. "We assessed various elements including support for Swift standards; support for data structures in mainframe programming languages; ease of managing conversion charts; options for external connections; high availability; monitoring; time-to-market, and speed of response to normative changes."

Thus, La Caixa embarked on a lengthy and competitive proof-of-concept phase, La Caixa chose Microsoft as the foundation of its new payments system, which will support its SEPA, Swift InterAct and Swift FileAct messaging services. The new system will help manage SEPA payments validation, enrichment, transformation and routing to the appropriate clearing house. La Caixa will work with the clearing house of the Euro Banking Association, the pan-European automated clearing house, and Iberpay, the Spanish clearing and settlement mechanism.

The solution is based on Microsoft BizTalk Server and BizTalk Accelerator for Swift, and will provide a stable infrastructure that will integrate with La Caixa's mainframe and Windows services using different messaging systems. As a result, the existing infrastructure will become more agile and capable of deploying new products and services, acting as the foundation for FIN, FileAct and InterAct traffic messaging services. The system will also enable La Caixa to benefit from new Swift solutions such as Swiftnet funds, trade services utility, cash reporting and exceptions and investigations services.

"We chose Microsoft because of the scalability of the solution, and its ease of use," says Purroy. "The Microsoft team has integrated very well into our working dynamic, and are looking at imaginative solutions to our requirements for performance, data integrity, support environments and so on."

Microsoft, too, sees the relationship in a positive light. "We have built a very strong working relationship with the La Caixa team to ensure that it will be fully SEPA compliant well before the deadline, as well as helping the bank to gain a competitive advantage in the industry," says Sheida Hadji- Ashrafi, industry manager for payments, worldwide financial services at Microsoft.

Ease of integration is key to the project, which entails connecting La Caixa's z/OS mainframe environment with Windows machines and BizTalk Server, using MQSeries and XCOM for file transfer. "Windows will be responsible for the entire transformation and validation of SEPA formats from outside the organisation," explains Purroy. "The mainframe will continue to handle the initial operations and management of receipts from within the organisation."

Work on the system is well underway, and La Caixa is confident that it will be completed in time to go live during the fourth quarter of 2007. "The current schedule and progress of the project mean that we can guarantee we will go live during the last quarter of 2007," says Purroy. "Approximately 50 per cent of the exclusively BizTalk part of the project has been completed and is on time. Progress is very fast, and we hope to finish this part of the project by early August."

This speed, along with the cost-effective nature of the solution, means that La Caixa will see a rapid return on its investment. "Analysed on the basis of the expected volume of operations and the major impact on business systems, it has been calculated that we will achieve return on investment in less than a year," explains Purroy. "This is why, even without using the infrastructure for new developments, the investment will be offset at the end of 2008."

Purroy's comment hits on a key lesson that has been learned by many organisations dealing with technology – investment in major technology projects must be cost-effective and yield benefits in the short term, but must also be able to address the company's needs and support competitive business whatever the future holds. Purroy understands this dual dynamic. "We are just beginning to understand the options we have been given, and they seem sufficient for our current needs," he say, adding: "Once the current development is consolidated, we may come up with some new requirements as our needs develop."

While the immediate benefit of La Caixa's solution will be seen in its efficient and cost-effective SEPA compliance, the bank is looking beyond the immediate future to anticipate continued benefits in the longer term.

"Over the next year we plan to handle more projects based on BizTalk," says Purroy. "We will be developing a project for SEPA direct debits next year, and some other possible candidates include cash management, and exceptions and investigations. The order in which these are developed will be determined according to our business needs and compliance with regulations."

Looking further ahead, the system will help the business to remain competitive by bringing products to market quickly and cost- efficiently. "The long-term benefits will be seen in reduced costs for new implementations and faster time-to-market," comments Purroy. "In the future, various changes in regulations and standardisation, a requirement for greater straight-through processing and the need to reduce costs are all factors that will require us to engage in a constant process of change. Through the adoption of the current architecture, we are working to keep the service nucleus separate from the physical interfaces, allowing changes to be adopted in a shorter time than has been possible in the past."