Nobody can accuse General Electric of thinking small. The company has more than 300,000 employees in more than a dozen operating segments, which together make many millions of payments each year. Many of these payments have to be made within a specific time window in order to meet contractual obligations, and complete reconciliation is a necessity.
So, you'd expect that GE would have a sizeable treasury operations staff dedicated to supporting its businesses. But you'd be wrong.
"We're very big on self-service models," says Steve Kalkowski, manager of cash management systems, global corporate treasury, General Electric Company (Fairfield, Conn.). "Since we're a small corporate treasury here, and we're trying to support every GE business globally, we don't have the resources to monitor their payments as well."
Thus, each business unit is responsible for tracking its own payments. But that's not a simple matter. GE does business with more than 100 banks around the world that differ widely in their ability to provide acknowledgement as to whether a payment instruction was received and executed. "Some of the banks can send us those levels of acknowledgement, but some of the banks can't," laments Kalkowski. "We have no idea what the status of those payments are ."
Furthermore, each bank has its own method of receiving and transmitting payment information. "We have maps for each one of those banks, and each one is slightly different," Kalkowski says. Payment messages are routed to these 100-plus banks using electronic data interchange (EDI) connections. "We probably have proprietary software for 35 to 40-plus banks that we're using," Kalkowski notes.
That's 100 file formats and 40 EDI connections that are required to manage the payments for one big company with more than a dozen multi-billion-dollar business units.
The Simple Life
Soon, GE will have a much simpler corporate picture: one big company sending all of its payments through one big, industry-owned cooperative. That would be SWIFT (La Hulpe, Belgium), a financial messaging standards and service organization that connects to 7,650 financial institutions in over 200 countries.
In June 2001, shareholders in SWIFT voted to grant SWIFT network access to non-banks, allowing the organizations to communicate with their financial institutions through member-administrated closed user groups, or MACUGs. "The corporates are allowed to speak to their financial institutions through a MACUG, and basically they have all the rights and privileges - and the ability to send all different types of messages - as a financial institution member," says Edward Adams, regional director, SWIFT Pan-Americas Inc. (New York). There's just one restriction: Corporates can only communicate through their banks in a hub-and-spoke model, rather than directly to their counterparties as in a point-to-point model.
As GE switches from EDI to SWIFT connections to its banks, the benefits to the company will be profound. "Once we have full, complete bank connectivity within SWIFT, we will be able to retire the bank proprietary software and provide the advanced features in our own in-house-built 'WebCash' payment treasury workstation," Kalkowski says.
The migration has begun, and individual operating units will begin switching over from EDI starting early in 2005. "We have four banks over on the MACUG, and we anticipate having a total of between 25 and 30 by the time it's done," Kalkowski relates.
But it's not just a matter of establishing a connection to each bank via SWIFTNet, SWIFT's IP-based network. "Before a bank will be allowed to come up on a SWIFT infrastructure, they have to ensure that they can provide full acknowledgement and negative acknowledgement for all payment instructions," Kalkowski points out.
Even though banks may have SWIFT connections, at this point only the top-tier financial institutions have gone beyond bank-to-bank financial messaging to incorporate corporate payments. "Some of the banks are just starting to think about it, and some haven't even started at all," Kalkowski says.
Thus, the ability for banks to connect to corporate customers via SWIFTNet has become a competitive differentiator with regional implications. "All of the banks in the U.S. that we deal with have really good models for acknowledgement," Kalkowski says. "Europe is kind of a mixed bag - some are able to do that, some aren't," he adds. "We're just starting to get involved in Asia, so the jury's out on that so far."
A hurdle for many banks is that they've made significant investments in the technology and people for managing proprietary connections to their corporate clients. "Some of the banks have been reluctant to go forward with the MACUG," SWIFT's Adams says. "They see it as a competitive threat to their proprietary workstation products."
But that's the wrong approach, Adams counsels. "Corporations don't buy your services because you have a proprietary workstation," he says. "They buy it because of the quality of your service and ... your product line," he asserts. "That's the differentiator, not the delivery channel."
Once GE has connected to its banks via SWIFTNet, its long-term goal is to gain the ability to use a standard file format for communicating with all of them. Indeed, SWIFT has been working on the development of such a standard, an XML-based payment kernel. "That guarantees that we have a standard outbound XML-based message that all banks hopefully will eventually adopt," GE's Kalkowski says. "That also moves us that much closer to having standard messaging from corporates."
GE hopes that other companies in the Fortune 500 will follow suit. "Banks certainly acknowledge and are willing to discuss technology, but they are slow to implement because they need to see a critical mass before they're going to invest anything in moving to a new technology," Kalkowski says. "However, if 40 or 50 of the corporates using the same bank approach that bank en masse, I think you'll see the bank move pretty aggressively in adopting that standard," he adds. "I would be willing to support [banks] with resources to help them accomplish [standardization], as long as I see critical mass coming from the other corporates."
Again, the benefit to GE would be simplification of payment processes and greater access to business-critical information. "In the new SWIFT world, with the payment kernel standard, I see an extreme value in providing one interface back to our businesses - to reconcile their accounts payable transactions, close the invoices and mark them paid."
GE in Brief
Revenues: $134 billion
Net Earnings: $15 billion
Assets: $647 billion
Top 5 most profitable operating segments: Power systems, commercial finance, consumer finance, aircraft engines and insurance.
Source: 2003 Annual Report
Payment Life Cycle at GE
1.User enters payment request into WebCash, GE's global application for treasury management.
2.Payment receives "four-eyes approval."
3.Payment is converted into generic XML format.
4.Payment is mapped into FIN message (e.g., MT101, MT103 or MT104 formats).
5.FIN message is sent into SWIFT Alliance Access infrastructure.
6.FIN message is sent through SWIFT network to debit bank.
7.Debit bank sends message through its money transfer system.
8.Debit bank returns acknowledgement or negative acknowledgement.
9.Acknowledgement is processed by SWIFT Alliance Access infrastructure.
10.Payment is marked with a control stamp in WebCash application.
11.User monitors status of payment.