MIAG/Erste Group: Unlock the East – Andreas Kriz
Eastern Europe presents unique challenges for finance directors looking to implement payment solutions. Andreas Kriz from MIAG explains to Rod James how a close banking partnership helps to overcome these obstacles and produces more transparent, manageable payment processes.
Over the past two decades, the markets of Central and Eastern Europe have become increasingly attractive to Western companies drawn by low wage costs and growing purchasing power. The relaxation of banking restrictions and removal of regulatory barriers, encouraged by the possibility of European Union membership, has given this movement even greater momentum.
The region still poses challenges, however, none more so than in the treasury space. Countries in the region are highly heterogeneous, with different regulatory regimes and security risks. Finance directors can find themselves dealing with multiple, often outdated payment formats that require country-specific processes and technologies. In addition, there is the difficulty of ensuring transparency in the payments process when having to oversee capital flows between multiple international accounts.
A few years ago, MIAG, the shared service payments arm of Germany's Metro AG, was forced to confront some of these problems. MIAG has been slowly increasing its presence in Eastern Europe since 1998 in line with the growth of its parent company, one of the largest retail organisations in the world.
The company wanted the advantages of working with a single banking group, such as reduced bureaucracy and the need to cultivate fewer account manager relationships. However, the danger of becoming over-reliant on a single financial services provider encouraged the company to adopt a two-bank strategy. It held a contract tender and invited a number of institutions to participate. One of the winners was Banca Comerciala Romania (BCR) a member of Erste Group and one of the leading financial services provider in Romania.
Founded in Austria nearly two centuries ago, Erste Group is one of the largest financial services providers in Central and Eastern Europe. Its 50,000 employees have extensive experience in the corporate and retail sector, which, according to Kriz, was an undeniable advantage.
"As well as having a huge network across the region Erste Group is one of the biggest banks in Romania itself and in its retail sector," he explains. "Consequently, a lot of our suppliers already maintain accounts with the bank, which in turn brings them certain advantages - faster credit on their accounts, for example."
Erste Group's technical capabilities were another strong selling point. The Austria-headquartered group, active across Central and Eastern Europe, can process payments in a multitude of formats, helping its customers overcome regional disparities. This fits well with MIAG's strategic aim of greatly reducing the number of payment gateways it employs by achieving complete SWIFT enablement. Despite the harmonisation of payment streams being a hot topic, many banks still lack the resources to carry out end-to-end implementation.
"In the past we'd use SWIFT with certain banks, ISDN with Germany and various local internet connections elsewhere," Kriz explains. "This is difficult to handle as we only have a small treasury team. Our goal is to work only with SWIFT and to concentrate on very few points of entry. In fact, this requirement has led us to turn down relations with certain banks that could only offer local formats."
SEPA will further change the way companies like MIAG approach their payment processes. Kriz foresees benefits through further standardisation, but Metro AG's payment structure, which entails few high-value, cross-border transactions, means that it won't benefit as much as others. Either way, Erste Group is fully SEPA-enabled - just in case.
"SEPA is an important issue for us at the moment," he explains. "We have a SEPA project, regular meetings and even a MIAG SEPA representative, but it can only be fully implemented when a deadline to phase out local payments has been agreed - this could be towards the end of 2012 or the beginning of 2013."
This localised method sees payments to MIAG's Romanian suppliers sent via SWIFT to Erste Group Vienna, which in turn delivers them through its own network.
"We, as MIAG, operate our own non-resident accounts throughout the countries we work in, so in Romania we have an account with BCR, a member of Erste Group, in Bucharest," Kriz explains. "Our sales divisions run their own SAP systems and select the supplier payments that need to be carried out on a certain day. We receive the proposal, process it in our system, and send the file to the bank to be executed on time."
Kriz has seen increased efficiency through this approach. He also believes that MIAG has been able to increase the transparency of its payment operations, aided by the prevalence of Erste Group accounts in the region.
"All payments to suppliers that have a bank account with Erste Group are paid exclusively through our Erste Group account and the same goes for our second banking partner," Kriz says. "Not only does this result in increased transparency but it allows us to avoid the relatively expensive national commissions charged on payments to third banks."
For all of the clear strengths of Erste Group's service offering, Kriz believes it is the soft facts that carry the most weight. Successful payment factory implementation involves great expense and time, and is the result of a close, transparent relationship between a company and its banking partner. Erste Group assigns a single point of contact to each of its clients, which allows for a thorough, highly personalised implementation process.
"Quick wins are not important," he explains. "Most big banks are offering the same or similar service, so it's the people that make the difference. This project with Erste Group has had clearly defined goals and we've held regular meetings, conference calls and shared meeting minutes. When I started more than 20 years ago at MIAG, we worked with Erste Group on our Vienna operations, so it is clear that a long-term relationship has formed."
Looking ahead, Kriz sees the relationship going from strength to strength. MIAG's underlying strategy is to expand into all of the countries in which its parent company already has a presence, so there is good potential for future cooperation. "For many years, in countries such as Austria and Romania, we have had a joint ongoing project with Erste Group around researching new supply chain finance ideas," Kriz explains. "We will continue to look at new ways to handle invoices and, of course, will look at opportunities in other countries."
From the banking side, Christian Steinberger, head of cash management at Erste Group, sees Romania continuing to be of importance as it reaps the benefits of EU membership. He also sees Croatia, in particular, coming to play a bigger role in the regional economy and in his bank's relationship with its clients.
"There is a lot of investment in retail infrastructure in Central and Eastern Europe at the moment," he says. "Around Bucharest, several shopping centres have been constructed and international retailers have been encouraged to gain a presence in them.
"In Croatia foreign exchange controls have been loosened and legislative changes make it easier for companies like MIAG to open non-resident accounts. These are interesting opportunities for us and our customers."
As the push into Central and Eastern Europe gathers pace, the need for harmonised, transparent payment processes will only grow in importance. The right partner can make all the difference.