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Changing lanes - Entering the technology freeway
The adoption of most new technology standards is subject to what’s known as ‘network effects’. These effects exhibit long lead time followed by explosive growth, where the bulk of people sit on the sidelines until there’s a critical uptake of the technology.
This could be seen with the introduction of BPAY. Despite initial scepticism, the rise and rise of BPAY has forced businesses into accepting the BPAY standard because it provides a cheap and inexpensive way for people and businesses to pay bills.
I suspect that the same will be true of the new electronic commerce (SwimEC ) guidelines, released by the superannuation, wealth and investment management initiative in April, for automatic payment of member contributions.
One of the biggest industy-driven technology initiatives in the choice environment, these new guidelines are aimed at enabling a single standard for the automatic payment and confirmation of all member contributions between the employer or member, the fund administrator and the bank. Intended to help employers and funds achieve processing efficiencies, the standard sets out payment approaches using BECS DE (Bulk Electronic Clearing System Direct Entry) and BPAY. In short, provided you have the right back-end technology, you have straight through processing of contributions via multiple organisations.
Garth Hunt, deputy director of Stevedoring Employees Retirement Fund (SERF), says that on the surface, SwimEC looks promising. The specifications appear to be well designed and are built around a universally accept XML protocol. However, ultimately a standard only becomes valuable when it is widely adopted by its target industry, and at this point he says it is too early to tell whether this will be the case with SwimEC.
Organisations need to determine that there are clear financial benefits to be gained through its adoption. Only then will they be prepared to take the gamble on SwimEC and the standard may begin to gain some momentum.
Swimming along
My view is that electronic sharing of information will become the norm in the next 12 to 18 months because of the key business drivers to deliver quality, timely and accurate data for cost savings, compliance and customer service.
This is an increasing trend buoyed by the fact that there is now starting to be some success in straight through processing, where all the processing isn’t necessarily done by the same organisation but it’s still electronic and end-to-end.
From a fund administration point of view, the argument for fully automating the contribution process through electronic commerce is strong, and can be illustrated by the example of Astarra Funds Management.
Rex Phillpott, of Astarra, recognises the standard as a great thing for the industry. Astarra is one of the early adopters, with partner BankWest and Astarra’s back-end technology provider, to take up the SwimEC guidelines and implement straight through processing of contributions.
One of the things this does for Astarra, says Phillpott, is to totally eliminate manual processing of contributions. By implementing the BankWest solution for SwimEC contributions it will reduce data entry down to zero, saving between $17 and $25 for each piece of paper previously handled. Per annum, that’s a saving of hundreds of thousands of dollars.
The other benefits in cutting out manual keystrokes are the reduced chance of manual error and the increased speed of processing on a daily basis. It allows for better daily pricing, liquidity analysis and timely investments, says Phillpott, and “the regulators love to see processing on a daily basis”.
Clearly, those funds running an integrated system that doesn’t require re-keying of data will be able to integrate the standards to their benefit more quickly.
But as with the introduction of any new data interchange standard, there is still a lot of work to be done. Having standards is one thing, but ensuring that all parties use the standards uniformly is another.
The challenge of introducing the SwimEC standards is that legacy technology cannot support the new standards simply and cost-effectively. Dated technology requires third party middleware to extract and input data, usually not in real-time, with no validation processing rules available and often with manual intervention, which can reduce the benefits.
Winners in the race to electronically accept contributions will be funds using technologies that support open systems standards, real-time processing and validation rule processing for possible exceptions. The losers will be funds using technologies that are lagging behind industry standards.
So it is still early days. There needs to be time for all parties to examine the standards, and there will be a time lag before all players come on board to make it a truly useful tool.
Kurt Groeneveld is the managing director of Supercorp Australia
AUTHOR
Mike Taylor
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