14 October 2008 Comments

 

Comment: Eurogiro network looks to push back borders

Paul Nicholls, Alliance & Leicester Commercial Bank

The nature and make-up of Eurogiro, the international electronic payment co-operation, has evolved considerably since its inception in the early 1990's. The network of postal and commercial banks celebrates its 16th birthday this year, and displays every intention of continuing to move with the times and maintain its position alongside the payment giants such as Swift.

When founded in Denmark in 1992, its original purpose was to allow the European post office banks to provide fast and secure international payment services at attractive fee levels, often for the low value transfers that were not well catered for by other interbank messaging systems. It provided an alternative to Swift, which, at that time, the postal banks were not eligible to join, meaning in some cases they therefore had no access to electronic international payment networks.

And the ability to handle bulk payments in a cost efficient manner is still the core offering of the club. It does this by creating envelopes, or files, of multiple standardised transfers. This bundling facility reduces transfer costs, and is a significant plus to the high-volume, low-value payments that characterise much of Eurogiro's activity, and, indeed, the continuing activities of its members.

These services have helped Eurogiro maintain a position as the second largest network providing cross border payments, as have the close links it has developed with Swift, which see 20-25 percent of its traffic travelling through the bigger organisation's network.

In addition, with the goal of achieving global reach, Eurogiro has continued to expand in its own right, and currently has 61 members across 49 countries, processing 30 million transactions a year. It now includes other financial institutions as well as postal banks, and has reached beyond its original Eurocentric scope.

However, perhaps more significant than Eurogiro's linear growth and success are the organisational shifts it has made, and its plans for the future.

The future success of the network is considered to lie in enhanced levels of collaboration with both large financial institutions and remittances specialists, as well as in deeper engagement with emerging markets.

To this end, the network has entered a partnership with Western Union. This allows Eurogiro to complement its services with Western Union's same-day cash-to-cash product, while acting as a gateway provider to the transfer services company by providing access to its extensive range of payment locations. The establishment of such mutually beneficial partnerships both enhances the services offered by Eurogiro and can generate new business opportunities and fee income streams for both parties.

A further strategic re-alignment sought by Eurogiro involves a role in bulk clearing for major financial institutions. Merger and acquisition activity from Europe's leading financial institutions since the creation of Eurogiro has seen many of the original postal bank members taken over by banks. For Alliance & Leicester Commercial Bank, membership of Eurogiro came through the take-over of Girobank, formerly the UK's post office bank, in 1990.

Alliance & Leicester is the only UK bank with membership of the network. This is not atypical - Spanish bank BBVA is the Spanish member, thanks to the 1999 merger of Banco Bilbao Vizcaya and Argentaria, which itself took over the state owned postal bank Caja Postal. And in Germany, Deutsche Bank has recently purchased a stake in Deutsche Postbank, Germany's sole Eurogiro representative.

With regard to geographical expansion plans, the alliances with remittances experts are important, but Eurogiro also has its own development road map. This year, it will hold a board meeting outside of Europe for the first time, convening instead in Singapore. A representative office has been opened in Singapore, and Juanita Woodward has been appointed Director, Customer Relations Asia Pacific, as the network looks to grow its business in the region.

In 2007, Paositra Malagasy, the state-owned post and financial services provider in Madagascar became a member of the network and 2008 has seen Bangkok Bank, the largest commercial bank in Thailand, welcomed as a new member.

The logic behind this does not take much second guessing - the Asia Pacific region now receives over a third of global remittances sent through formal channels, with India, China, Bangladesh, Vietnam, Pakistan and Indonesia all in the top 25 receiving countries globally.

Certainly, Eurogiro has ambitious growth targets, and is repositioning itself accordingly. However, the pre-existing qualities that have helped Eurogiro reach its current position are not being sacrificed. What has been called the network's "club spirit", where the member organisations contribute to the development of the network, seeing it adapt to the needs of the users, remains intact.

Paul Nicholls, Senior Manager, International Services, Alliance & Leicester Commercial Bank