eleanor white paper

8/11/2019 Eleanor White Paper

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Eleanor_White Paper.doc V1.01 - 1 - Identrus LLC, 2002. All rights reserved.

This document is for the reader's general information and evaluation only. While Identrus seeks to provide currently accurate informationherein, Identrus cannot accept liability for any error or omission. In addition, the service described herein may change and informationpresented herein may become inaccurate. This document should not be construed to constitute any offer, and is not intended to create any

contract, obligation, or liability whatsoever. Eleanor is a service mark of Identrus LLC.

PROJECT ELEANOR

-

A GLOBAL PAYMENTS INITIATION SYSTEMFROMIDENTRUS LLC*

-

WHITE PAPER

* THE PROVIDERS OF THE WORLDS FIRST GLOBAL TRUST SYSTEM


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Table of Contents

ABSTRACT...........................................................................................................................................3

DOES THE WORLD NEED ANOTHER PAYMENT MECHANISM?.........................................4

WHAT IS ELEANOR?.........................................................................................................................5

FUNCTIONALITY ..................................................................................................................................5TECHNICAL OVERVIEW .......................................................................................................................8

Proven Open Standards...................................................................................................................8Vendor Neutrality............................................................................................................................8The 3 Layered Model.......................................................................................................................9Distributed Architecture..................................................................................................................9

ELEANOR OPERATING RULES............................................................................................................10

ELEANOR DELIVERS VALUE TO BUSINESSES AND FINANCIAL INSTITUTIONS........10

SCOPE AND SIZE OF OPPORTUNITY ...................................................................................................10AUTOMATION BENEFITS....................................................................................................................12FINANCIAL SERVICES BENEFITS........................................................................................................13

Example An Eleanor Certified Payment Obligation in Action...................................................13Transferable Obligations ..............................................................................................................15

PROFITABILITY OF ELEANOR SERVICES ............................................................................................15THE ELEANOR SYSTEM .....................................................................................................................16

CONTACTS.........................................................................................................................................17

APPENDIX A SUMMARY ELEANOR BENEFITS....................................................................18

APPENDIX B ELEANOR DISTINGUISHING FEATURES .....................................................18


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Abstract

Eleanor1is an initiative established by a leading international banking consortium to fill the B2BePayments gap - to create the complete set of specifications required to implement globallyinteroperable, legally enforceable B2B ePayment services.

Eleanor is designed by banks for banks and their customers. It allows banks to deliver the B2Bfinancial services that their business customers need for eCommerce - efficiently, profitably andcompetitively. Eleanor provides a range of payment instruments to suit a wide variety of commercialcircumstances from a simple cheque equivalent through to a letter of credit substitute. It is suitablefor domestic and international payments.

Eleanor is based on open eCommerce standards, such as XML, MIME and PKI and accommodatesdiverse business trading environments, including eProcurement, Web Merchant Servers andeMarketplaces.

Eleanor does not aim to replace existing inter-bank clearing systems or payment networks such asACH or RTGS it provides a new channel for bank customers to initiate payments electronically.

The table below summarises the benefits that Eleanor participants might expect from deployment.

Eleanor Benefits for Corporate Users Eleanor Benefits for Financial Institutions

Operational efficiencies:

Automation of business processes and straight-through-processing

Elimination of manual processes involved inpayment reconciliation

Pro-active risk management:

Conditional payments protect buyers Payment certifications protect sellers

Better management of working capital through:

improved timing and knowledge of cash flows

access to innovative e-financing tools

Offer distinctive B2B ePayments products that:

Meet customers eCommerce needs

Are globally interoperable and enforceable

Strengthen customer relationships

Create new product opportunities

Internet-enable cash management products:

Restructure margins based on customerautomation / straight-through-processing

Reduce back-office costs

Reduce financing costs through improvedknowledge of customer transactions

This paper addresses the questions:

What is Eleanor?

Why is Eleanor important?

It is intended to be read by decision makers, users and implementers of Eleanor, including:

Financial institutions: cash management, trade & trade finance, e-commerce & e-banking,product management/development, operations, information technology development.

End-user business enterprises: treasury, accounting, import & export departments, strategicplanning, direct/internet sales, procurement, operations, information technology development.

Internet commerce vendors: business development, product management/development.

Online marketplaces: Business development, information technology development,operations.

1Eleanor is a service mark of Identrus LLC.


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Does the World Need Another Payment Mechanism?

The following banks invested in the Eleanor development program, and are known as the Eleanorfounding banks: ABN AMRO, ANZ, BSCH, Bank of Tokyo-Mitsubishi, Barclays Bank, BNPParibas, CIBC, HSBC, HypoVereinsbank, Industrial Bank of Japan, National Australia Bank, RoyalBank of Scotland, Sanwa Bank, Societe Generale and Wells Fargo. Between them they cover a

significant number of countries and markets, and have diverse product sets and vendor relationships.

The founding banks had a single purpose in mind when creating Project Eleanor: to provide theirbusiness customers with the same type of transaction services in the eCommerce world as intraditional business banking. Services envisioned could generally be categorised as cashmanagement or transaction banking, and include payments, collections, provision of workingcapital, trade finance, payment underwriting and performance guarantees. The banks aimed toprovide these services with seamless integration to their customers eCommerce trading platforms,including ERP, eProcurement, Web Merchant Servers and eMarketplaces.

The provision of traditional banking services in the eCommerce world at first appeared deceptivelysimple. Many banks tried to offer such services independently via their own proprietary eCommerce

products portals, web-Banking, eMarketplaces - but found two key barriers that drastically limitedtheir ability to offer even simple e-products:

absence of an industrial strength internet trust standard suitable for payments

lack of a widely accepted payments standard suitable for B2B eCommerce

The first barrier was overcome by the creation of Identrus LLC, a globally interoperable trust systembased on the most robust commercial cryptography available PKI whereby digital certificatesissued by banks to their business customers are designed to be relied on by third parties ineCommerce trading. But even with Identrus, banks found that they could only offer the types ofePayment services they envisioned if their customers customer also banked with them. Identrusproved to be necessary but not sufficient to provide basic transaction banking services, even to abanks existing customer base. Something more was needed.

Consider the simplest example of business transaction banking the cheque. Cheques have their ownsecurity features, including unique numbering, micro-printing, identification of the account holder andso on. The basic authorisation tool is the signature. Cheques are useful for B2B payments becausethey can have complex remittance data attached to facilitate reconciliation. A cheque can be endorsedand transferred to a third party or (as is more common) deposited into a bank account for collection.If the recipient (typically a seller) is concerned about the creditworthiness of the paying party, theseller can request a bank or cashiers cheque. Most importantly, a cheque can be used to settle a debtbetween buyers and sellers regardless of their banking relationships, and without having to involvetheir banks directly in the transaction. Of course, this only goes so far. Not every seller will acceptevery buyers cheque. Other factors are involved. But in general, cheques are broadly acceptable or

interoperable between various parties. Not because of their technology - theyre just a piece ofpaper with signatures - but because they are the subject of legally enforceable contracts between theparties involved and are subject to legislation in most countries.


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The Eleanor founding banks aimed to reproduce the simplicity, versatility and broad acceptance of thetraditional cheque in the eCommerce world, and add the concepts of conditional payments andperformance guarantees, to create an ePayments toolkit to suit all B2B trading scenarios domesticand cross-border, simple and complex, trusted and anonymous counterparties, and so on. Key toachieving broad acceptance (or interoperability in technical parlance) is the recognition that newtechnology like XML and digital signatures are important requirements of any modern paymentservice, but do not in themselves provide a complete solution. Legal enforceability and operationalcertainty are also required, so that all parties to a transaction know where they stand at all times.

What emerged was a vision which compelled the founding banks to look beyond immediatecompetitive issues to a grander scenario: a globally interoperable payment initiation capability thatcombined the best features of existing bank services, from the simple cheque to the letter of credit, butwas designed to fit naturally in the emerging world of eCommerce. A vision that would enable banksto secure a pivotal role in the emerging world of eCommerce. Identrus was the logical trust platformto use, but something more was needed. Project Eleanor was born.

What is Eleanor?

Eleanor is an initiative established by Identrus equity banks to fill the B2B ePayments gap - tocreate the complete set of specifications required to allow banks to implement globally interoperableB2B payment services for their business customers.

Eleanor specifications fall into three categories:

Functional a description of payment types and their attributes

Technical electronic message formats and protocols: field definitions and usage,sequencing, error conditions

Operational service levels, rights, obligations and business practices required of Eleanorparticipants

FunctionalityEleanor functionality reflects the diversity and market coverage of the founding banks, and isdesigned to ensure that banks can meet their business customers ePayment needs, including:

Integration with a variety of eCommerce systems, front and back end, including ERP,eProcurement, web merchant servers, eMarketplaces

Support for automation and straight through processing, from payment initiation throughreconciliation

Built-in financing and risk mitigation tools

Security, reliability, legal enforceability and broad acceptance, regardless of bankingrelationships and geographic boundaries

Eleanor deals with payment initiation, as opposed to inter-bank messaging, clearing or settlement. Itdoes not aim to replace existing paper or electronic clearing systems such as ACH, Fedwire, EBA,RTGS or their equivalents within and between other countries. The focus of Eleanor is on howbusiness trading partners deal with each other, the types of risks and financing issues they face, andhow banks can support them seamlessly and cost-effectively. Eleanor provides a new channel to

initiate payments on existing back-office payment systems.


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Figure 1: Eleanor provides payment initiation with financing and risk tools

The basic Eleanor payment instruments are outlined in the table below. They cover a range of B2Btrading requirements, from the simple clean payment through to a letter of credit substitute.

Payment Type Description Analogy Revocable2 Transferable3

Payment OrderInstruction from Buyer toBuyers Bank to pay away

Giro payment,Telegraphic Transfer,Wire Transfer, ACHcredit

Yes No

PaymentObligation

Undertaking by the buyer toreimburse the holder on thenominated date

Draft, PromissoryNote,Bill of Exchange,Trade Acceptance

No Yes

Certified PaymentObligation

Undertaking to reimbursewhich is underwritten by thebuyers bank, ie the bank willsettle on the nominated date

Bank-accepted Bill,Endorsed PromissoryNote,Payment Guarantee

No Yes

ConditionalPaymentObligation

Undertaking to reimbursesubject to provisions agreedat the time of creation

Escrow Payment,DocumentaryCollection

No Yes*

The Payment Order is the most simple. It allows a business customer to credit a supplier, locally orinternationally, through a direct instruction to its bank via a website or electronic banking service.

The Payment Obligation allows the buyer to directly discharge a debt with the seller, as in ourexample above with the cheque. Remittance data can be captured by the buyer and the seller at thetime of payment initiation to automate and reduce the cost of reconciliation. The seller becomes theholder of an irrevocable transferable instrument - a simple but powerful feature that opens the door for

2An instrument is revocable if it can be cancelled after issuance without the beneficiarys consent.3

An instrument is transferable if its ownership, including rights, obligations and interests, can change.*After conditions are successfully discharged, a Conditional Payment Obligation can be treated as a PaymentObligation and becomes transferable.

Buyers Bank Sellers Bank

$

$$

Buyer Seller

Orders, terms

Remittance

Settlement via existing

inter-bank systems

NACHA, NYCH, BACS,EBA,VisaNet, SWIFT, RTGS

Payments

Guarantees

Conditions

Working Capital

Collections

Receivables Finance

Eleanor specifications

deal with payment initiation


$

$$

$

$$

Buyer Seller

Orders, terms

Remittance


inter-bank systems


Payments

Guarantees

Conditions

Working Capital

Collections

Receivables Finance




$

$$

Buyer Seller

Orders, terms

Remittance


inter-bank systems


Payments

Guarantees

Conditions

Working Capital

Collections

Receivables Finance




$

$$

$

$$

Buyer Seller

Orders, terms

Remittance


inter-bank systems


Payments

Guarantees

Conditions

Working Capital

Collections

Receivables Finance




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many benefits for the seller and the sellers bank. A Payment Obligation can have a future value date,accommodating the case where a debt must be settled today using real-time eCommerce tools, butvalue transfer is to take place according to trade terms in, say, 30 days.

A Payment Obligation, like a cheque, carries with it the credit risk of the paying party. It is like apromise to pay, but can be dishonoured if, for example, a buyer enters liquidation prior to the valuetransfer date. Sellers often dont want to accept such risks, and the Certified Payment Obligationallows the buyers bank to underwrite value transfer. Of course the buyers bank would probablycharge a fee based on magnitude and duration of the underlying obligation, and the seller becomes theholder of an irrevocable transferable bank-backed instrument.

Buyers also face risks relating to, for example, order fulfilment. Conditional Payment Obligationsallow a buyer to enter a transaction with the confidence that payment will only occur if agreementsregarding, for example, quality, quantity or timeliness of delivery are met. Likewise the seller canconfidently proceed to fill an order knowing that value transfer will occur in due course. Any numberof conditions can be placed on a Payment Obligation. The buyers bank acts as the repository forconditions and an independent Condition Discharge Party can be used to monitor performance andnotify completion, eg Customs agents, logistics companies or quality inspection firms.

Eleanor supports other combinations of payment types, too. For example, there is a CertifiedConditional Payment Obligation which combines the features of payment conditions which protectthe buyer and a bank certification which protects the seller into one instrument which can be used as asubstitute for a letter of credit.

The diagram below outlines the flows of an Eleanor Conditional Payment Obligation.

Figure 2: Eleanor Conditional Payment Obligation (simplified)

2. Buyer sends a Conditional Payment Obligation

3. Seller adds bank A/C info &

forwards to Sellers Bank

4. Sellers Bank validates Seller information,

adds settlement instructions & forwards

6. Buyers Bank notifies CDP

of condition requirement

7. CDP confirms condition compliance

5. Buyers Bank validates Buyer information

including authority of employee to pay andacknowledges instructions

5a. Buyers Bank

acknowledges

instructions

8. Buyers Bank pays Seller via Sellers Bank

8a. Buyers Bank

debits Buyer A/c

5b. Sellers Bank

relays

acknowledgement8b. Sellers Bank

credits Sellers

A/C

1. Agree on terms of Purchase & Sale, and

negotiate payment conditions

Condition

Discharge

Party (CDP)


$

$$

Buyer Seller 2. Buyer sends a Conditional Payment Obligation

3. Seller adds bank A/C info &

forwards to Sellers Bank

4. Sellers Bank validates Seller information,

adds settlement instructions & forwards

6. Buyers Bank notifies CDP

of condition requirement

7. CDP confirms condition compliance

5. Buyers Bank validates Buyer information

including authority of employee to pay andacknowledges instructions

5a. Buyers Bank

acknowledges

instructions

8. Buyers Bank pays Seller via Sellers Bank

8a. Buyers Bank

debits Buyer A/c

5b. Sellers Bank

relays

acknowledgement8b. Sellers Bank

credits Sellers

A/C

1. Agree on terms of Purchase & Sale, and

negotiate payment conditions

Condition

Discharge

Party (CDP)

Condition

Discharge

Party (CDP)


$

$$

$

$$

Buyer Seller


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Technical OverviewA basic assumption of Eleanor design is that the internet is the natural home for B2B commerce andwill be used by trading partners wherever possible to reduce costs and increase connectivity. Mucheffort has been expended in deriving a technical architecture for Eleanor that reduces costs atimplementation and throughout deployment, while retaining flexibility, choice and differentiation.

Important principles of Eleanor from a technical perspective include:

Use of proven, best of breed eCommerce standards such as XML and SMIME

Vendor neutrality

the 3 Layered Model

Adoption of a distributed architectureThese are explained in more detail below.

Proven Open Standards

Eleanor uses and builds on a variety of common standards and recommendations from organisationssuch as IETF and W3C, the most important being:

S/MIME and HTTP over SSL for secure XML document exchange PKCS7 and XMLDSig for digital signature processing

XML is important for several reasons:

Achieving straight-through-processing via application to application messaging.

Leveraging vendor support to minimise implementation, operating and upgrade costs for newapplications and interfaces to legacy systems.

Alignment with other relevant eCommerce developments and programs.

The Identrus trust service, for its part, also uses and builds on a variety of common standards:

X509v3

PKIX (rfc 2459)

OCSP (rfc 2560)

S/MIME

Identrus has also defined its own standards which are used within Eleanor:

Transaction Co-ordinator: which is built from XML and XMLSIG

Signing Interface: which is built from PKCS7, HTML, Netscape plug-in technology and Java

Vendor Neutrality

Key to broad adoption is the ability for banks and their customers to obtain Eleanor compliantapplications and plug-ins from their existing vendors and/or to seek the most competitively pricedimplementation to suit specific circumstances.

Eleanor is therefore designed to accommodate multiple vendors in the first instance and in itsevolution via a change control program. A compliance testing program is being established wherebyvendors will be able to validate their product offerings against an interoperability standard.


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The 3 Layered Model

Eleanor is designed to allow banks to offer their own branded eCommerce products and servicescompetitively without compromising business or technical interoperability. To achieve this, given theprospect of competitive pressures, Eleanor adheres to the 3 layered model as illustrated below.

Figure 3: Eleanor uses the 3 layered model, ensuring interoperability with competition

The 3 layered model allows competition between banks at the product and customer level (layer 3),

but supports interoperability and co-operation at the payments and trust levels (layers 2 and 1respectively). Each layer leverages the capabilities of the one beneath, retaining independence so thatplug and play is possible. Eleanor relies heavily on the underlying trust service for identification,authentication and non-repudiation, which are essential for payment initiation. It is indeed possible touse Eleanor specifications with a PKI system other than Identrus, although at the expense of legalenforceability and global interoperability. More importantly, it is also possible to use Identruscertificates with interoperable eCommerce applications other than Eleanor.

Distributed Architecture

Eleanor is designed to allow banks to choose their own implementation path, leveraging existingsystems, capabilities and vendor relationships. Eleanor therefore uses a distributed architecture,whereby each bank undertakes its own Eleanor implementation but remains interoperable with otherEleanor implementations. Banks can choose whether to build their own Eleanor infrastructure or usea hosted or outsourced service from a third party, depending on their circumstances. Insourcingwould be preferable for banks that can achieve economies of scale in their own right or that want toensure differentiation; outsourcing might be preferable during early stages of deployment, prior tolarge scale roll-out.

A distributed architecture enhances systemic robustness and scalability. Each participantsimplementation operates independently of others, so performance degradation or outage in one doesnot adversely affect another.

Proprietary Services(provided by

Member Banks)

RulesFunctions

Standards

Identrus

PKI

Layer 3

Layer 2

Layer 1

Co-operative

Competitive

B2B eCommerce WorldLayerDescription

CompetitiveDynamic

Each bank develops itsown products & services,with own branding, pricingand packaging,based on interoperable layer 2.

Payment initiation standards and rules.Eleanor = technical & functional specs,

+ operating rules for payment initiation

Trust and Authentication servicesIdentrus = globally interoperable trust systembuilding on PKI technology and standards

Co-operative

Proprietary Services(provided by

Member Banks)

RulesFunctions

Standards

Identrus

PKI

Layer 3

Layer 2

Layer 1

Co-operative

Competitive

B2B eCommerce WorldB2B eCommerce WorldLayerDescription

CompetitiveDynamic

Each bank develops itsown products & services,with own branding, pricingand packaging,based on interoperable layer 2.

Payment initiation standards and rules.Eleanor = technical & functional specs,

+ operating rules for payment initiation

Trust and Authentication servicesIdentrus = globally interoperable trust systembuilding on PKI technology and standards

Co-operative


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Eleanor Operating RulesThe Operating Rules are the means of achieving legal enforceability and business interoperability, asopposed to technical interoperability. The Operating Rules provide specifications and agreements forsystem availability, value date processing, response times, validations, error handling, liability,recourse and dispute resolution.

The Operating Rules assume a hierarchical structure of Eleanor participants, whereby:

A bank executes a membership agreement with a system administrator.

A business customer executes an agreement with its bank, by which it agrees to various termsand conditions, some of which are prescribed by the Operating Rules and others are specificto its bank.

Identrus has established a subsidiary called Identrus Payments and Trade LLC which will act as thesystem administrator for the global implementation of Eleanor. Collectively, Identrus Payments andTrade LLC, member banks and their subscribing customers constitute a contractually closed systemreferred to as The Eleanor System.

Figure 4: The Eleanor System interoperable and enforceable

Eleanor Delivers Value to Businesses and Financial Institutions

Eleanor is designed to allow banks to deliver the B2B financial services that their business customersneed for eCommerce - efficiently, profitably and competitively.

Scope and Size of OpportunityResearch undertaken by a respected 3rdparty4has identified the range and scale of paymentprocessing inefficiencies in a single global B2B industry segment, and by implication the scale ofpotential Eleanor benefits. The diagram below identifies a range of payment-related activitiesundertaken by buyers and sellers in that industry, and the interaction points both within and between

corporate entities.

4Bain & Company Inc, Boston, MA, USA, www.bain.com


$$

$

Buyer Seller

IPT administers the Eleanor System:Membership programIP Management: specs & rulesVendor/partner programs

Member

Agreement

Banks join the Eleanor System:

via member agreementadhere to specs & rulessponsor their business customers

Member

Agreement

Buyers and Sellers:

participate via their bankadhere to customer terms & conditionstrade with each other as usualpay and finance via Eleanor services

Customer Agreement

Customer Agreement

IdentrusIdentrusPaymentsPayments

& Trade& Trade


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Figure 5: Multiple points of information exchange lead to inefficiencies relating to

payment processing

The activities are typical and representative of a wide range of B2B vertical industry segments. Thenext diagram illustrates the estimated aggregate value that could be released annually to industryparticipants by migrating industry-wide to electronic payment and finance services.

Figure 6: Value is trapped by todays inefficient B2B payment processes

Overall, inefficiencies in current processes and practices relating to B2B payments have trappednearly half a billion dollars of value annually in just one vertical industry segment.

Eleanor allows banks to help their customers realise this value, driving cost out of their own systemsand creating opportunities for growth and new revenues in the process.

Buyer

Seller

NegotiationAnd

agreement

Prepareand

respondto RFQ

Order

receipt

Create& submit

RFQ

Receiveand

clarifyRFQ

Identifyneeds and

suppliercandidates

Supplier/buyer management

Materialsrelease/

P.O./delivery

schedules

Receiptverification

Advanced

shippingnotice

Payment

receipt

Payment

AR &

Invoicing

AccountsPayable

Market to

buyers

Suppliercatalogs

Suppliercertification

Finalnegotiation

andagreement

Prepare

andrespond

Collaborativeproduct design

= Payment processing activity

= Other related activity

Dataanalysis

Financial

services

Completedorder

Source: Bain & Company Inc, Boston, MA, USA

Buyer

Seller

NegotiationAnd

agreement

Prepareand

respondto RFQ

Order

receipt

Create& submit

RFQ

Receiveand

clarifyRFQ

Identifyneeds and

suppliercandidates

Supplier/buyer management

Materialsrelease/

P.O./delivery

schedules

Receiptverification

Advanced

shippingnotice

Payment

receipt

Payment

AR &

Invoicing

AccountsPayable

Market to

buyers

Suppliercatalogs

Suppliercertification

Finalnegotiation

andagreement

Prepare

andrespond

Collaborativeproduct design

= Payment processing activity

= Other related activity

Dataanalysis

Financial

services

Completedorder

Source: Bain & Company Inc, Boston, MA, USA

Financial Services0

100

200

$300M

Automation Savings

FX services

Transaction

insurance

Credit(buyer financing)

Collateralised

Lending(seller financing)

$300M

Reduced errors& reconciliation

costs

Eliminationof manualprocessing

$160M

Estimate of annualised valuetrapped by inefficient B2Bpayment processes in onevertical industry segment.

Source: Bain & Company Inc,Boston, MA, USA.

Financial Services0

100

200

$300M

Automation Savings

FX services

Transaction

insurance

Credit(buyer financing)

Collateralised

Lending(seller financing)

$300M

Reduced errors& reconciliation

costs

Eliminationof manualprocessing

$160M

Estimate of annualised valuetrapped by inefficient B2Bpayment processes in onevertical industry segment.

Source: Bain & Company Inc,Boston, MA, USA.


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Automation BenefitsA significant proportion of realisable benefits about one third in all - derive from automation.Achieving the goal of straight-through-processing for both corporates and banks was a majorobjective in the design of Eleanor, and there are many features that facilitate benefits in this area.

Eleanor ensures that buyers and sellers eCommerce systems can deal directly with each other

throughout the payment initiation process, allowing both parties to automatically capture or exchangewhatever data is required to facilitate automated end-to-end tracking, support and, most importantly,reconciliation.

The basic Payment Obligation workflow provides the simplest example:

the buyer digitally signs a payment instruction and sends it to the seller

the seller adds its own information, including bank account data, and sends it to its bank

the sellers bank validates the sellers data, adds settlement details and sends it to the buyersbank

the buyers bank validates the buyers data, including the employees authority to make thepayment, responds to the sellers bank, and executes the payment in due course

Each party can capture and record whatever data it requires at each step.

Figure 7: Basic flow of the Eleanor Payment Obligation

This sequence is known variously as counter-clockwise or pull payment processing, or simplycollections. Cheques also follow a counter-clockwise workflow, and a major advantage is thatinformation required for tracking and reconciliation does not have to be carried through the bankingsystem. Eleanor also supports the opposite flow, known as clockwise or push paymentprocessing, but the largest benefits are expected to derive from counter-clockwise bank productdeployments as these more closely match traditional B2B paper-payment flows and provide greateropportunity for automating reconciliation.


$

$$

Buyer Seller

IPT administers the Eleanor System:

Membership program IP Management: specs & rules Vendor/partner programs

Member

Agreement


via member agreement

adhere to specs & rules sponsor their business customers

Member

Agreement

Buyers and Sellers:

participate via their bank adhere to customer terms & conditions trade with each other as usual pay and finance via Eleanor services

Customer

Agreement

Customer

Agreement

IdentrusIdentrusPaymentsPayments& Trade& Trade


$

$$

Buyer Seller

IPT administers the Eleanor System:

Membership program IP Management: specs & rules Vendor/partner programs

Member

Agreement


via member agreement

adhere to specs & rules sponsor their business customers

Member

Agreement

Buyers and Sellers:

participate via their bank adhere to customer terms & conditions trade with each other as usual pay and finance via Eleanor services

Customer

Agreement

Customer

Agreement



13/18


Using Eleanor, the order, delivery and payment process can be fully integrated:

payments can be initiated seamlessly during the negotiation and ordering process instead ofbeing a separate activity;

complete payment information what is being ordered, paid for, when and how is linkedinto the electronic payment function itself;

bank information and processes required to execute the payment are transparent to the tradingpartners, either because they are added into the payment itself or because they are stored asstanding instructions within banks internal systems

Eleanor can be the vehicle for eliminating manual reconciliation activities, both payables andreceivables, and could even be used to eliminate invoices altogether. Eleanor also supports straight-through-processing for the participating banks by, for example, allowing banks to add settlementinformation to transactions during the initiation process. This has the dual advantage of driving costfrom banking processes and ensuring that there are no delays in crediting the seller on the valuetransfer date.

Automation using Eleanor also improves timeliness. Current cross-border trading, for example, oftenresults in a seller relying on the buyer to go offline to its bank to arrange a letter of credit in thesellers favour. Even with todays fastest proprietary eBanking solutions, the seller will typically waitdays for confirmation. Using Eleanor, a Conditional Certified Payment Obligation can be with theseller in near to real time - a considerable advance and advantage.

Financial Services BenefitsThe more interesting benefits in the example are those in the financial services category, whichamount to two thirds of annual realisable benefits to industry participants. Here Eleanor differentiatesitself from other options that might also achieve benefits of payment automation.

Example An Eleanor Certified Payment Obligation in Action

Consider the diagram below. The seller has sent the buyer an invoice (electronically, of course) for$1M for goods previously provided, payable in 7 days. To encourage the buyer to pay early, the selleroffers an early payment option a 0.5% discount on face value ($5000) for payment today. Thebuyers accounting department does its sums a 0.5% discount provides a strong incentive (~25%annualized), but cash is not at hand and the seller will only accept a bank-backed payment instead.Fortunately the buyers credit standing with its own bank is good, and a Certified Payment Obligationcan be obtained for a 0.25% fee ($2500) based on prevailing interest rates, the 7 day term and thebuyers banks knowledge of the buyers cash flows, including future dated Eleanor payments in thebuyers favor. The buyers clerk goes to the sellers website and creates a Certified PaymentObligation for $995,000 in favor of the seller. Eleanor plug-ins allow remittance data to be directly

captured in the buyers payables system and the sellers receivables system, meaning that subsequentreconciliation is eliminated almost entirely. The seller then avails of a value today functionprovided by its bank, whereby ownership of the Certified Payment Obligation is electronicallytransferred from the seller to its bank in exchange for cash at a 0.20% discount to face value based onthe credit rating of the buyers bank. In effect, the seller has obtained cheap receivables financingfrom its own bank, underwritten by the credit rating of the buyers bank.


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Figure 8: Example an Eleanor Certified Payment Obligation (simplified)

All parties have benefited from the process outlined above: the buyer obtained a net discount of$2500 ($5000 minus its banks fee of $2500); the seller obtained $993,010 cash today ($995,000 facevalue minus the sellers banks fee of $1,990); the buyers and sellers banks obtained fees for theirservices and financing. Note that the example works whether the buyer and seller are in the samecountry or different countries Eleanor is designed to be global.

Some variations on the above example:

The seller might have wanted a bank-backed payment even without the value today option,purely to mitigate credit risk. In that case, the seller might merely hold the Certified Payment

Obligation to maturity and obtain cash after 7 days.

The buyer might have a triple-A short term debt rating, in which case the seller might acceptits Payment Obligation without a bank certification and still be able to obtain value today viaits bank.

The buyer had already received the goods from the seller, so conditions were not relevant forthis payment. But suppose the invoice was an advanced shipping notice instead. The buyermight then have wanted to place conditions on the payment like only if the goods arrive inmy city warehouse before Christmas (as evidenced by XYZ courier company) and theycomply with ISO1234 (as verified by ABC Quality Inspectors Inc). A Conditional CertifiedPayment Obligation could then be used.

The original trade might have been in USD but the seller really wants GBP. The sellers bankcould provide an FX service as an adjunct to the electronic transfer of ownership process,similar to the value today function.

Returning to the estimated benefits depicted in figure 6, and starting from the bottom:

Eleanor facilitates seller financing through the transferability of Payment Obligations. Bankscan offer their customers a discount facility whereby future dated Obligations can betransferred at a discount to face value.

Buyer credit can be achieved in a variety ways using Eleanor, the most obvious being a lineof credit for Payment Obligations. Banks can provide buyer credit services at lower cost by

1. Seller sends invoice to Buyer.

2. Buyer sends future-dated Certified Payment Obligation to seller3. Seller forwards to its bank (adding bank account)4. Sellers bank forwards to buyers bank (adding settlement data)

5. Seller transfers ownership for value today6. Sellers Bank credits Seller with face value minus discount.7. Buyers bank settles on value date.

Note that various steps have been omitted, egBuyers Bank approving the certification.

Buyer Seller

1. Invoice $1M

5.request value

today

2. Certified Pob $995,000


6. credit $993,010(face value - discount)

4. transmission

7. $995,000on value date

3.

Buyers

Bank

Sellers

Bank


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tracking transactions online and maintaining a database of transaction history.

Transaction insurance, to protect sellers against payment failure, can be achieved usingEleanor Certifications. Likewise, Eleanors Conditions provide insurance from the buyersperspective.

Eleanor supports multiple currencies and cross-border transaction processing and its designand workflows provide ample opportunity for banks to provide FX services.

Transferable Obligations

The worked example above illustrates that transferability of Eleanor Payment Obligations can lead toa range of financial benefits for corporate users and their banks. However, the value of transferabilityneed not stop there. Eleanor creates a situation in which the sellers bank can on-sell PaymentObligations to other bank participants of the Eleanor system, effectively creating a secondary marketfor trade-based financial instruments. Eleanors design and rules support this concept, and, givensufficient depth in the market over time, the trading of Eleanor Payment Obligations could become aprofitable activity in its own right, allowing Eleanor banks to securitise their receivables and manageportfolios of trade-based instruments.

Profitability of Eleanor ServicesEleanor provides the means to realize value trapped in todays B2B payment processes. Banks canuse Eleanor to internet-enable their current business transaction services, assisting their customersmigration to eCommerce and improving profit margins in the process.

Example. Lets say a bank offers business cheques today for $0.50 and makes a profit of $0.04 oneach cheque. In conducting market research and working through its business case for Eleanorparticipation, the bank might conclude that it can offer electronic Payment Obligations at an internalcost of $0.30 at projected adoption rates. It could then price its Eleanor Payment Obligations at $0.35,increasing todays profit margin to $0.05 but still providing a $0.15 incentive per cheque for itscustomers to migrate to electronic payments. Although bank revenues are lower overall, margins

have increased and profitability is enhanced. Furthermore, the banks customer has a cheaper productthat facilitates other benefits. Suppose that one of the banks customers incurs average costs of $2 percheque for payables reconciliation activities, but the customer determines through internal assessmentthat by using Eleanor Payment Obligations the average item reconciliation cost will be reduced to $1.The customer therefore stands to directly benefit by a total of $0.15+$1.00 per transaction throughadopting Eleanor payments, and will also have access to other Eleanor features such as conditions andcertifications.

Eleanor can reduce the cost of providing credit in the eCommerce world depending on the extent andsophistication of a banks implementation. Consider the case of a bank that offers its businesscustomer a line of credit or overdraft facility for its cheques. Due to the uncertainty of cash flows and

difficulty in predicting the use of cheques, bank overdraft limits are often set higher than they couldbe and are rarely used in full. A risk-weighted capital allocation associated with an overdraft limitcould therefore be reduced if future cash flows were better known. Eleanor provides an opportunityfor a bank to obtain more complete and accurate information about future financial events by trackingPayment Obligations as they arise, as opposed to finding out about a cheque when it comes throughthe clearing system, which in turn can translate to more accurate capital allocations or lower overdraftlimits. As with the cheque migration example, a bank could structure its fees so that customers havean incentive to adopt the new electronic service while also enhancing bank profitability.

Referring to the 3-layered-model, banks can offer Eleanor services branded as they see fit andaccording to their own price list. Typical Eleanor services and fees that banks might offer include:

establishment: to register a business as an Eleanor subscriber, install and activate software,train end-users, and so on


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subscription fees: annual Eleanor support fees to cover customer support, service upgrades,and so on

payment processing: initiation fee for buyers bank, collection fee for sellers bank

certification: transaction fees and credit/interest charges

condition processing: establishment and discharge fees

obligation transfer: transaction fees and credit/interest charges

Key benefits for banks would derive from:

replacing paper payment products and reducing operating costs through automation

protecting or enhancing existing relationships and revenue streams

extending credit services seamlessly and cost-effectively into the B2B eCommerce world

Bank customers benefit from:

reduced operational costs through automation and straight-through-processing

access to new risk management and financing tools that fit seamlessly into their eCommerceprograms

more financing options and better knowledge of cash flows that can result in lower workingcapital costs

The Eleanor SystemThe most important Eleanor benefits global interoperability and legal enforceability - are bestachieved through participation in The Eleanor System.

Consider again the example above where the seller accepted a $1M Certified Payment Obligationfrom the buyer. Technical interoperability between the buyers and sellers eCommerce systems isimportant for achieving benefits of automation and financing, but the transaction itself is onlycommercially viable if the seller has the unequivocal and enforceable assurance that the buyers bank

will honour the transaction in due course. Likewise, the sellers bank would only treat the CertifiedPayment Obligation as transferable with the credit rating of the buyers bank if underwritten bylegally enforceable agreements. These assurances can be achieved through participation in TheEleanor System which binds all parties, directly or indirectly, to one set of Operating Rules.

At the macro-level, one might ask in relation to the quantitative analysis in diagram 6 Why doesntone bank introduce a killer ePayments application and grab all the transaction banking businessitself? The answer goes right back to the introduction. A bank can only achieve this outcome if ithas 100% market share of the transaction banking relationships in the given industry segment.Otherwise it faces the challenge of trying to provide payment and financial services to its customerscustomers. Given that the members of any industry segment are likely to have various andunpredictable transaction banking relationships, and that these relationships tend to be sticky (costly

to change), the benefits can best be unlocked by leveraging existing bank relationships into a scenariowhere business interoperability is assured, regardless of banking relationships. Hence the creation ofThe Eleanor System.


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Contacts

For more information:

Financial institutions should contact their Identrus sales representative or John Bullard, ManagingDirector Identrus Participant Relations, MWB Business Exchange, 78 Cannon Street, LondonEC46NQ, +44-207-618-8406,[email protected]

Corporations should contact their transaction banking relationship manager and ask about Eleanorparticipation.

Vendors should contact Peter Blakey, Eleanor Product Manager, MWB Business Exchange, 78Cannon Street, London EC46NQ, +44-247-661-2240,[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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Appendix A Summary Eleanor Benefits

Eleanor Benefits for Corporate Users Eleanor Benefits for Financial Institutions

Operational efficiencies:

Automation of business processes and straight-

through-processing Elimination of manual processes involved in

payment reconciliationPro-active risk management

Conditional payments protect buyers

Payment certifications protect sellersBetter management of working capital through:

Improved timing and knowledge of cash flows

Access to innovative e-financing tools

Offer distinctive B2B ePayments products that:

Meet customers eCommerce needs

Are globally interoperable and enforceable

Strengthen customer relationships

Create new product opportunitiesInternet-enable cash management products:

Restructure margins based on customerautomation / straight-through-processing

Reduce back-office costs

Reduce financing costs through improvedknowledge of customer transactions

Appendix B Eleanor Distinguishing Features

Feature Description

Broad functionality Simple and conditional payments, certifications, transferableobligations designed to suit diverse B2B circumstances.

Global Suitable for domestic and cross-border transactions.

Transferable obligations Creates corporate and bank financing opportunities.

Counter-clockwise flow Direct communication between buyer and seller matchtraditional flows, eg cheque payments, and facilitateautomation and financing opportunities.

Distributed Architecture Allows differentiation with flexibility and control. Promotessystemic robustness and scalability.

A system Hierarchical structure that ensures legal enforceability,technical and business interoperability through Specificationsand Operating Rules.

System participation leverages bank-customer relationships,preserving and extending the role that banks play in B2Bcommerce today.

Eleanor was designed by banks for banks and their customers.

eleanor white paper

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