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Breaking Down the Barriers to SWIFT Once the preserve of large multinational corporations, SWIFT connectivity has become a viable option for corporate treasuries that are seeking to improve working capital management and reduce costs. Find out what the options for SWIFT participation are – and how best to take advantage.

Breaking Down the Barriers to SWIFT

by Tino Kam, Head of Direct Channels for Global Transaction Services, The Royal Bank of Scotland

Once the preserve of large multinational corporations, SWIFT connectivity has become a viable option for corporate treasuries that are seeking to improve working capital management and reduce costs.

An increased awareness of counterparty risk and continuing efforts to improve working capital efficiency in order to reduce costs are combining to push SWIFT connectivity higher up the corporate treasurer’s agenda. At the same time, moves are being made by SWIFT and its member banks to open up the SWIFT network to a wider range of corporates.

The traditional obstacle to SWIFT use for all but the largest multinational corporations was cost – not only of joining the network but also of the messaging itself. However, innovations such as SWIFT’s entry-level Alliance Lite solution and free on-boarding options provided by service bureaux, such as that operated by RBS, have helped to substantially reduce the economic impact of SWIFT participation. The result is that today, around 30% of RBS’s host-to-host implementations are based on SWIFT’s FileAct and many more are in the pipeline. Moreover, many RFPs and RFIs submitted to financial institutions from the corporate sector are specifying SWIFT connectivity as a requirement.

Improving working capital efficiency

In providing a highly secure, robust and standardised single channel into multiple banks, SWIFT is an ideal solution for any corporate that is looking to improve the visibility of its funds globally or eliminate multiple proprietary electronic banking systems. These are key aims of corporate treasurers as they strive to improve working capital efficiency in order to free up funds that can be deployed in a more timely manner where and when needed across their operations.

Research conducted last year by CFO Research Services on behalf of RBS revealed that effective management of working capital has assumed greater urgency, particularly in Europe, as market demand has been slow to return and short-term credit remains both difficult to access and expensive.

Of the 207 senior finance executives surveyed, only half or fewer said they were using many of the automated cash-management techniques available such as automated direct debit, e-billing, direct SWIFT connectivity and intra-day sweeping. This suggests a significant opportunity to increase the use of such methods, given that most respondents said they were now considering adopting these tools to improve working capital performance.

The highest level of SWIFT adoption was in the professional and financial services sectors, where 41% of respondents said they had adopted SWIFT connectivity, a result that reflects the use in these sectors of sophisticated information systems and a greater understanding of automated cash management techniques.

Corporates that use SWIFT have a significant advantage in terms of funds visibility. Using SWIFT messages, data is more easily aggregated than at a treasury that has to pull in data from a series of electronic banking systems. Feedback has shown that clients are able to allocate funds, move investments and offset debits in a significantly more efficient manner.

Mitigating counterparty risk

The multibank element of SWIFT meets an increasing desire among corporates for bank-agnostic connectivity. The financial crisis of 2008 cast a spotlight on counterparty risk and slowed the trend of corporates to concentrate their banking relationships to fewer banks. Instead, corporate treasuries have sought to spread counterparty risk by doing business with more banks.

However, implementing multiple proprietary electronic banking systems is inefficient and does not deliver the visibility of and control over funds treasuries are also seeking. Connectivity is an important element in these risk mitigation efforts and the ability to connect to multiple financial institutions using standard messages via SWIFT’s network is proving to be an attractive proposition as demonstrated in figure 1.

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