Published: October 25, 2010
SWIFT Corporate Access has gone from strength to strength in recent years, fuelled by both the global financial crisis and treasurers’ and finance managers’ continuing desire to streamline business processes. Before the crisis, there was a general inclination amongst corporate treasurers to rationalise banking partners, to increase cash management efficiency and mitigate the challenges of communicating with multiple banking partners. As awareness of counterparty risk has increased, this trend has shifted, with treasurers preferring to establish a strong, diverse banking panel with the financial strength, geographic reach and product richness to support the company’s cash and risk management objectives. Similarly, corporate treasurers and finance managers are seeking to reduce their reliance on banking partners so that they are able to adjust their banking relationships without technical impediments.
These trends have been instrumental in extending the appeal of SWIFT connectivity, not only amongst the largest multinationals that have been attracted to SWIFT in the past, but across a wider spectrum of organisations. With companies of all sizes seeking to extend their geographic reach to respond to, and anticipate changing economic conditions, many will have multi-banking requirements. This creates the question of how to integrate with these banks in a consistent and efficient way. Increasingly, treasurers and finance managers are opting to access their banking partners through SWIFTNet, the financial messaging network used for communication across the banking community. By the end of 2009, over 600 corporates were using SWIFT to access their banking partners, including many multiples of this figure in terms of the number of legal entities and subsidiary companies. This represents an increase of over 30% from 2008, a trend which we have seen continuing during 2010. This article looks at some of the trends and initiatives that are both enriching the experience of corporate users of SWIFT and making it easier to take advantage of these opportunities.
While early adopters typically chose to install and maintain the technical infrastructure for connecting to SWIFTNet, referred to as ‘direct’ connectivity, subsequent corporate users have typically opted to connect ‘indirectly’ i.e. through a service bureau. Working with a service bureau helps to reduce the cost and effort required both to set up and maintain the connection to SWIFT, and to integrate SWIFT messages with internal systems such as the ERP and TMS.Service bureaus provide a range of services, which may differ between companies, but typically centre around SWIFT connectivity and integration with internal systems. For example, a service bureau will ensure that messages can be transmitted and received to and from the relevant banks. Data is mapped between corporate systems and SWIFT and in some cases, data may be enriched. In addition, as part of its integration role, the service bureau will validate messages sent from the client to the bank to ensure that it complies with the necessary formatting requirements and relevant regulations such as anti-money laundering.
Service bureaus provide a range of services, which may differ between companies, but typically centre around SWIFT connectivity and integration with internal systems.
The industry is maturing in supporting SWIFT connectivity for corporates and there are now a large number of service bureaus catering for corporate needs globally. Most of these are relatively small software providers, but some banks are also now putting their support behind chosen service bureaus, such as through white labelling programmes. In addition to using service bureaus, smaller companies with lower transaction volumes (i.e., less than 200 per day) can also take advantage of Alliance Lite, a convenient web-based alternative to full SWIFT connectivity. Between 10 and 15% of corporate users now access SWIFT through Alliance Lite, with 28% of new users during the first half of 2010 opting for this approach. In some cases, these are smaller companies for whom the functionality of Alliance Lite is sufficient for their needs, while in others, companies are making use of Alliance Lite as a first step towards more comprehensive SWIFT connectivity. Alliance Lite represents a convenient way of rapidly achieving access bank account statements and confirming treasury transactions, and in some cases, companies will extend their access to include payables and collections. [[[PAGE]]]
Just as SWIFT offers a single, cohesive interface between a company and the banking community, ISO 20022 standards provide consistency in the financial messaging exchanged between counterparties. As messaging for financial transactions has evolved, different formats have emerged in each country, often with more than one standard per country, e.g. for high value payments and low value, bulk payments. Furthermore, each bank typically uses its own variation of recognised standards, creating even further complexity for clients, and thwarting efforts at straight-through-processing and straight-through-reconciliation.
The premise behind ISO 20022 is that all financial counterparties should be able to communicate using a standard format that is recognised and supported by all banks in all countries. This is not the first time that attempts have been made at standardisation, such as EDIFACT, but the climate into which ISO 20022 has been introduced has evolved significantly. Banks now recognise and embrace the benefits of collaboration in areas that do not add competitive advantage but have the potential to cut costs and enhance customers’ experience of working with them. Furthermore, as ISO 20022 is the basis of SEPA payments it will gain greater momentum as SEPA is rolled out over the coming years. Although the profile of early adopters has tended to be companies with the most complex and geographically-diverse financial messaging requirements, ISO 20022 brings benefits to companies of all sizes, including those with a single banking partner in one country. By using a standard format, integration with internal systems is easier, with richer information and greater independence from the bank should relationships change in the future.
Trade & Supply Chain
As it becomes easier and more convenient to communicate with banking partners through SWIFT, and financial messaging is becoming more consistent, the range of services that corporate treasurers and finance managers are able to access via SWIFT is also increasing in line with evolving financial priorities. For example, as treasurers have taken more ownership of working capital management, they are seeking to establish greater visibility, control and automation of the elements that contribute to working capital, including trade and supply chain. Consequently, there is growing interest in SWIFT‘s Trade for Corporates offering which enables corporates to apply for, amend and advise traditional trade transactions, including letters of credit and guarantees. Banks are now integrating these capabilities within their systems and service offerings.
Given that the majority of trade today is conducted on open account, SWIFT also provides a solution called the Trade Services Utility (TSU), to address the need to establish flows of information linking the physical supply chain to the financial supply chain. The TSU is a bank-to-bank application, enabling banks to exchange the relevant data using ISO 20022 messages via a standardised interface. Looking ahead, there is the potential to extend these standards in support of corporate-to-bank communications, including possible integration with corporate ERP systems.
ISO 20022 standards provide consistency in the financial messaging exchanged between counterparties.
eBAM (Electronic Bank Account Management)
Another noteworthy example of financial messaging standards that has received considerable corporate support is eBAM. While various electronic opportunities for optimising international trade exist, such as Bolero, there are few options for electronic bank account management, so eBAM represents a major industry advance. As most large multinational corporations work with multiple banks across different geographies, the process of opening and closing bank accounts, and managing permissions on these accounts can be very cumbersome, particularly as each bank has different procedures and documentation. In addition, these manual processes frequently compromise regulatory and audit control requirements as it can be difficult to obtain an accurate list of accounts, signatories and limits, or to amend all relevant authorities quickly to reflect staff turnover or changes of responsibility. [[[PAGE]]]
eBAM creates significant control and efficiency enhancements by replacing disparate, manual processes with standard electronic messaging for managing bank accounts and permissions in a consistent way across all banks. Every time a company wishes to open, close or change authorities on a bank account, this can be communicated to all relevant partner banks using an XML-based SWIFT message for immediate action. The advantages are shared by both corporates and their banks; for example, by processing account actions and changes to authorities more quickly, banks are able to provide a more responsive service to their clients and validate account authorities more rigorously.
The pilot project for eBAM, involving banks, corporates and SWIFT, has been completed successfully, so the scheme is now ready to be rolled out. While banks will need to adapt their systems to transmit and accept eBAM messages, and to integrate these with back office systems, this requirement also extends to corporate treasurers, and shared service centre managers will also need front end applications for bank account management. TMS and ERP vendors are actively engaged in this area, illustrated by Wall Street Systems’ acquisition of Speranza, which provides front end eBAM capabilities. Although this will take time, and organisations will have different approaches to how eBAM services can be best delivered, we are seeing significant progress and momentum, with the needs of the corporate community central to the objectives of eBAM.
Personal digital identity
A related initiative to eBAM is the introduction of a multi-bank personal digital signature capability for added security, verifiable identity and auditability for electronic messaging. This new offering, branded as 3SKey, will become available from October 2010. It will be possible to use 3Skey over the SWIFT network but also through any other communication channel. For example, banks will be able to implement it on their proprietary web channels, thereby reducing their costs by outsourcing this aspect of security to SWIFT as a trusted third party. For treasurers, 3SKey enables them to use a single device for authentication or for signing outgoing payment instructions to their different banks. [[[PAGE]]]
Looking ahead, we anticipate that SWIFT adoption amongst corporate clients will continue to accelerate in two key ways: firstly, in the continued use of SWIFT communication amongst mid cap as well as large multinational companies; secondly, the services available through SWIFT will continue to extend up the value chain. These trends are likely to result in further advances in access to SWIFT, such as leveraging the preference amongst smaller corporates to access their technology services through an ASP (application service provider) model. Furthermore, we will see continuing innovation, as we are seeing with SWIFT’s trade finance offering and eBAM, which will bring further advantages in efficiency, visibility and control across a spectrum of financial processes. In addition, SWIFTNet could play an increasing role in enabling banks to deliver customer service in a more interactive way, including self-service capabilities. Developments in this area are likely to be widely supported, both by corporates and their banking partners, as it is in all parties’ interest that corporates’ experience of SWIFT and of their banks is as positive as possible.
A related market trend is the growing recognition of ‘e-collaboration’ i.e., communication across the corporate commercial ecosystem. Corporates often need to communicate with a vast network of suppliers and customers, as well as financial counterparties and solution vendors, and treasurers and finance managers are seeking to enhance the financial supply chain by automating and standardising these communications across the order-to-cash and purchase-to-pay functions, and to improve the way they access financial and related services. In the past, banks have had little involvement in interactions between clients and their trading partners, but this is likely to change in the future, with SWIFT as a key facilitator and innovator in standardised, integrated communication across the financial value chain.
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