Beyond Connectivity: Creating ‘Win Win’ Strategies

by André Casterman, Global Head of Corporate and Supply Chain Markets, SWIFT

SWIFT first opened its doors to corporations in 1999, and over the 16 years since, the value proposition for corporate users has developed rapidly and radically. At first, corporate access to SWIFT was limited to exchanging confirmations with banking counterparties, and later, a wider range of financial messages such as payments and account statement information. Today, while connectivity remains key to SWIFT’s offering, the value that corporations derive from their relationship from SWIFT extends beyond connectivity, with a diverse and growing range of services.

Secure financial connectivity

Connecting to one or more banking partners through a single, secure and reliable channel is typically the way that corporate treasurers and finance managers first start their relationship with SWIFT.  In particular, companies are attracted to greater operational and cost efficiency, better visibility over cash and technical independence from individual banking providers. The value proposition of SWIFT connectivity continues to grow as the range of message types that banks and corporations exchange via SWIFT increases, with a wealth of opportunity across cash, liquidity, treasury, trade and supply chain, and bank account management.

In the early years, it was only the largest multinationals that had the appetite and demand for SWIFT connectivity. Today, this is no longer the case as companies of all sizes expand internationally, and seek to manage counterparty risk and access local banking services by appointing a panel of banks that offer complementary services. SWIFT access is now characterised by flexibility, convenience and cost-effectiveness with a range of access models available. Some, for example, choose to outsource connectivity through specialist service bureaus, while others connect via SWIFT’s cloud-based solution, Alliance Lite2, or access integrated communication services that are now available through various treasury management systems.

Automation and compliance

While globalisation has added to cash and treasury management complexity, growing regulatory demands are also leading to more onerous compliance requirements. Automation is key to managing this complexity to avoid diverting treasury resources from value-added activities.  SWIFT plays a vital role in achieving this whilst improving accuracy and reliability of processing. For example, under EMIR and Dodd Frank, corporates transacting over-the-counter (OTC) derivatives that need to register a legal entity identifier (LEI) for each subsidiary can do so via SWIFT and DTCC’s global registration service.

Automation requires reliable data, a challenge to which SWIFT responded by introducing SWIFTRef, a reference data directory that has become the industry-recognised means of maintaining accurate bank data in an affordable and accessible way. SWIFTRef data can be integrated into ERPs, treasury, payment and cash management systems through a single file import, of worldwide bank identification details, with automatic updates to maintain data efficiently. Similarly, in response to user demand for transparent, reliable format definitions, SWIFT collaborated with banks and corporate users to introduce MyStandards. This is a repository for global industry formats that allow banks to publish format specifications and for corporate users to consult and test formats to ensure efficient approach to integration and rule definition.

Identity and mandate management

3SKey is an important example of how SWIFT has led the industry in developing a tool to meet specific user demands

One of the key value propositions of SWIFT for both corporate and financial institution users is its security. In addition to the inherent network security, SWIFT enables personal user entitlements and personal approvals of both payments and bank account mandates via 3SKey. This is an essential way of complying with payment security requirements in countries such as France, but also provides a highly effective additional level of validation on individual signatories. 3SKey is an important example of how SWIFT has led the industry in developing a tool to meet specific user demands that can then be leveraged through both SWIFT or bank-proprietary channels. 3SKey supports a single sign on process across a variety of platforms, providing a cohesive and convenient experience for users whilst supporting rigorous validation.[[[PAGE]]]

Certainty and efficiency in the supply chain

Another key area in which SWIFT is fulfilling a vital leadership position is in facilitating international trade. One of the challenges faced by trading counterparties is that while open account transactions are convenient, quick and cost-effective, there are potentially significant counterparty and financing risk issues. Trade instruments, such as letters of credit, support counterparties’ risk and financing requirements, but are typically more costly, resource-intensive, and can extend the working capital cycle significantly. In contrast, the Bank Payment Obligation (BPO), introduced by SWIFT, combines the risk and financing benefits of trade instruments with the speed and convenience of open account transactions. BPO is an entirely electronic, irrevocable and legally binding trade settlement instrument with standard matching rules. This creates an entirely new ‘win win’ for both trade counterparties and their banks, and helps to accelerate the trade cycle, automate trade processes and ultimately increase competitiveness.

SWIFT’s industry role and its relationship with both banks and corporations has evolved radically since SWIFT for corporates was first introduced in 1999. The next five  years are  likely to see comparable if not greater change, with SWIFT increasingly becoming the focus, and driver, of initiatives that enhance the security, efficiency and integrity of financial transactions for buy and sell-side participants globally. Corporations can play a key role in defining and prioritising these initiatives by engaging with SWIFT, banks, and industry working groups. Sibos, SWIFT’s annual conference, exhibition and networking event, which this year takes place in Singapore from 12 – 15 October 2015, including a dedicated corporate forum on 14 and 15 October, is a key opportunity to debate and contribute to the financial services agenda. Next year, Sibos will take place in Geneva from 26 – 29 September 2016. We look forward to seeing you there!