Published: May 01, 2010
Treasurers globally are constantly striving to improve the way they manage their activities and enhance the value that their department brings to the organisation. While the financial crisis was a catalyst for treasurers’ optimisation efforts, increased efficiency, reduced costs and improved control are long-standing objectives that are constantly evolving as new opportunities through technology arise. An area of particular focus both during and subsequent to the financial crisis has been an emphasis on working capital management, with liquidity elevated to a critical priority for every treasurer. Enhancing operational efficiency and optimising working capital requires an effective means of communicating accurate, timely and complete information with banking partners, to provide a consolidated cash position, and facilitate straight-through processing. In this article, we look at trends and opportunities in bank connectivity, and how the right partner can contribute to an effective bank communication strategy.
RBS is partnering with IdenTrust to incorporate digital certification into the information transmission process.
Many companies have invested significantly in their technical infrastructure and business processes in the past, in order to enhance their access to information and the efficiency of their payments and collections. However, the financial crisis hampered many treasurers’ efforts to leverage the latest standardisation and connectivity opportunities, and it is only now, with economic stability returning, that we are seeing a renewed interest in acting on the technology plans that were put in place pre-crisis, and formulating new technology strategies.
One of the priorities for treasurers before the crisis was to rationalise their banking relationships, with many seeking to appoint a global cash management bank. As counterparty risk became a more prominent issue, a global banking model was increasingly seen as being too high risk, with companies preferring a regional or multi-banking model. This has certain advantages, such as having access to best-in-class banking services in each country in which a company operates. However, the more diverse a company’s banking relationships, the more potential there is for incomplete, inconsistent or fragmented information, the need to maintain multiple systems and interfaces, and the problem of trapped cash. Therefore, treasurers have to strike a careful balance between managing their counterparty risk and maintaining an efficient liquidity management strategy. With recent innovations in bank-agnostic connectivity and standardisation, this balance becomes easier to achieve, with the opportunity to retain banking relationships that add value to the business whilst benefiting from a consistent approach to bank communication and standardised formats.
The emergence of bank-independent connectivity such as SWIFT Corporate Access, and a standardised approach to information formats, such as ISO 20022 based on XML, reflects a new era in transaction banking. When SWIFTNet (the SWIFT network) was first made accessible to corporates, there was uncertainty as to whether SWIFT would complement or compete with banks’ proprietary solutions. It quickly became clear that there was a demand for both bank-independent and bank-owned communication channels. Banks such as RBS recognised at an early stage that collaboration with customers, vendors and other banks to develop industry-standard connectivity platforms and information standards has the potential to add considerable value to both individual clients and the wider industry. For example, RBS works closely with other banks through the SWIFT Corporate Access Group, treasury management system vendors and customers to develop plug-and-play SWIFT capabilities and become a leader in corporate connectivity through SWIFTNet.
As a result of these efforts, we now support over 50 clients who access RBS and other banks through SWIFTNet. In the early days of the SWIFT Corporate Access programme, only the largest corporates with the technical resources to maintain their own connection chose to adopt SWIFT. Over time, as the range and depth of services to corporates seeking to use SWIFTNet has matured, the majority of companies connecting to SWIFT today use a service bureau. Other options for SWIFT connectivity, such as Alliance Lite, also exist, but there has not yet been significant take-up of this option.
RBS launched its service bureau 18 months ago, and since then, we have extended its reach globally, providing the connectivity, convenience, global network and integrated support model that our clients require. The RBS Bureau is a white-labelled solution that includes more value-added features than if you purchased directly. It is branded as RBS and is underpinned by the reassurance of an RBS contract.[[[PAGE]]]
Connecting to SWIFT through a service bureau brings a range of advantages, as treasurers do not need to invest in additional technology or resources to achieve their bank communication objectives. However, with over 100 bureaux to choose from, there are various criteria to consider when selecting a connectivity partner.
Treasurers have unprecedented opportunities today for efficient, secure and automated bank connectivity through both proprietary and bank - agnostic channels.
With companies seeking to use SWIFT for payments and collections globally, all payment types need to be supported, and SWIFTNet alone may not be sufficient to do this. This may result in the requirement for a local online channel in certain countries to facilitate these needs.
Secondly, effective bank connectivity is not simply about exchanging transactions and statements, but also should enable information to be integrated with in-house systems for straight-through processing and automatic reconciliation. Although there are increasing efforts towards standardisation of formats for financial messaging, universal standardisation will not be achievable in the short to medium term. Consequently, a service bureau needs to deal with multiple formats and map data to integrate effectively with client systems.
Finally, few bureaux are part of an organisation that has the global reach and integrated support capability offered by RBS, that is key to a cohesive service offering and positive experience that our clients have come to expect.
The financial crisis encouraged an increasing number of companies to seek connectivity to their banking partners through SWIFTNet, in order to benefit from greater bank independence and control, and to provide consistency within a regional or multi-banking model. These companies’ demands for improved security, control and convenience have encouraged banks and vendors to collaborate further to enhance the connectivity experience. This is resulting in some important industry innovations; for example, RBS is partnering with IdenTrust to incorporate digital certification into the information transmission process. Vendors such as SAP are working closely with banks to deliver plug-and-play connectivity to SWIFT, reducing the implementation and integration effort.
XML-based formats, specifically ISO 20022 which is the standard for SEPA payment instruments, are growing in momentum globally. Although SEPA Credit Transfers currently account for only 4.8% of euro payments, treasurers are now able to give SEPA greater attention and many are reviewing SEPA Credit Transfers and Direct Debits, and ISO 20022 standards to replace existing payment instruments and formats such as EDIFACT or proprietary formats. RBS are providing considerable support to clients in their SEPA planning and implementation, including partnering with payment solution provider Experian to deliver automated BIC and IBAN conversion services.
Treasurers have unprecedented opportunities today for efficient, secure and automated bank connectivity through both proprietary and bank-agnostic channels. For example, RBS’s Access Online is widely recognised as an industry leader in electronic banking services, providing cross-product capabilities and wider relationship management tools in a convenient and integrated way, complementing our host-to-host capabilities for direct ERP and TMS integration. SWIFT Corporate Access is also an important element of our connectivity solution, particularly for regional or global companies with multiple banking relationships.
These are just some examples of how RBS is striving towards greater collaboration, convenience, control and client choice in achieving their connectivity needs. However, the future ideals of bank connectivity, such as universal standards and aligned payment instruments, need to be balanced with the current reality. For example, operating in countries such as Russia and China may still require the use of proprietary channels, and not every domestic payment type, or counterparty bank is available through SWIFTNet. It requires a bank with the technology innovation, breadth of services, commitment to collaboration and global reach to provide the efficiency and convenience that treasurers require, whilst addressing the challenges of international cash management.
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