How HSBC Puts Connectivity to Work for its Clients

by Ian Bryant, Senior Product Manager, HSBC Global Payments & Cash Management

The way in which corporates communicate and integrate with their banks has become one of the most significant issues which today’s treasurers need to address. But connectivity is not simply the domain of technology experts; it is the key to effective cash management: cash centralisation and visibility, automated reconciliation, cheaper and more secure payments, regulatory compliance and efficient control over collections. All require an effective communication channel between a corporate and its banks.

One of the primary challenges faced by corporates, whether working with multiple banks or in some cases even with a single bank, is the difficulty in connecting various banking systems, each of which uses its own format, to multiple internal systems which again use their own formats. To achieve this, corporates often need to expend significant resources, as do their banks and system vendors, to set up new interfaces whenever the corporate changes or adds banking relationships, or upgrades or replaces internal systems. This is exacerbated even further when corporates engage in mergers and acquisitions, as treasury may inherit an entirely new banking and systems infrastructure which needs to be integrated within the existing framework.

There would seem to be two possible solutions to the problem. Firstly, it would be a great deal easier if internal systems, which generate information to transmit to the banks, or receive information from them, and the banking systems to which they connect all used the same format of information. That way, while a similar number of interfaces might still exist, these would be uniform and new banks and systems could simply be plugged in to connect to each other.

Secondly, rather than establishing multiple interfaces between systems, an alternative would be to channel all financial messages through a common network to which all financial counterparties are connected.

The past few years have seen significant progress in achieving both of these aims; standardisation by XML ISO 20022 and SWIFT connectivity. While the complexity of corporates’ connectivity requirements has never been greater, the solutions now available to manage these and optimise cash management have also never been more advanced or more convenient.

Getting the right solution

The ability for a treasurer to send and receive information in a secure way with the company’s banks, directly to and from internal systems is crucial to every aspect of a treasurer’s role, so having the right connectivity solutions should be a priority.

The options are diverse but the opportunities are endless. With some exceptions, SWIFT has primarily been the domain of corporates with large cash flow volumes or numerous banking relationships. New pricing arrangements and simpler ways of connecting to SWIFT, including SWIFT initiatives in 2008, and the convenience of service bureaus and member concentrators, means that bank independent connectivity is accessible to a far larger spectrum of corporates than ever before. At HSBC, we anticipate that our customers will increasingly seek to connect both to HSBC and other banks through SWIFT as the experiences of corporates with similar treasury and cash management challenges become more widely publicised. [[[PAGE]]]

Standardisation is another related trend. Whatever the preferred way of communicating with banks, the process of connecting banking systems with corporates’ internal systems should be as straightforward as possible. The widespread agreement between banks, vendors, corporates and SWIFT on the use of XML ISO 20022 represents a major step forward in delivering plug & play communication between systems. HSBC want to make it as easy as possible for customers to do business with us, by supporting recognised standards and promoting high levels of automation between all corporate systems.

Whatever the preferred way of communicating with banks, the process of connecting banking systems with corporates' internal systems should be as straightforward as possible.

We envisage that the momentum driving a standardised approach to communication and integration, which is supported across the financial community, will continue to accelerate, bringing significant benefit to our corporate customers. HSBC is an active participant in the working groups that are helping to make standardised XML a reality throughout the financial supply chain.

It may be surprising to some corporates that there has been such a focus on collaboration between competitive organisations such as banks and software vendors. One of the key benefits for corporates of standardising their integration and /or connecting to their banks through SWIFT is that they achieve greater independence from their banks, i.e. they can change or add banks more easily than having to replace complex systems with multiple interfaces.

However, forward-looking banks recognise that the channel through which information and services are delivered is not the reason that customers choose to do business with them; rather, the range of cash management services, quality of customer service, value and geographic footprint are among the factors on which corporates base their decision to work with, or continue working with a bank.

Attracting new customers

While a bank might think that using proprietary formats and systems encourages customer loyalty, it is a short-sighted attitude and undesirable in the longer term. After all, a bank does not do good business by preventing customers from leaving; it does good business by attracting new customers with first-class products and services, and making it easy for them to join. Consequently bank independence should be considered an opportunity more than a threat. Connectivity is a cost to everyone - bank, corporate and software provider, so it makes far more sense for all the parties to collaborate to provide high-quality connectivity channels.

SWIFT, whilst an important component from a corporate perspective, is only part of the overall picture. HSBC’s strategy in the corporate space has remained consistent: the customer relationship is very much ‘centre of plate’ for us.

Essentially we continue to focus on our customers’ needs. We try to anticipate their objectives and aims around centralisation, increased automation and STP rates, integration with their back-office systems, improved visibility of cash, re-engineering of processes, bank relationships and multi-bank connectivity.

Now is a good time for banks as a number of external factors such as SWIFT for corporates, XML ISO 20022, SEPA and the Payment Services Directive (PSD) are acting as catalysts for change. Banks are pro-actively assisting their clients to harness the benefits of these initiatives. Many of our clients have already re-engineered, or are planning to re-engineer, their back offices and this in turn leads to a fundamental review of file formatting protocols and connectivity issues. These projects frequently require us to develop a suite of propositions in response.

As far as SWIFT is concerned, we are supporting the Treasury Counterparty (TRCO) access method, SCORE, MA-CUG, SWIFT bureau and Alliance Lite alongside both FIN and FileAct. This strategy enables us to satisfy the needs of our corporate clients in the SWIFT arena, whether they are major multinational corporations (MNCs), large corporations, non-bank financial institutions or mid market enterprises (MMEs)/small market enterprises (SMEs).

We are seeing a growing number of companies actually accessing SWIFT today and our dialogue with existing and potential corporates very often includes detailed discussions on the connectivity options, which inevitably include SWIFT. As an example, many of our larger customers use our host-to-host solution to connect to the bank. This solution is now evolving into a direct SWIFT access model. [[[PAGE]]]

Delivering real value

The decision taken by the corporate with regard to SWIFT access focuses on three key drivers: cost, volume and complexity. Because of our decision to support the full suite of access options, we can help our clients make an informed decision on which route is the most appropriate for them. Indeed, we at HSBC have taken this one step further.

We have developed a relationship with one of the major service bureaus and we are looking at ways of delivering real value to our clients. In essence we are focusing on addressing the connectivity issues mentioned earlier and developing ‘any-to-any’ mapping tools. However, our approach is to look beyond pure connectivity and use value-added technology solutions and the power of HSBC’s worldwide footprint to provide our customers with a global treasury, payables and receivables solution which can be integrated seamlessly into the back office, delivering end-to-end straight through processing.

We believe our unique solution will meet the needs of multinational corporates wishing to integrate transactional banking flows into their back-office applications with minimal effort and gain maximum benefit in terms of operational efficiency and cash flow.

The service involves the deployment of market-leading technology applications to provide:

• SWIFTNet connectivity via a service bureau arrangement

• SWIFT operations and network management

• Optional host-to-host connectivity via the internet (HSBC Connect)

• Integration into your back-office (ERP and / or TMS) applications

• Data normalisation, such that the interface can be to a variety of applications, with ‘any-to-any’ data re-formatting - no need for the corporates to upgrade

• Value-added applications, such as payment filtering, liquidity management and reconciliations processing

• An integrated market-leading treasury management solution to enhance further the already rich functionality of our SWIFT connectivity offering

• A managed implementation, including full business analysis, project management and weekly progress reporting.

The model, based on SWIFTNet, supports a multi-bank approach.

The technology solution utilises SWIFTNet or HSBC Connect applications and network to deliver standard messages into HSBC’s core bank applications. As a result, instructions can be processed with the highest levels of straight through processing.

A packaged solution

The corporate contracts with HSBC for all services. HSBC’s underlying contracts with the service bureau guarantees performance. From the corporate perspective, this provides a much greater degree of comfort than when dealing separately with technology vendors. By buying a packaged solution, including a TMS, there is no need for the corporate to maintain separate vendor relationships. The solution we are offering includes automatic upgrades as software releases are implemented, saving on annual technology maintenance costs.

The package is also scaleable, such that corporates do not need to invest in excess capacity. Our customers will simply pay more if and when they transact more business over the platform - it is a ‘pay as you grow’ model. [[[PAGE]]]

Looking ahead

We have already deployed the solution in the UK and have plans to commercialise this globally over the next year or so. In summary, our solution puts connectivity to work for the client. Our modular approach, using best in class components, allows the client to build out from a foundation of SWIFT connectivity to include: data mapping from/to legacy back office formats; overnight, intraday or real-time reconciliations and exception reporting; filtering and capture of payments against AML check-lists; bulking of payments into cost-effective ACH-formatted files; and use of SWIFTNet FIN and FileAct to connect to banking partners. We have even integrated a market-leading treasury management system (TMS) into our solution, to enhance even further the already rich functionality of our SWIFT connectivity offering. We like to think of this as real in-sourcing in action.

Looking further afield, we believe we will see even more technology integration and centralisation of processes, with connectivity continuing to be a major theme. We think we will see SWIFT drilling much deeper into the middle market space. We will also witness a major migration to the XML and ISO20022 standards. The regulatory environment with SEPA and the PSD will continue to drive change and this will inevitably result in more corporates accessing SWIFT as they re-engineer in response. The return on investment (ROI) is compelling for corporates: 200-300% in some cases.

We think SWIFT will also evolve as an enabler for the financial supply chain and this can only result in a win-win situation. We will see an increase in demand for real-time information. SWIFT prides itself on its resilience and security and these are fundamental attributes when dealing with financial data. Might we see corporates transferring information between each other using SWIFT within the next five years? Why not!

By achieving greater visibility and control over cash flow, cash can be centralised more easily and global positions leveraged to reduce foreign exchange risk, limit the need to borrow and optimise investment returns. More significantly in terms of value of the corporation, cash held on the balance sheet can be minimised and surplus cash used to pay down debt, buy back shares and pay dividends to shareholders. Consequently, the value of an optimised connectivity solution as part of an efficient cash management structure with the right banking partner can deliver both operational and strategic value, from both treasury and finance perspectives and for the group as a whole.