An Interview with Tom Durkin, Global Head of Integrated Channels, Bank of America Merrill Lynch
In this month’s Executive Interview, Helen Sanders, Editor, talks to Tom Durkin, Global Head of Integrated Channels at Bank of America Merrill Lynch about the opportunities that SWIFT offers for efficient, secure corporate-to-bank communication. Tom is joined by Sundeep Singh, Bank Technology Consultant at Cargill, who describes Cargill’s SWIFT implementation and some of the outcomes so far (see page 2 of this article).
What trends are you seeing in the use of SWIFT amongst your corporate clients?
While the ability for corporates to communicate with their banks via SWIFT has existed for well over a decade, it was generally only been the global multinationals with tens or even hundreds of banking providers that first took advantage of this opportunity. This started to change with the growth of service bureaus that provided outsourced SWIFT connectivity services, and more recently with the advent of SWIFT AllianceLite2, SWIFT’s cloud-based connectivity offering. Pricing models have also evolved, making SWIFT a more realistic connectivity proposition for a wider spectrum of organisations. For example, as mid-cap companies expand their geographic reach, they often need to expand the number of banks and manage counterparty risk more effectively, which makes the value proposition of SWIFT more compelling. There are now around 1,500 corporations using SWIFT for bank connectivity, but there is still enormous untapped potential amongst both large and mid-cap corporations.
The ability to connect to multiple banks through a single, bank-agnostic channel has traditionally been the most commonly cited reason to use SWIFT for bank communications. Is this still the biggest driver for SWIFT adoption?
While bank independence remains an important element of SWIFT’s value proposition, our dialogue with corporate clients has evolved significantly in recent years. The importance of managing bank risk has never been higher, both in the aftermath of the global financial crisis and also as a result of the geopolitical and economic volatility in a number of markets, and the decision by some banks to revise their geographic footprint. This is resulting in some clients being forced to change their banking providers, often at short notice, which creates significant strategic and operational issues. Treasurers and finance managers recognise the value of a bank-agnostic platform to which over 8,000 banks globally are connected in supporting their bank risk strategy, and enabling them to channel transaction and information flows to an alternative bank quickly, efficiently and securely.
While managing bank risk is clearly one important driver, to what extent should SWIFT be the connectivity solution of choice to address other types of risk?
Some of the most important benefits of SWIFT are its level of resilience and security features. While these have always been corporate priorities, these issues have become even more important as a result of growing cybersecurity risks. The use of SWIFT, particularly when outsourcing to a third-party service bureau, also helps to insulate the company against technology obsolescence. For example, each bank has a different ability and appetite to invest in technology development, which leads to the risk that clients will be locked into solutions that provide sub-optimal security, integration capabilities or breadth of functionality. In contrast, SWIFT is a pioneer in developing and promoting industry standards in security, formats and integration, and facilitates a growing range of transaction and information flows between financial counterparties.
The use of outdated, inflexible, proprietary technology for cash and treasury management is already becoming a major disadvantage for corporate treasuries and IT departments, a trend we expect to grow. Not only does the use of outdated technology exacerbate the risks we have already discussed, but it also discourages talent. The millennium generation that is now entering the workforce is accustomed to highly functional, open and standardised technology, so corporations that rely on inflexible, legacy technology will find it increasingly difficult to attract the best talent, who will be put off by the need to develop skills that are obsolete and non-transferable. Instead, by using SWIFT, with industry-wide formats and a consistent data-centric approach, companies can attract employees by offering the ability to develop highly sought-after skills, and gain access a wider pool of resources.
SWIFT adoption should not be primarily viewed as a defensive strategy as it plays an essential role in facilitating globalisation and supporting growth. In particular, as a fully scalable platform, treasurers and finance managers can increase volumes and add both banking providers and services seamlessly.
With mergers and acquisitions (M&A) on the rise, treasurers and finance managers need to integrate financial processes, formats and connectivity quickly to minimise cost and risk, and leverage the advantages of the combined business. This becomes far more straightforward to achieve when using SWIFT. Similarly, demergers are far easier when using SWIFT, allowing the new business to start its cash and treasury operations quickly, securely and efficiently, without interruption to the original entity.[[[PAGE]]]
Why is Bank of America Merrill Lynch such a strong proponent of SWIFT?
At Bank of America Merrill Lynch, we pride ourselves on promoting and delivering solutions and services that solve client challenges and enable them to focus on their core business. In addition to investing in our proprietary communications solutions, we recognise the benefits that SWIFT offers to our clients in facilitating their international expansion and growth strategies, while supporting their security requirements and efficiency objectives. Some banks have been uneasy in promoting SWIFT for corporates as they fear a conflict between their proprietary, bank-specific tools that would appear to connect their clients to them more closely, and a bank-agnostic, open platform such as SWIFT that supports multi-bank connectivity. To be truly client-centric, banks need to move from defensive to proactive client relationships, and position solutions that meet clients’ wider strategic, financial and operational needs. By doing so, relationships become stronger, and banks can channel their investment dollars more appropriately into the solutions and services that their clients need, rather than simply the channel for delivering them.
What call to action would you make to treasurers and finance managers of corporations that are not currently using SWIFT, or who are perhaps not leveraging its full value?
Corporations should engage with their banks to discuss their business strategy, the implications for cash, treasury and trade, and determine the best means of leveraging efficient bank communications to achieve these objectives. For most multi-banked corporations operating internationally, including both large and mid-cap corporations, SWIFT will often be the most appropriate platform on which to communicate with banking partners. Some corporations who were early adopters of SWIFT may have not connected their use of SWIFT with their evolving business needs. Consequently, in many cases it may be valuable to evaluate new services and functionality. By optimising their use of SWIFT, treasurers and finance managers can position their organisation for growth, leverage best practices in security features and standards, and facilitate efficient, automated and rich processes, transactions and information flows.
The SWIFT Experience at Cargill
Sundeep Singh, Bank Technology Consultant, Cargill
Business context
Like many other global corporations with a large number of internal systems and external banking partners, our approach to bank connectivity had become increasingly fragmented, with lots of different bank systems, connectivity solutions and payment formats. This added complexity to our technology infrastructure and financial processes, as well as significant implementation and ongoing operational costs. In 2009, we embarked on a project to rationalise our systems infrastructure internally by rolling out a global ERP system, and implementing SWIFT alongside that to simplify our bank communication. We recognised that SWIFT would offer a number of key advantages to Cargill, not least by streamlining bank communications through a single channel, replacing existing systems and interfaces, and enabling us to take advantage of market-leading security features, resilience and standardisation. As SWIFT is bank-agnostic, it would enable us to add, or change banking partners quickly if required, therefore providing a vital element in our risk management strategy.
A consistent approach
We appointed a service bureau, ATOS Worldline, to manage our SWIFT connectivity, enabling us to access their specialist SWIFT skills and experience. Cargill discussed the proposed strategy with our key banks and gained support for a common global format, therefore maximising the degree of standardisation that could be achieved. One of the challenges we anticipated in a pre-CGI environment was that banks often used variations on standard formats, which could impair the benefit of a single, standardised connectivity solution. By working with our banks collectively, however, we have been able to minimise these obstacles and achieve a consensus.
Achievements and outcomes
Cargill has now implemented SWIFT in various countries across North America, Asia Pacific and Europe. The intention in the near future is to roll out the solution to the rest of Europe and Latin America. Through these SWIFT implementations we recognise the considerable value in implementing a bank-agnostic, secure connectivity solution that enables us to automate and improve control over our financial processes. We adopt end-to-end encryption throughout the transaction lifecycle, and while it is difficult to place a financial value on security features, process control and reliability, this has been a vital benefit of the project.
We have also been able to standardise transaction and information flows through the use of MT101 and ISO 20022 formats. While there are currently different levels of experience in the use of ISO 20022 formats across banks and regions, we have already been able to reduce errors and increase straight-through-processing (STP) rates substantially. In the Eurozone, use of IBAN and BIC codes on payments is also helping to improve our processing efficiency and automation.
Factors in success
In addition to the hard work, skills and pragmatism within various teams across Cargill, the support of our primary banking providers has been instrumental in our success. They have been involved at every stage of the project, from developing the business case through to design, implementation and wider rollout, enabling us to leverage their technical skills and advice, and share best practices in communication, transaction efficiency and rich information flows.
