Published: October 24, 2013
As companies increasingly look to diversify their counterparty risk exposures by banking with a larger number of financial institutions, this approach is being greatly facilitated by technology. Before the arrival of SWIFT for Corporates, multi-banking was synonymous with diverse formats and inefficiencies. Today, companies choosing to adopt this approach are doing so in a much more streamlined and efficient way – and technology is making this possible.
One way in which companies can achieve multi-banking is by choosing a mono-bank relationship offering behind the scenes access to accounts at other banks. For example, a company might instruct Bank A to make a payment from an account held by Bank B in Spain. Bank A would then go into the SWIFT network in order to instruct Bank B to make the payment on behalf of the client. In this arrangement, the company is not multi-banking through its own access point but is using a single bank which can work with multiple banks on its behalf.
This arrangement continues to be a possibility for companies looking to access the benefits of multi-banking – but increasingly, larger corporations are choosing to communicate with multiple banks themselves. While it is technically possible to undertake multi-banking using proprietary banking systems, this approach is fraught with inefficiencies. A company working with 15 banks in this way will be grappling with multiple formats, security tokens and platforms. Fortunately there is a ready-made solution available that companies can plug into when looking to adopt a multi-banking model.
For companies choosing to adopt a multi-banking structure, technology is a key enabler. The most important development in this area is the ability for corporations to connect to their banks via the SWIFT network – but this is not the only initiative which can support multi-banking.
Certain countries have established their own multi-banking capabilities independently of SWIFT. In Germany and France, for example, multi-banking is common practice and the adoption of the EBICS standard banking framework enables companies to connect to each of their relationship banks using a single front end. Similar frameworks are in place in Italy (CBI) and in Belgium (ISABEL).
Nevertheless, at a global level SWIFT continues to be the most important enabler of multi-banking. Originally developed to allow banks to communicate with each other, SWIFT has increasingly developed its model in the last few years in order to support corporate membership. As a result, companies are now able to access SWIFT and thereby to communicate with their banks in a multi-banking environment.
When corporate access to SWIFT was first introduced, clients had high expectations that by joining SWIFT they would be able to benefit from complete standardisation in everything from messages to legal agreements. Some of these things haven’t materialised quite as companies had expected – but if a large multinational corporation is looking to interact with a number of different banks, SWIFT is often the best way for that company to achieve its goals.
When companies connect to their banks via SWIFT, they can access reporting on all of their cash positions held with banks around the world in a standardised way. As a result, they are able to manage their cash management capabilities effectively via the SWIFT network. Unlike a proprietary electronic banking tool, however, SWIFT’s role is simply to send and receive data. Companies choosing this route typically have a strong back office capability already in place in order to interface with SWIFT, for example in the form of a sophisticated enterprise resource planning (ERP) system.
Companies can connect to SWIFT in a number of different ways. One option is to establish a direct connection to SWIFT, but this can be a technically complex exercise. As a result, many of the companies connecting to SWIFT do so via a SWIFT service bureau. In this arrangement, most of the technical challenges are resolved by the service bureau, and the handshake between the company and the bureau is straightforward. As more companies have chosen to adopt a multi-banking approach, bureau services have become increasingly popular.
The third SWIFT connectivity option is Alliance Lite and its successor, Alliance Lite2. In introducing Alliance Lite, SWIFT was looking to offer corporations a quicker and cheaper means of connecting to SWIFT without going through a bureau service while offering a simple front end. While Alliance Lite does offer smaller corporations an opportunity to undertake multi-banking through SWIFT, smaller companies tend to prefer the confidence of a strong relationship with one main bank.
As companies increasingly adopt multi-bank frameworks, they are also paying closer attention to other initiatives which can benefit them in a multi-banking environment. Electronic bank account management (eBAM), for example, is a relatively recent initiative which is focused on enabling companies to open, close and manage their bank accounts electronically.
For companies banking with multiple providers, it is clear that in order to be truly effective, eBAM needs to be offered on a multi-bank basis. The challenge with adopting eBAM for multiple banks is that actions such as account opening requests have to be plugged into different back office workflows in each bank. As a result, eBAM has been picked up as a utility service that needs to be plugged into a multi-bank framework. This drive has been greatly facilitated by SWIFT, which has developed XML-based standards in order to support eBAM.
A key component of eBAM is establishing the message structures that companies have to follow in order to instruct a bank to open or close an account, or request signatories on an account. One element of this is the message structure, which has to be consistent across each bank and supported by all of the banks following this framework.
Another is the issue of the terms and conditions that companies sign up to when using this type of service. Companies using eBAM do not want to have to sign up to a different set of terms and conditions for every bank. A number of banks have addressed this point by removing the need for terms and conditions against multi-banking services like eBAM.
Aside from eBAM, there has been much demand for banks to offer security featured in a standardised way. Companies working with a number of banks often find that they have to manage a number of different security tokens for authentication purposes, which is cumbersome and inconvenient. Another element of SWIFT’s multi-bank proposition is its digital identity solution 3SKey, which allows individuals to authenticate themselves with a number of different banks using a single USB token.[[[PAGE]]]
Banks are increasingly recognising that multi-banking is a natural way forward for the industry. Indeed, this approach opens the door for banks to compete more effectively for business. When using a mono-banking arrangement, companies are not able to cherry pick their banks in order to choose the best provider for each market: instead they might have to use the same bank for their European SEPA proposition and their domestic UK proposition. In contrast, multi-banking allows companies to choose the best bank in the market, which might involve using a UK bank alongside a European bank.
As a growing number of companies choose to bank with multiple providers, many of those companies are looking to SWIFT to support this model in a standardised way. So far this trend has largely been confined to multinational corporations, but solutions like Alliance Lite2 may open the door for a wider spectrum of companies to adopt a multi-banking structure going forward.
It is also possible that the multi-bank protocols already adopted in countries like France and Germany may find favour in additional countries – particularly in regions like Asia, where SWIFT’s network is not as extensive as in Europe.
In conclusion, technology is a crucial enabler for a multi-banking model. Ten years ago, the absence of suitable technology meant that companies connecting to a number of different banks had to contend with multiple different interfaces and formats, leading to inefficiency and inconvenience. Today, the introduction and continued development of SWIFT for corporates has made multi-banking a much more attractive proposition – and as more companies choose to adopt multi-banking, the appeal of SWIFT connectivity is likely to grow.
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