Published: October 25, 2010
When the Brussels-based financial messaging co-operative SWIFT opened its doors to the corporate community in 1997 (albeit in a very limited fashion), corporate interest in the network was slow to take off. However, adoption rates of the SWIFT for Corporates set of connectivity solutions in the past few years have been impressive, driven by the credit crunch and economic crisis. By the end of Q2 2010, 642 corporates had access to SWIFT’s network and between Q2 2009 and Q2 2010 corporate traffic had grown by 40.3%.
In the current economic climate, corporate treasurers are seeking to improve efficiencies and gain better visibility and control over their global cash positions at any time of the day and anywhere in the world. Increasingly, treasurers are also looking to centralise payments and receivables through automation and standardisation. Before the crisis, corporates were looking to concentrate services into one bank in order to achieve simplicity, now they are more likely to retain multiple banking relationships in order to be able to switch accounts if problems arise. SWIFT represents a non-proprietary, multi-bank solution that offers a secure channel for corporate-to-bank messaging.
For many corporates, SWIFT is an ideal solution for their cash management needs, but it is not the only solution and will not suit all companies. Moreover, there are many options for connecting via SWIFT that need to be considered.
The opening up of SWIFT to the corporate community has not been without controversy – many of SWIFT’s financial institution members felt corporate access would disintermediate banks – if corporates could communicate with each other across the network they could perhaps cut financial institutions out of the loop. That is why corporate access has been developed in a measured way by SWIFT and its member banks. Even today, a significant number of banks still take a defensive approach towards offering corporate services through SWIFT.
SWIFT represents a non-proprietary, multi-bank solution that offers a secure channel for corporate-to-bank messaging.
The first step to bring corporates on to SWIFT was the introduction of treasury confirmation messages in 1997, which allowed for limited activity from corporates, without enabling payments to be initiated through SWIFT or statements to be received.
In 2002 SWIFT created the Member Administered Closer User Group (MA-CUG) category, which enabled corporates to exchange SWIFT messages with their main banks. The MA-CUG is a user group of companies that do business with a specific bank over the SWIFT network. The companies can communicate with the bank, but not with each other. A company can join as many MA-CUGs as it has banking relationships; the bank that created the MA-CUG administers it.
This category was improved with the introduction in 2006 of the Standardised Corporate Environment (SCORE), a closed user group administered by SWIFT, where corporates can interact with financial institutions. SCORE also improved standardisation for the various messaging services within the corporate offering. As SWIFT’s corporate offering matured, banks have been moving away from developing proprietary solutions and have adapted solutions to extend them to their corporate clients who want to use SWIFT.
There are two main offerings on the SWIFT Corporate Access channel – FIN and FileAct. FIN is a SWIFT standard for sending SWIFT-designed message formats through the SWIFTNet network, a secure, IP-based communications channel. FIN messages are most often used for treasury cash management.FileAct is a means of exchanging any type of file across the SWIFT network and is commonly used for bulk file transfer.
FileAct has proved particularly suitable for large corporates, including those looking to move their European payments volumes onto Single Euro Payments Area (SEPA) credit transfer and direct debit instruments. This is because FileAct has become closely associated with the adoption of ISO20022 XML standards, on which the SEPA instruments are based. SWIFT acts as the registration authority for ISO20022 messages and supports the creation of message types based on this standard. [[[PAGE]]]
SWIFT for Corporates offers a variety of methods by which corporate treasuries can connect to the network. This means that a corporate can dip its toe in the water without fully committing to SWIFT and can extend its connectivity options as its needs grow.
Alliance Lite
Entry level SWIFT access is provided by Alliance Lite, which was launched in 2008. Aimed at corporates with volumes of 200 messages per day or less, Alliance Lite provides access through a secure website or via simple client software. Marketed as ‘plug and play’, Alliance Lite is not a facilitated service; therefore corporates wanting to connect via this route often turn to their banks for assistance (although not every bank has the ability to help).
Initially, many corporates consider the restriction to 200 messages per day to be sufficient for their needs. This does not mean 200 payments per day – a corporate will also need to send and receive acknowledgement, balance and statement messages – some corporates find that they quickly exceed the Alliance Lite message limits.
Service bureaus
For those corporates that outgrow Alliance Lite, the service bureau is increasingly the route of choice, particularly in the current cost-sensitive environment. In response to the introduction of Alliance Lite, companies offering a service bureau are also being forced to review their pricing model for lower volume customers, in order to offer an economically viable alternative to Alliance Lite.
By opting for a service bureau, the corporate outsources its SWIFT connectivity to a third party. The benefit of such a shared infrastructure is that the party hosting the infrastructure will have economies of scale that can be passed on to the end users. Therefore, a service bureau enables costs to be spread across parties and the knowledge and expertise of SWIFT connectivity can be shared.
Corporates must choose wisely, taking into account the cost and capabilities of the bureau. Analysis by RBS has shown that there is a great deal of variation in cost when connecting to a service bureau. Most bureaus operate independently, with limited endorsement deals with banks. RBS has introduced a white-labelled solution powered by long established global service bureau provider Simplex, to provide a channel that provides SWIFT access through a trusted partner and seamless connectivity to the global SWIFT Corporate Access operated by RBS. The RBS Service Bureau automates payment and statement reporting through a single connection, removing the need for a corporate to operate an expensive in-house system.
Direct connectivity
Originally, direct connectivity to SWIFT was the option for the large multinational corporations that were early adopters of the SWIFT for Corporates services. This was mainly because the service bureau was not an option at the time. As adoption of SWIFT’s corporate solution continued, alternative routes to connectivity were developed, giving more choice to corporates. Many of the early adopters have stated that they would use a service bureau if making the decision in today’s environment. Those opting for direct connectivity today tend to be the exceptions, rather than the rules.
SWIFT enables corporates to obtain financial services (payments, treasury and securities orders and reporting) with all their financial institutions through one single, highly secure, standardised communication platform. The standardised connectivity, used in combination with standardised messages, helps corporates to reduce costs and risk, increase their visibility and control over working capital and improve straight-through processing (STP) rates.
FileAct is a means of exchanging any type of file across the SWIFT network and is commonly used for bulk file transfer.
Corporate SWIFT users can receive end-of-day and / or intra-day reporting directly from all of their banks, increasing funds visibility and enabling corporates to better invest their capital. Because it allows for channel rationalisation, the more banking relationships a corporate has, the greater the savings it could make. Most banks also allow for multi-bank reporting via SWIFT, enabling even further rationalisation of banking connectivity.
With compliance becoming a growing burden for corporates, access to banks via a single interface significantly reduces the administration work required to document a corporate’s banking communications. Most of the SWIFT related documentation is readily available.[[[PAGE]]]
SWIFT is not a solution for everyone – small enterprises or those that deal domestically, with only one or two banking partners will not need to go down this route. It also has to be remembered that SWIFT is a connectivity solution; there are other challenges that corporates must address that SWIFT access alone will not cover.
For example, the implementation of common file formats has been a long-standing issue. Improvement is expected through adoption of ISO 20022 XML messages and the corresponding Common Global Implementation (CGI). Developed by leading banks, including RBS, their corporate clients and market infrastructures such as SWIFT, CGI will allow for much improved and needed interoperability of XML formats between the various banks.
Electronic Bank Account Management (eBAM) is another non-SWIFT capability that will improve the multi-bank experience by automating the account opening and maintenance functions. Although eBAM is commonly associated with the use of SWIFTNet FileAct, eBAM truly is an ISO 20022 XML based messaging standard that could be used with most connectivity protocols.
There are also other communications protocols gaining traction, such as EBICS, which was developed in Germany and is now being rolled out to France. EBICS is a lower cost solution than SWIFT and aims to provide, country-by-country a secure multi-bank, non proprietary solution. In general, there are many advantages in SWIFT connectivity that cannot be overlooked. One RBS client, a global business software company, adopted SCORE in order to improve connectivity. Migrating to SCORE as part of a payments factory initiative helped the company to reduce payment transmission costs by 50- 80% (depending on the volume of messages) and increase flexibility in maintaining a robust and secure banking connectivity infrastructure that replaced the proprietary connection to each of its bank partners. By implementing SCORE, the software company was able to take full advantage of the introduction of SEPA by implementing ISO 20022 XML, and implemented new functionality such as file bulking (where single files were incorporated into a single package) as well as Request Types to identify file type, sender recognition and SWIFT enhanced Header for FileAct. The multi-faceted nature of the project led the firm to opt for the service bureau approach, rather than direct connectivity.
Another company worked closely with RBS, as a principal banking partner, to take full advantage of the efficiency improvements now available to its central treasury and operating companies by using SWIFTNet FileAct. Damian Preisner, Senior Financial Specialist at Global Treasury of SAP, identified the following benefits from leveraging such functionality: “We manage one of SAP´s most critical assets, the cash. RBS provides us with all the information we need to manage this asset successfully. The collection of financial information (e.g., bank statements, intraday statements and payment status messages) is done via SWIFTNet FileAct which increases control. We are now able to receive more information with improved transparency and quality with the use of bulked files via SWIFTNet FileAct, as well as reducing costs utilising the SWIFT enhanced Header. Based on the data loaded in our ERP System we can retrieve individual analysis and reports using SAP Business Objects tools.”
Another RBS SWIFT Service Bureau client used the upgrade of its global ERP platform to fundamentally change how it processed, accounted for and reported on all treasury activity by combining this upgrade with the move to SWIFT access.
SWIFT connectivity provides corporates with many advantages, including improved visibility of their cash positions, standardisation of bank-agnostic payment processes and improved STP rates. In the current economic climate, SWIFT for Corporates is a compelling choice, but some caution is still advised.
Given the investment needed to take full advantage of the benefits that SWIFT has to offer, it continues to be a solution that is best suited for corporates that are connecting to multiple banks. Many benefits may be reaped through the available connectivity options in the market outside of SWIFT, as long as the number of banking partners is very limited. Drivers such as ISO 20022 XML messaging for cash management or eBAM are also suitable for other means of connectivity.
Nevertheless, the idea of combined bank-agnostic connectivity through SWIFT and the adoption of bank-agnostic standards continue to be very powerful propositions in the market.
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