Published: September 19, 2011
The primary role of Nationwide Building Society’s Treasury Division is to manage its liquidity portfolio, raise wholesale funding and manage interest rate risk positions as well as process payments, confirmations and settlements. We had been looking at joining SWIFT for a long time prior to finally going live in 2010, but it never made it to the top of our agenda. We had strong internal controls including over our third-party banking systems but as we are not a high volume payer, the numbers didn’t add up for us on a strict cost benefit analysis.
Nationwide is one of the world's largest mutual financial institutions.
So what made the difference? Nationwide is one of the world’s largest mutual financial institutions. It is a household name in the UK but less well known overseas. With a balance sheet in excess of $300bn it is a major player in the UK retail financial markets. The balance sheet is predominantly denominated in sterling which has meant that Nationwide can keep its cash management simple.
However the Treasury Division operates debt programmes in several currencies and a diversified investment and liquidity portfolio provide challenges you might see typically in a multinational company.
Our drivers for change came from a number of sources. We knew that SWIFT was the answer to some of the issues we were encountering with managing cashflows in all of our different currencies. After all if it works for banks why shouldn’t it work for us?
Nationwide is a BACS, FPS, Cheque and Credit Clearing member but it is not part of CHAPS, a direct member of Crest or CLS. We previously used a number of agent banks which offer proprietary systems for connectivity and these integrated with Openlink’s Findur core platform to produce the required 400 paper instructions each day.
Verification, keying and releasing the slips could mean 1,200 steps, with a staff of only 20 people some of whom had other responsibilities. You could say that because of this manual step we didn’t have any true straight-through processing (STP) but in practice, from the time transactions had been rekeyed our STP rates were in the 90-95% range. [[[PAGE]]]
Other systems were used for making payments, but otherwise there was not a lot of automation between systems. Therefore, we were focused more on the accuracy of processing and our controls rather than STP.
In 2008 the daily value of transactions was pushing £3bn and we started a review of how we handle data and information, with the goal of increasing automation. The project was never just about SWIFT connectivity - it had a wider scope to examine how we could improve our entire back-office processing, and it gave us an opportunity to re-engineer our processes from the ground up. It was essential to me that I had a seamless connection from our core treasury system (Openlink’s Findur) to SWIFT for both outgoing messages and incoming status updates. SWIFT on its own is not the answer to automation, but it is a very significant component.
We concluded that a secure connection to SWIFT from the core system could reduce our re-keying effort to one that focused simply on prioritisation of payments. SWIFT access would also enable cost-effective compliance with the Financial Service Authority’s new liquidity rules, by providing real-time status of all payments and balances via a single gateway rather than relying on information from several proprietary bank systems.
We were aware that only a relatively small number of corporates have adopted direct SWIFT connectivity due to the perceived complexities involved. This also applies to other non-bank financial institutions such as insurance companies and the funds industry. While a SWIFT portal could have been built internally at Nationwide, that route would have required a significant capital commitment and investment in developing appropriate support resources. We began to pay more attention to the service bureau approach, which handles SWIFT connectivity in a standardised manner and where you have access to SWIFT experts on a 24x7 basis.
After a thorough evaluation, we chose the SWIFT Access Service provided by Bottomline Technologies (previously SMA Financial) as it had the best fit with our operational requirements and it offered a cost-effective route to SWIFT connectivity. The decision to outsource to a bureau was determined by four key factors:
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The project design began in September 2009 and implementation with our first currency and agent bank went live in May 2010. This was followed by confirmations and matching in November 2010. Issuing call account transaction confirmations through SWIFT went live in early May 2011. Today we are live on sterling, euro and dollars for payments alongside 20 other currencies.
A bureau enabled us to reduce our capital costs as there was no need to buy servers or build a SWIFT gateway.
Looking back, the SWIFT project has been extremely worthwhile for Nationwide. STP rates with our banks are now at 99%, and we have achieved savings on repair fees for transaction breaks. Since going live we have changed the way we use our staff time, taking out three stages of processing without sacrificing either security or control.
We save at least half a person-day per day in the bank reconciliation process alone and generally there is less pressure on the treasury team to work late to cope with our volumes. We were also able to redeploy one member of staff onto project-based support work and re-categorise two other staff to work on day-to-day systems support and enhancements.
Our intention was to link seamlessly from deal input, through stringent controls to outgoing payment message with minimal manual intervention. We achieved this goal and gained the benefits that we were expecting from the bureau. We are now in the position that all we have to do is prioritise our payments – our systems take care of the rest. Our internal auditors have also been very pleased - we revamped all of these processes and received a clean bill of health.
Whilst implementing the bureau wasn’t as ‘plug and play’ as I was expecting, I am comfortable with the extra effort that was required; it’s nothing you wouldn’t experience when designing and implementing any new system.
With SWIFT, we have the ability and independence to change our banking arrangements and are not tied to one bank as we used to be. The fact that we have flexibility to change our bankers has resulted in improved services from a number of our suppliers as they realise that they don’t have us locked in. This flexibility and service improvement should be major drivers for any corporate looking to adopt SWIFT.
With SWIFT, we have the ability and independence to change our banking arrangements.
If you’re using SWIFT, you’re in a much stronger position because you’re not one step removed from the way things are supposed to be done. SWIFT gives us much more immediate control over our business processes. Because we have greater understanding and control over our SWIFT environment we are able to talk directly to the bank’s SWIFT team rather than their corporate relationship team. This has been an invaluable part of improving our relationship with our banks and counterparties as we can prove where and why exceptions are occurring. Additionally, the bureau has enabled Nationwide to keep our resources and our attention focused on running our core business rather than supporting a niche SWIFT system.
We had become comfortable having half a dozen different systems, for payments, settlements, reconciliations, etc. However, when we went live on SWIFT we already had a number of additional projects in mind that will allow us to continue leveraging the investment we have made in our SWIFT infrastructure.
We will sweep up minor accounts, automate non-SWIFT confirmations and then look at how we manage our interest rate swaps. I am a great believer in continuing to look for automation opportunities and outsourcing our connection to SWIFT to a bureau is just the start point in expanding our automation capabilities within the Treasury Division.
Don’t be put off by the perceived disadvantages of SWIFT for corporates; SWIFT is no longer ‘just for banks’. If you use the introduction of SWIFT as an opportunity to review how you manage and control your payments then a SWIFT Service Bureau can essentially take a lot of the legwork away from your treasury team.
A common concern of corporates is how to resource a SWIFT project, but our experience shows that using a bureau gives you access to a team of experts, i.e., specialised resources when you need them, rather than carrying the overhead of building and retaining these skills in-house.
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