Published: October 01, 2010
SWIFT’s corporate model is now, more than ever before, a realistic option for a lot of corporates considering a bank agnostic connectivity model. The associated costs (upfront and ongoing) and the process to implement a SWIFT solution are now a lot more appealing to many corporate treasurers. In addition to SWIFT doing their part in making this happen, banks are also taking a different attitude towards SWIFT for corporates; historically agnostic at best or lukewarm at worst, many are now embracing SWIFT more as simply another option in the armoury of connectivity models to support their diverse client base, rather than viewing SWIFT as any threat of disintermediation.
Even with many of the jigsaw pieces falling into place, it would appear that a considerable number of corporate treasurers have yet to fully grasp the SWIFT corporate approach and assess whether it could apply to their business model now or in the future. Admittedly this subject has been something of a moving target, as SWIFT’s corporate solution has evolved over the years. I am more convinced that the lack of clarity on this subject is based on a number of factors relating to the evolution of the various SWIFT corporate models over the years and the plethora of rules and standards that have changed with each generation. However, ultimately it has become an issue of perception. A perception of:
MA-CUGs in effect became an entry point to SWIFT for corporates via a bank.
Whilst SWIFT achieved some initial success with its earliest corporate business models, signing up some of the largest corporates like General Electric, DuPont and Microsoft, the actual volume of clients and associated messages were modest. The SWIFT corporate models historically failed to deliver sufficient appeal and applicability to ever develop in to any real critical mass. But times have changed.
More recently it is has been the perceived weakness, or threat of weakness, of some if its bank members that have driven new customers to SWIFT and along with the more recent development of corporate friendly and affordable business models by SWIFT there is now real momentum.
To understand fully the initial modest uptake and to appreciate the more recent renaissance it helps to reflect upon the evolution of SWIFT and its corporate models over the years:
1973 : SWIFT formed by the banks for the banks.
1977 : SWIFT goes live.
1998 : Corporates were first allowed to participate in SWIFT with the Treasury Counterparty (TRCO) Model. This simply facilitated the processing of deal confirmations for FX and money market (MM) trades. Banks were happy for SWIFT to provide this service as it did not directly compete with the cash management services they provided through their proprietary systems. Whilst SWIFT had created a niche service, they recognised that trade confirmations were not enough of a draw to the broader corporate community and the TRCO model would only ever appeal to the largest companies who traded heavily in FX and MM. This said, it was still a major and very expensive undertaking for those with deep enough pockets, and only 15 large corporate clients adopted this model. So for the remaining 99%+ of the corporate market seeking a deal confirmation service, the TRCO model was not a realistic option. [[[PAGE]]]
2001: Member Administered Closed User Groups (MA-CUGs) were established. For member, read bank, for it is the bank that administers this bank-centric model. Banks established, administered and ran the closed user group, which is primarily a treasury and cash management solution focused on payments and reporting. MA-CUGs in effect became an entry point to SWIFT for corporates via a bank. Banks in effect wanted corporates to join the party but on the banks’ terms, extending what corporates were able to do on SWIFT but leaving banks firmly at the centre of the action, without any real threat of disintermediation.
MA-CUGs were very prescriptive in terms of the message types permissible and the bank counterparties that could be corresponded with. Whilst it opened up the SWIFT world of payments and reporting to corporates it was still a cumbersome and expensive experience, especially for those corporates with multiple banks, as they would have to join multiple MA-CUGs (30 bank relationships =30 MA-CUGs). The other challenge associated with MA-CUGs related to formats, as different banks could define the same message types differently. This said, MA-CUGs were really the catalyst that triggered the real interest in corporates joining a ‘bank-agnostic’, SWIFT party. Along with better security, easier integration and a lighter infrastructure MA-CUGs resulted in SWIFT achieving greater levels of adoption over the next few years, with the number of clients signing up doubling year on year for the next few years, with approximately 200 corporates still running MA-CUGs today.
2007: The Standardised Corporate Environment (SCORE) scheme was launched, which enabled corporates to establish a single relationship with SWIFT that provided links to multiple banks, in effect a many-to-many closed user group (CUG). This quantum shift enabled the SWIFT corporate world to move from a ‘bank-centric’ model to much more of a ‘corporate-centric’ model, administered by SWIFT but in effect opening up access to multi-banked corporates in a much more efficient and streamlined manner. The consequent adoption of SWIFT by corporates has risen dramatically to more than 680 corporates today. SCORE also addressed the key failings of the MA-CUG, namely:
Standardisation and consistency of message types meant easier adoption by corporates. With MA-CUGs, corporates joined SWIFT expecting and hoping for standardisation but were to a greater extent disappointed with the reality of this environment where the versions of MT103, MT940 and other message types differed quite considerably from bank to bank, making the mechanics of the model somewhat challenging. SCORE’s ‘rule-based’ approach fundamentally addressed the failings of the MA-CUG in this regard.
Under the MA-CUG model the banks in effect sponsored the corporate and it was the banks that signed the corporate in to the SWIFT world. However, under SCORE the banks were not facilitating this sponsorship role and it came down to SWIFT as to whether corporates could join the party. In its co-operative role SWIFT needed to apply a common set of rules: corporates had to be listed on a regulated stock exchange, effectively barring privately-owned multinationals such as Ikea, Cargill and Virgin. In June 2009, SWIFT widened the eligibility criteria so that any corporate can join SCORE provided that it is recommended by an existing SCORE bank located in a Financial Action Task Force (FATF) member country.
Earlier in 2009 SWIFT released a shortened version of the SCORE agreement, which made the whole legal onboarding process for banks much simpler. So SWIFT has made many improvements to the broader model and its mechanics.
Importantly, SWIFT has also taken steps to tackle the biggest challenge for corporates, namely the cost. In September 2008, SWIFT launched Alliance Lite: a low-cost, plug-and-play solution. Alliance Lite provides an affordable way to connect to SWIFT in terms of its pricing model and the technology investment needed to connect. Known as ‘SWIFT on a USB stick’, it is an extremely appealing low-cost access to SWIFTNet.[[[PAGE]]]
SWIFT Lite aside, the SWIFT infrastructure typically requires a high degree of specialised knowledge to implement, develop and maintain and this can cause resource issues for a corporate treasury function. SWIFT service bureaus offer SWIFT connectivity on an outsourced basis so that corporates don’t have to make major investments in technology and specialised personnel. Driving economies of scale, they have become a popular solution to many corporates, enabling them to avoid much of the upfront expense and headache of working in any new environment and ensuring a reduced time to market. Many well-established software vendors provide SWIFT service bureau services, and integrating their ERP system or TMS platform in to a SWIFT gateway typically reduces the overall complexity within their systems environment and within the corporate back office, whilst reducing the cost.
Alliance Lite provides an affordable way to connect to SWIFT.
These companies are equally well positioned to provide additional value-added services, such as format validation, transformation and enrichment, which have further fuelled their adoption. Interestingly, not only are corporates driving the emergence of service bureaus, but smaller regional banks are also leveraging them to provide an affordable and scalable connectivity to SWIFT. Between 80 and 90% of all new joiners to SWIFT are now ‘renting space’ with the service bureau model.
The adoption of SWIFT for a corporate is not a decision made lightly or in isolation but typically as part of a much broader strategic change programme, often focused on centralisation and consolidation of systems, processes and bank channels. Simplification, cost reduction, risk mitigation and enhanced controls often drive this agenda forward.
For corporates with a single ERP/treasury system SCORE provides an effective mechanism to simplify its connectivity model in a bank-agnostic fashion, reducing technology costs and complexity dramatically as they end up with a single streamlined gateway to their multiple bank relationships globally, rather than having to support multiple bank systems and connectivity in to the corporate’s environment.
For corporates with multiple ERP/treasury systems, SWIFT may not initially be a natural choice. This said. if the corporate is intending to reduce these systems towards a single ERP/ treasury platform then it can still be worth connecting to SWIFT ahead of this change programme. SWIFT bureaus can also provide a useful and flexible mechanism to support evolving change programmes in an affordable and technically sound way. Reaching the end game of a single system before adopting SWIFT may not necessarily be the logical path.
Finally and by no means least, consideration of your bank partner and whether they have the knowledge source and experience in this space is obviously a key influencing factor on how to approach any SWIFT project. Deutsche Bank is well positioned in this regard and when combined with the fact that SWIFT has fine-tuned its corporate model to a much more workable solution, we expect to see a material increase in corporate adoption of SWIFT in the coming months
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