Writing the Next Chapter of the SWIFT Story

As banks and corporations complete their final preparations for this year’s Sibos event in Geneva, Helen Sanders, Editor talks to Tom Durkin, who manages digital channels on behalf of Bank of America Merrill Lynch, about some of the issues in which both SWIFT and participating banks are engaged.

SWIFT for Corporates has now been available for a number of years. Why is the bank particularly focusing on it now?

Although SWIFT for corporates is well-established as a concept, we have seen considerable change over the past three years or so. At that point, when there was a general trend amongst banks to prioritise proprietary solutions, I think some corporations – and certainly banks – were surprised by how bullish Bank of America Merrill Lynch was in supporting bank-neutral connectivity. Multinational, multi-banked corporations were amongst the early adopters of SWIFT, recognising the value of a single platform to achieve their centralisation, standardisation, liquidity and risk management objectives. Since then, we have seen a notable change in both bank and corporate attitudes towards SWIFT, with growing corporate demand for open, bank-neutral, innovative connectivity, leading to greater support too amongst banks.

It is not only the increased adoption of SWIFT that is so timely, but also the changing connectivity demands amongst established corporate users of SWIFT. Companies that have already adopted SWIFT are now focused on leveraging their SWIFT connection to optimise the security of transactions and information, and harnessing data to achieve automated processes and more sophisticated analytics. Integration with the corporation’s enterprise resource planning (ERP) solution and/ or treasury management system (TMS) is key to achieving these objectives, so this has become a key element of the corporate-to-bank dialogue, whether a company connects to its bank(s) via SWIFT or other methods.

We are currently seeing considerable technology and solution innovation in areas such as transaction banking. How is this being manifested in the SWIFT network and services?

As the level and speed of innovation increases, in part due to the emergence of new fintech solutions and new technologies such as blockchain, an important discussion is how the SWIFT network will evolve to incorporate new technologies, capabilities and ways of doing business. In this context, we saw the launch of SWIFT 3.0 at Sibos last year, and there are a number of crucial new developments moving forward quickly this year, such as the global payments innovation initiative, of which we expect to hear a great deal at this year’s event. Central to this initiative is to accelerate cross-border flows, improve corporate visibility over these flows and provide better auditability of fees. Fundamentally, the dynamics of how cash flows between financial counterparties are changing, which has implications for SWIFT, banks and corporations alike.

In parallel with innovation is the need to ensure regulatory compliance and a high level of governance. SWIFT’s KYC Registry is an increasingly important tool in this respect, with banks quickly signing up. Corporate users now want to be able to access comparable services, and having become familiar with SWIFT’s utility model, it makes sense to provide a KYC solution along similar lines.

You mention the focus on security, an issue which has been in the headlines recently. What impact are recent breaches likely to have on SWIFT’s priorities, and what does this mean for corporate users?

A characteristic of recent security breaches of the SWIFT network is that smaller banks have been targeted. These banks may lack the ability to invest in defensive technologies that larger banks are typically able to prioritise, but it opens up an important issue, namely that there is a combined responsibility of network users to protect the assets that are transmitted across it. Until recently, SWIFT’s priority has been to grow the total number of participants; going forward, there is likely to be far greater scrutiny of potential participants, and more stringent operating requirements. In addition, SWIFT has appointed BAE Systems to join its new Customer Security Intelligence team which aims to support and investigate incidents within customer environments, as well as boosting network security. We are very supportive of these initiatives, and we are committed to playing our part in keeping the platform secure for all participants.

For corporations, the implications are three-fold. Firstly, they can expect SWIFT’s additional investment to reinforce its position as a highly secure transaction network. Secondly, corporations themselves will be subject to greater scrutiny when seeking to join the SWIFT network. Thirdly, and most immediately, as most corporate users are choosing to outsource their connectivity to a service bureau, they need to make sure that their chosen partner is able to maintain a level of security and integrity that is appropriate to the size and sensitivity of financial assets that it processes.

Another issue you raised related to the use of data for more sophisticated analytics. What more can you tell us about this?

The transactions that flow between banks and corporate customers, whether through SWIFT or directly, are those that drive the global economy. By using this data in an appropriate way, therefore, corporate treasurers and finance managers can pinpoint the status of individual payments but also gain valuable intelligence about cash flow and wider business trends. One use of this intelligence is fraud prevention. Banks have a key role to play in harnessing and presenting this information, particularly as we often process the transactions on both sides, and we can supplement information with our expertise in fraud detection and prevention. At Bank of America Merrill Lynch, for example, we conduct frequent webinars on fraud prevention, in addition to one-to-one discussions with customers, and we are likely to see a lot of focus on this during the forthcoming conference season.

Data-driven predictive analytics can play a valuable role within a wider fraud detection and prevention strategy, as well as for business intelligence purposes, and this is an area in which SWIFT is increasingly focused. For example, in the past, SWIFT typically analysed the total value and volume of transactions that crossed the network, but there is now far greater attention given to the specific information held on each transaction. By understanding payment flows in more detail, there is far greater opportunity to examine the payment lifecycle in more detail and optimise payment flows, such as by linking remittance information to cash flows. Building on from these developments, we are doing a great deal in the area of open APIs with customers to expose data around the payment cycle, and we expect to see significant progress in the use of open APIs in the year ahead.

Innovation goes hand-in-hand with compliance, which is in itself a wide-ranging and challenging issue. We are currently engaged with customers in two key ways: firstly, to make smarter use of data for sanctions screening and secondly, bank account management and KYC. Although we provide customers with an online view of data for accounts they hold with the bank, treasurers and finance managers really need a utility to help them align compliance processes across banks. There have been initiatives in these areas in the past, such as eBAM (electronic bank account management) but corporate demand has now grown to fuel progress and adoption of tools that support regulatory compliance.

For corporations that have not yet connected to SWIFT, what obstacles still remain?

I think we are seeing a change in dynamics today compared with the past few years or even few months. On one hand, both SWIFT and participating banks are keen to make the onboarding process as straightforward and convenient as possible, and solutions such as MyStandards have helped to ease this process considerably. There is also far better expertise and experience amongst banks. At Bank of America Merrill Lynch, for example, we have invested in SWIFT certification for over 100 employees to accompany customers through their onboarding process. On the other hand, however, security is a more important issue than ever before, so corporations joining SWIFT should expect greater scrutiny, and also demand higher standards of their partners, such as service bureaus.

Focusing on obstacles distracts from the value of SWIFT connectivity, however. This includes the well-documented benefits in terms of bank-neutrality, and the value of a single channel for a variety of financial messages, but of equal importance, corporations connecting to SWIFT will become part of an innovative and collaborative community, of which Bank of America is a key participant. By working together, we can increase trust, security, standardisation and transparency across the financial community, which in turn leads to an exciting array of new opportunities, in which corporations can choose to play an important part.