Case Study: SWIFT Connectivity for a New UK Retail Bank

A UK financial institution (Bank X), which had previously operated as a joint banking venture with another UK bank, decided to independently enter the UK retail banking arena – it was one of the first ‘new’ banks to do so in a number of years. As a new bank in the marketplace, it needed to independently connect to SWIFT in order to establish connections with numerous other banks.

In order to execute its strategy, Bank X wanted a solution that allowed it to outsource its back office technology integration and SWIFT connectivity through a service bureau, in order to increase cost savings on technology expenditure and maintenance. In addition, it was looking for a solution that combined both transactional banking and technology elements of payment flows.

However, Bank X faced a number of challenges. Although it was a new bank, it was not starting from a greenfield, but already had a number of established business lines and multiple back office platforms. Its aim was to implement one solution across all its business lines and platforms in order to standardise message formats and process flows. Therefore, although it focused the first implementation phase on its banking and general insurance business lines, it was ultimately looking to extend the solution to cover its credit card business and develop a current account offering.

A fully managed project implementation and integration plan was also critical for ensuring a timely delivery, as the project was subject to challenging timescales involving roll-out plans and proposed go-live dates.

In addition to these internal challenges, Bank X wanted a solution that complied with the Payment Services Directive (PSD), which is being implemented in the UK through the Payment Services Regulations (PSRs). Under the European directive, which becomes mandatory in 2012, the maximum execution timescale for a transaction will be reduced from the current D+3 timeframe to D+1.

The RFP Process

The original request for proposal (RFP) process was predominantly based on multi-bank connectivity, so Bank X went out to various banks, including its joint venture partner, as well as SWIFT service bureaus in the marketplace. Thus, despite the fact it was going to extricate itself from the joint venture, it still viewed the incumbent bank as a potential supplier of the service in an agency bank capacity. In this case, the incumbent bank was considered as the frontrunner in the competition because it was already privy to the transaction and process flows and Bank X’s business operations.

However, Bank X wanted to examine different SWIFT solutions in the marketplace in order to retain its independent connectivity with SWIFT and to build out relationships with other banks through the network.

Potential suppliers were challenged to provide a solution that was able to integrate with a number of back office platforms that each produced various data outputs, which consequently needed to be transformed into common formats such as SWIFT FIN and FileAct.

Bank X also wanted a solution that provided future proofing for new technology initiatives, as well as minimising its own costs normally associated with areas such as SWIFT standards’ upgrades and releases that it would have to invest in if it was managing its own SWIFT connectivity platform.

Another major consideration for Bank X was the ability to perform the various anti-money laundering (AML) screenings and payment filtering against its daily flows.

A Complete Solution: Technology and Consultancy

The payments and cash management team at HSBC was involved in the initial discussions when Bank X was looking at both SWIFT and non-SWIFT solutions for its daily transactional/cash management activities. It soon became clear that Bank X wanted a consultative approach to develop an innovative solution that not only provided the ability to multi-bank but also had the flexibility to expand as its business grew.

After a number of meetings, it became apparent that a proprietary banking solution, while meeting initial roll-out needs, would not suit the bank’s longer-term ambitions when introducing a number of new businesses and banking relationships. At this point, SWIFT connectivity became a key objective for Bank X. Having looked at the significant costs associated with bank sourcing and maintaining SWIFT gateways, Bank X decided on alternative solutions, such as outsourcing to a SWIFT service bureau.

HSBC was one of the few banks invited by Bank X to respond to its RFP where we introduced our Managed Payments Service (MPS), a multi-bank solution that connects and integrates clients’ multiple back office platforms via an accredited SWIFT service bureau. HSBC believed that MPS would meet Bank X’s requirements and provide the flexibility it sought for connecting to SWIFT and managing its increasing daily transactional flows.

HSBC was also able to customise a complete end-to-end implementation and integration plan, which provided the necessary milestones and deliverables for Bank X to meet its aggressive roll-out dates, as well as give it the ability to develop new areas of business in a phased approach over a nine-month period.

In addition, MPS was able to provide Bank X with an application that allowed it to filter and screen all payments before being released to SWIFT, which fully complies with the banking requirements from a regulatory perspective – it is a Financial Services Authority (FSA) requirement for all banks to have the appropriate sanction screening/filtering processes in place to support their cash management activities.

In the end, it was not simply the technology platform that enabled HSBC to win this mandate, but the consultative approach in which we understood the client’s needs fully. We devised a solution which did not include any of HSBC’s proprietary channels but used SWIFT for a better long-term fit in terms of expected increases in bandwidth and transactional flows.

Conclusion

HSBC’s MPS solution met Bank X’s needs when it was looking for a single solution to provide connectivity to SWIFT, multi-bank reach with correspondent relationships and back office integration along a number of different enterprise resource planning (ERP) systems, as well as the ability to introduce new business lines in a phased approach as and when the business was scheduled for live releases.

The initial implementation took 12 months and was successfully managed and delivered in line with the project which in turn ensured an on-time roll-out for its first phase of business. Bank X is now able to independently connect to SWIFT, as well as focus on driving existing and new business growth.

Since then, HSBC and Bank X have completed a further two phases of its new business roll-out, with potentially another two or three scheduled for 2012.

HSBC MPS

HSBC’s Managed Payments Service (MPS), an outsourcing platform, was officially launched in 2010 during SIBOs in Amsterdam. It combines both technology and consultancy and is comprised of three levels:

  1. Transaction banking: supporting a comprehensive range of payments, receivables and information solutions.
  2. Multi-bank connectivity: using SWIFTNet, delivered via an accredited service bureau.
  3. Integration into the client’s back office environment: deploying ‘any-to-any’ format transformation to ensure high levels of straight-through processing (STP).

Many clients are looking to secure value in their own business through re-engineering of processes or technology refreshment. The main drivers for this are:

  • Modernising technology.
  • Consolidating banking channels.
  • Majoring on SWIFT to support their multi-banking needs.
  • Maximising back office effectiveness.
  • Enhancing their own client offerings through deployment of an outsourced technology stack coupled with HSBC’s global transactional capabilities.

MPS is unique in the market in that a bank is offering an outsourcing platform to customers, combining transactional and technology elements as well as using non-proprietary applications and data hosting arrangements remote from the bank’s own centres.

At present, MPS is currently offered to financial institutional clients who reside and/or operate in Europe. However, the bank plans to extend this offering to other regions during 2012. It is also looking to develop MPS for the broader corporate market.

To read more from HSBC, please visit the company’s microsite.

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