Cloudy Outlook: The Future of Treasury

Is
it worth reaching for the sky and adopting cloud technology in your treasury?
This technology-focused article will look at the pros and cons of cloud
computing in the SWIFT environment and detail the available options for
treasurers, examining the access benefits of cloud solutions, such as SWIFT’s
3SKey authentication tool and its Alliance Lite 2 connectivity platform, versus
the numerous, established monitoring and cash visibility offerings from
technology vendors and the SWIFT Service Bureau (SSB) connectivity options.
Which route is the most beneficial to treasurers and what are the key
considerations, such as security and resiliency, to be aware of?

“Confidence in cloud computing is continuing to grow and the use of these
solutions is increasing all the time, particularly in the corporate world,” says
Marcus Hughes, head of strategic business development at Bottomline
Technologies, one of the large SSB providers that can take care of all of the
on-boarding requirements of corporates wishing to link to SWIFT and offer
monitoring dashboards and other cloud-based tools to improve cash visibility and
treasury efficiency. “Corporates have led the drive towards cloud connectivity
to SWIFT, while banks generally prefer to host their solutions and keep data
behind their firewalls,” he adds, while discussing the latest technology
trends.

Bottomline Technologies is only one of the more than 100 companies
that operate a SWIFT Service Bureau (SSB). Many of the bureaux offer simple
SWIFT connectivity, while others provide additional tools for users such as the
data rich monitoring dashboards mentioned previously, and data transformation
services, which can standardise messaging technology, for instance, and reduce
the exceptions handling fees resulting from failed messages.

Pros and Cons
of the Cloud

Cloud computing solutions, in which firms outsource their
hardware and software to a specialist firm, are designed to be scalable, and
this flexibility is one of their key benefits, along with the cheap
implementation costs, due to the lack of upfront capital expenditure on
equipment. Customers pay for the computing capacity they use and can quickly
increase or decrease their consumption of technology resources without making
major investments in physical hardware or having to maintain that hardware or
software.

On the downside, there are of course on-going continuous
fees, but IT staffing costs can be reduced if good partners are found and strong
service level agreements (SLAs) regarding continuity of service are adhered
to.

The term cloud computing, and elements of it such as
Software-as-a-Service (SaaS), application services’ providers and hosted
computing are often used by marketing teams to try to differentiate their
products in the marketplace, says Rick
Beecroft, managing director of Bellin
Treasury Services. “Having a clear vision of their goals when it comes to using
and maintaining a treasury system will help treasurers to cut through the noise
however,” he says. “Focusing more deeply on the functionality of the product and
the requirements set out by a company’s IT security and audit requirements will
ensure that the cloud offering meets the treasury’s needs.”

Beecroft says
there are important business questions a treasurer needs to ask before he or she
gets into the technicalities of hosted software.

These include:

  • Am I
    allowed to host my treasury data outside of my corporate firewall or does the
    corporate security policy prevent this? Paying someone to manage and protect
    data (in the cloud) is a no-go for some organisations. At the very least a
    separate set of security controls will need to be in place. Treasurers should
    check with their IT departments.
  • If I am allowed to host data in the
    cloud, where exactly, is it stored? The cloud is a general term used to describe
    a data centre, somewhere; so you need to find out where.
  • Are there any
    restrictions on the country that the treasury and transactional or supply chain
    data is allowed to reside? For example, a Swiss treasurer may not like his data
    to be stored in the European Union (EU), which has its own Data Protection Act
    (DPA), or treasuries may be subject to the US Patriot Act.
  • How quickly
    can I access my treasury system if the host company suffers serious downtime or
    a distributed denial of service (DDOS) attack?
  • Also ask yourself if it is
    important to you who owns the software? Are you able to migrate from a hosted
    solution to an in-house solution, or are you locked-in to the hosted
    solution?

SWIFT Service Bureaux

SSBs have evolved as SWIFT has courted
the corporate world. Initially locked out of the SWIFT network, corporates have
been gradually let in to the SWIFT world. Early implementations were large-scale
projects done by only the very biggest corporates who had the resources to
undertake the task. Today, even medium-sized corporates are considering the wide
variety of options available, covering from a simple SSB-administered link for
connectivity, to a full-service SSB or SWIFT’s own cloud-based Alliance Lite2,
which was launched last year.

“When SWIFT first rolled out the SWIFT for
Corporates programme, the focus was on SWIFT itself helping large corporates to
install the hardware and software required for connectivity behind firewalls. It
was a big task,” says Patricia Hines, director of financial services industry
marketing at GXS, a bureau operator. “SWIFT has strict requirements covering
hardware, software, connectivity, SLAs and the training of the individuals who
support the SWIFT connection. Only the very largest corporate entities
considered direct SWIFT connectivity – and then purely as an insourced
activity.”

Today, almost all of the new corporates connecting via SWIFT are
doing so via a SSB or via Alliance Lite2, says Hines. This is due to the
complexity of direct connections, which have now fallen out of favour.

Hughes at Bottomline Technologies says his firm has converted clients that
previously implemented SWIFT in-house to a cloud-based bureau scenario. In May
2010, for example, UK mobile telco Vodafone, switched from its in-house SWIFT
connectivity option to SMA’s SWIFT Service Bureau. (Bottomline Technologies
subsequently acquired SMA, in October 2010). Maintaining the infrastructure for
the SWIFT connection was proving to be increasingly time-consuming and
challenging for Vodafone to manage itself, hence the switch.

Another reason
was that Vodafone wanted to explore the possibility of using other SWIFT
capabilities.

The Full Service Model

Increasingly, SSBs have to be
“more than just a connectivity solution”, says Bottomline’s Hughes. “A SSB must
be able to offer a range of applications to ensure straight through processing
(STP) in order to reduce costs and ensure compliance for initiatives such as the
single euro payments area (SEPA).”

Additional services can include data
transformation and normalisation – necessary for instance on ensuring
international bank account numbers (IBANs) are all in place as required under
SEPA – or SSBs can provide monitoring tools such as dashboards, enrichment of
messages via SWIFT and other connectivity to national systems such as Bacs in
the UK.

SEPA compliance is a driving force for many corporates,
particularly as the 1 February 2014 deadline looms for migration to SEPA credit
transfer (SCT) and direct debit (SDD) formats. This has led to a rise of
interest in data transformation services, delivered through the cloud.

GXS’s Hines says large, sophisticated corporates do not want to spend time
translating their data into the required SWIFT formats or the mandatory XML ISO
20022 messaging format for SEPA, which is also increasingly used by the Brussels
headquartered organisation. Treasurers would rather a third party, such as a
bureau, translate formats to ensure payments can go straight through and they do
not attract a fine for message repair, and SSBs can help here. Data
transformation is one area where some SSBs say they can differentiate themselves
effectively from SWIFT’s Alliance Lite2, using cloud technology themselves.

The Cloud Options

Alliance Lite2 is a cloud solution for connecting to
the SWIFT network. It enables users to exchange all types of SWIFT messages and
files, and use secure browser services and 3SKey authentication offered over the
SWIFT network. It supports the volume needs of most SWIFT customers, but not
necessarily the largest corporations.

“Alliance Lite2 represents standard
connectivity with little customisation and is designed for a low number of
transactions,” says Hines. “When a corporates’ needs become a bit more
sophisticated or challenging, that corporate should consider a SSB.”

Hughes
agrees: “Alliance Lite2 has raised the profile of SWIFT in the corporate world,
but there are real differences between SWIFT’s cloud-based approach and the
service bureaux.” For a SSB to be successful, says Hughes, it must offer more
than connectivity. “The more successful bureaux will offer applications around
payments, cash reporting and cheque processing outsourcing,” he says.

“The
cheque application is particularly useful for insurance companies, which still
process a large number of cheques that have to clear internationally,” he
continues. “A bureau can offer to take in electronic files of cheques and we
process them. That is still a very valuable service to be able to offer.”

Monitoring Dashboards

Monitoring tools are increasingly attractive to
corporates as treasurers focus ever more tightly on transparency and cash
visibility. A dashboard is a software-based control panel for one or more
applications, network devices or industrial machines. Dashboards display
simulated gauges and dials that look like an automobile dashboard. There are a
number of elements a corporate treasurer may seek to monitor within the payments
and collections process, others are happy to monitor only the queues of
messages.

Whereas Alliance Lite2 offers a number of monitoring tools, such
as which files have been processed, acknowledged or failed, Hines says SSBs can
take this up a level. “GXS, for example, can provide tools to monitor other
types of transactions, including bank-to-bank as well as SWIFT transactions. For
Dow Corning Corporation, we processed supply chain transactions orders and
shipping notices. In that case, they could use one tool to monitor all of those
transactions.”

Bottomline Technologies plans to add more applications and
functions to its secure cloud services, including supply chain finance services
based on the Bank Payment Obligation (BPO). “We see this as a big opportunity
that is being fully backed by banks. Although financial institutions have
constrained budgets at the moment, the BPO will help them to mitigate risks and
to deliver supply chain finance solutions that in turn will help businesses to
avoid payment delays and give them better access to funding,” says Hughes.

GXS’ Hines says large treasuries in particular are looking at the SWIFT for
Corporates programme as a way to provide a single connection, via SWIFT, into
and out of their financial counterparties. “They realise the SWIFT network can
carry a lot of information related to electronic bank account management (eBAM),
electronic payments, statement and balance information. There are also
opportunities for systems that manage foreign exchange (FX). A lot of
information can flow through the SWIFT connection.”

Dow Corning Case
Study

Dow Corning Corporation has used its connection via GXS’ SSB to
integrate treasury systems and data flows. SWIFT data flows on a daily basis
into the GXS bureau and is imported into the company’s treasury management
system (TMS), where daily cash reconciliation and positioning is undertaken.

Once the reconciliation is done, the TMS pushes the journal entries into the
firm’s enterprise resource planning (ERP) system. Concurrently, a market data
feed flows into the TMS and the front office executes trades via a trading
platform, which are confirmed and matched automatically.

Throughout the day
the Dow Corning treasury group is preparing payments transactions. These are
sent out from the TMS into SWIFT via the GXS bureau. “This set up gives a clear
line of sight to all treasury activity globally,” says John Coon, global cash
manager at Dow Corning. “We couldn’t get this with spreadsheets.”

Case Study: National Grid

National Grid is an electricity and gas company
that connects consumers to energy sources through its networks, and is strong in
the UK. The treasury department operates a £20bn debt book and is responsible
for managing a large number of banking relationships using different electronic
banking platforms, terminals and security devices.

The company opted for a
cloud-based bureau model, using Bottomline Technologies’ SWIFT Access Service.
The SSB is used to send MT101 messages which enable National Grid to make a
payment to any bank account that is connected to the SWIFT network. It receives
MT940 prior day statement messages along with MT942 intraday messages which
provide statement updates during the course of the business day.

Other
message types in use include MT900 confirmation of debit that the funds have
left National Grid’s account and MT910 confirmation of credit messages. The
latter is particularly useful as it provides an immediate confirmation when
National Grid has received payment funds. National Grid also uses MT195/196/199
messages for making and resolving queries with its banks.

By using the
secure SSB for sending its financial messages, National Grid has clear
visibility over payment success which is essential when dealing with high value
transactions. The near real-time confirmations allow the treasury team to
maintain a more accurate view of its cash across all accounts.

Fiona Peel,
treasury manager at National Grid, says the bureau will now be used in three
different areas within the group. In the UK Treasury, Bottomline Technologies’
SSB is providing data transformation services to enable data to be pushed
through from SWIFT and into the treasury management system (TMS) at National
Grid to achieve full straight through processing (STP). All treasury-related
payments go out via the SWIFT network and all bank statements will be reconciled
against the data in the TMS. “This means we will get full STP against the
payments and the data coming in to the TMS,” says Peel.  

In the shared
services centre (SSC), National Grid is moving on to Bottomline’s C-Series
platform that will process all same-day payments, foreign payments and UK Bacs
payments. Data will be transformed and taken into the enterprise resource
planning (ERP) system and all statements can be processed automatically.  

The same approach is being taken in National Grid’s US operations so that both
the UK and US operations will be fully STP, says Peel. “To get the data into the
ERP – to be ordered and uploaded in the required sequence – has been made
possible by the bureau. To do this with data straight from SWIFT would have been
a struggle.” 

Once the systems are bedded in, National Grid will also look
to the future. Peel says the company is interested in the possibility of doing
treasury trade confirmations via the bureau as well as bank account management.
“Many corporates are now becoming Standardised Corporate Environment (SCORE)
members and using SWIFT. By using SWIFT, we gain better visibility of bank
accounts all around the world without having to take on additional bank
platforms.”   

This feature is taken from the2013 gtnews SWIFT Service Bureaux (SSB) Buyer’s Guide. To see the
other features and the entire 40-page pdf document please click
HERE
 

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