Interest in corporate connectivity over SWIFT is steadily increasing. Almost 1,000 corporates now use SWIFT when interacting with their banking partners. The obvious advantages from a corporate’s viewpoint have been described in earlier articles as well as in various forums, but may be summarised as follows:
- To support straight-through processing (STP) for the financial core processes of accounts payable (A/P), accounts receivable (A/R) and general ledger (GL).
- To minimise the need for bank proprietary connectivity and security solutions.
- To reach all banks, via one single communication set up.
For those not yet using SWIFT, the reasons they cite relate mainly to cost. In response, SWIFT argues that using accurate models is essential when comparing SWIFT connectivity costs against alternative connectivity options.
While the initial focus has been to support transactions, namely payments-related business, the SWIFT-based offering is expanding. The electronic bank account management (eBAM) central utility, the evolvement of SWIFT’s personal authentication and digital signature tool 3SKey, and the second version of Alliance Lite, will all further improve the competitiveness of SWIFT’s offering. Trade and supply chain financing (SCF) is another area where several initiatives are ongoing, some driven exclusively by SWIFT and some that have other organisations and corporations participating.
Obviously there are many different views assuming SWIFT is, or becomes, the natural choice for corporates going forward. For some type of clients it is evidently the most cost-efficient and structurally correct decision to make, but what about the other stakeholders currently involved in the process of bank connectivity, namely the banks, service bureaus and enterprise resource planning (ERP) and treasury management system (TMS) providers?
This group of providers consists of many different types of organisation, both in terms of their size and ambition in this particular market. The solutions offered to corporates by these providers represent the very core of the corporates’ businesses. A trend now starting to evolve is the ambition of some corporates to phase out the use of proprietary electronic banking (e-banking) tools in favour of internal core applications. In combination with connectivity over SWIFT or other networks, a cost efficient and more bank-agnostic approach for corporates could be achieved. One interesting consequence of this trend is when the ERP/TMS providers continue their efforts to cement the relationship between themselves and their corporate clients. For the largest of the providers, one way of doing this is to leverage their own network of corporates and banks. In an era of cloud computing, and customers among both corporates and banks, there are already several initiatives aiming to find connectivity options without the involvement of SWIFT or other network providers.
This group of organisations has played, and continues to play, an important role in the roll-out of corporate connectivity and provides an alternative for corporates unwilling to invest in their own SWIFT infrastructure. Approximately 75% of existing SWIFT corporate connectivity agreements are handled through service bureaus. The main reasons could be a strategic sourcing model and/or perceived cost efficiency. The future for this group of providers is, at least in the short term, likely to remain stable, despite the regulatory requirements and issues relating to security and data protection currently under discussion. It is, however, also likely that alternative initiatives will start to impact on the existing business models provided by these organisations. If the corporate sector’s appetite for connecting to SWIFT continues to increase, more players will find this market attractive and launch new services for corporates. So it is fair to assume that the competition for new business will inevitably impact on pricing models. It is also reasonable to expect both SWIFT and the ERP/TMS providers will sharpen their knives in an effort to defend their market share.
If increased competition is expected in the race for securing a role in the expanding market for corporate connectivity over SWIFT, the third important stakeholder group is banks. What are their views on this trend and how are they positioning themselves?
Firstly, banks are not a homogenous group. Some banks do not offering SWIFT connectivity for corporates support at all, while others see it as a strategically important differentiator. The latter group already includes several banks which see an evident business opportunity in offering a full range of services including an in-house service bureau solution. By offering a one-stop shop, they could attract interest from a number of corporates.
For other banks, the SWIFT connectivity offering is one solution together with other similar integrated host to host solutions, which support corporates’ need for STP and low operational costs. For these banks it is not always obvious which particular solution they should offer to a corporate. The easiest way to judge could be to listen to the client and respond according to their requirements, rather than favour one solution over another – assuming the business functionality included in other connectivity alternatives is comparable.
Investments in proprietary integrated solutions could create an obstacle to promoting the SWIFT option, leading to a more reactive approach. Depending on how well each bank has managed to operate similar connectivity solutions, the pricing and return of historic investments could be further reasons to adopt a passive positioning in dialogue with the corporates. On the other hand, one could argue that since the bank is maintaining SWIFT connectivity for more purposes than just supporting corporates, it is an incitement to leverage on that investment by maximising usage of an existing solution.
Our own company policy is always to find the most appropriate solution for each individual customer, which could be SWIFT or one of our in-house solutions. Factors influencing the choice of communication solution include the customer´s existing and planned organisational structure, preferred message standards and level of consolidated ERP/TMS systems. SEB is involved in different standardisation initiatives such as Common Global Implementation (CGI), but also actively discusses joint initiatives with ERP/TMS providers
The number of corporates using SWIFT as their preferred connectivity option for their banks is growing. The main routes for reaching SWIFT, through an in-house SWIFT IT infrastructure, via a service bureau or through Alliance Lite, are likely to be challenged going forward. Increased cost awareness in the market will lead to new solutions where the number of involved parties and stakeholders is reduces. For the costs of connectivity to decrease, the fewer involved parties and stakeholders there are the better. In addition, regulatory and IT-related complexity can be lessened if the path between the corporate and its banks is straight rather than winding.
Regardless of which path the market takes, increased competition in the bank connectivity market will improve efficiency and decrease costs. This will eventually be to the benefit of corporates, whether they choose to use SWIFT or not.
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