Making a SWIFT Decision: Alliance Light or Service Bureau?

With the introduction of AllianceLight (AL1) in 2008, SWIFT
originally targeted smaller corporations with a lower volume of payment messages
and a limited number of message types, with the option of connecting through the
internet. The volume restrictions  of AL1 proved to be a limiting factor and was
among the reasons why many companies did not consider to offer a practical
solution.

One of the major improvements in its successor AL2 is that
volume restrictions through pricing are no longer imposed on a corporation,
enlarging AL2’s potential target market to include companies with a high volume
of payment messages. It is now also possible to access all message types (MTs)
and all MX SWIFT message types and other services offered over SWIFTNet. These
include:

  • Accord for Treasury: A matching and exception handling solution
    for foreign exchange (FX), money market, over-the-counter (OTC) derivatives, and
    commodity trade confirmations.
  • Sanctions Screening over SWIFT: An easy,
    cost effective compliance with sanctions laws.
  • The Trade Services
    Utility:
      A centralised matching and workflow engine that can be used to support
    the timely and accurate matching of trade-related transaction data.
  • Browse: A messaging service that enables secure access from a standard web
    browser to a service provider’s web server and SWIFTNet server application over
    the SWIFTsecure internet protocol (IP) network and SWIFTNet. thus removing any
    previous limitations of message types or services.

SWIFT has further
increased the choice of connecting to SWIFTNet by adding the option of
connecting over a SWIFT-managed virtual private network (VPN) or using an
internet browser.

Both manual entry of payments into AL2 and automated
file transfers via AutoClient are supported by AL2. Using AutoClient to transfer
files is possible, but straight-through processing (STP) for payments, using AL2
together with a treasury management system (TMS) remains an issue because a hard
token is needed to approve payments. SWIFT has indicated that it is working on a
solution to overcome this shortcoming, by developing a ‘soft certificate’ for
use with AutoClient using a VPN connection.

SWIFT Service Bureaux
Services

With the introduction of SWIFT’s new qualifying criteria, it is
generally expected that the SWIFT service bureau (SSB) market will enter a
consolidation phase, where smaller SSBs might disappear and the distinguishing
services of bigger SSBs will prove to be an important factor in retaining and
attracting clients.

Services offered by SSBs range from providing a
connecting service to SWIFTNet, to value-added services such as on-boarding
assistance to sign-up to SWIFT, data transformation, data enrichment,
integration and format translation, electronic bank account management (eBAM),
compliance and anti-money laundering services and cash/balance reporting. These
additional services will be unique selling points for  SSBs in future, instead
of only offering connectivity to SWIFTNet.

Important Considerations for
Selection

The service provided by AL2 can be compared to an SSB, except
that AL2 only offers a connection service to SWIFTNet and has the distinct
advantage of eliminating a third party and simplifying the process. By dealing
directly with SWIFT, it could be argued that it removes any security and
performance questions around the capability of SSBs to deliver services that
would need to be addressed during the selection process.

Among the main
driving forces of the decision to choose between AL2 and an SSB solution is
still the pricing, but other factors that can be a determining factor in the
choice between AL2 and an SSB are IT policy and security, integration with an
enterprise resource planning (ERP) or existing TMSs and additional services or
support.

Pricing

Alliance Lite2 is priced using bands to determine the
base licence fee and monthly subscription.  Pricing is scalable, meaning the
amount you pay is based on how much you actually use the service. Messages and
files are charged as per standard SWIFT prices. There is an automatic band
upgrade or downgrade every six months, based on the 12-month average
network-based invoice (NBI).

The estimated cost of using AL2 is compared
below with the estimated cost of choosing an SSB based on a low volume example
of 50 FIN messages per day and 1,000 FileAct messages per day.

Comparing the cost of AL2 vs. SSB.

Zanders AL cost vs SSB
The initial costs include only the basic
implementation costs, but should any further assistance from SWIFT be required,
this could lead to additional consulting costs of around € 1,500 per day. As an
alternative, SWIFT offers a peace of mind support pact at an additional cost.

The range of the initial once-off cost for AL2 could vary from as little as €
10,000 (based on band 4 pricing) to an estimated €40,000 (based on a band 1
pricing), depending upon the expected volume of transactions, with the cost of
connecting via an SSB ranging from around €25,000 to € 40,000, depending on the
SSB.

Comparing the monthly costs of joining an SSB with AL2 shows a big
difference. This is not surprising, as AL2 is based on the standard SWIFT
message prices, while SSB pricing includes a margin. Over a five-year period
this difference could lead to significant savings.

Although the pricing
difference is a major consideration, it shouldn’t be seen in isolation. The
compliance with IT policy and security standards can be a major deciding-factor
in choosing between AL2 and an SSB.
IT Policy and Security

Ensuring
that the SWIFT connection is secure is a basic requirement and one of the main
concerns of IT departments. The current requirement of AL2 to make use of a hard
token will not comply with the IT and security policies of many corporations and
could be a deal breaker, leading to an early decision to select an SSB.

Furthermore, the use of AutoClient as a part of a requirement to automate the
payment process is raising concerns in some IT departments as it is currently
not possible to move an encrypted file from a TMS via AutoClient.

Integration and SSB Services Required

Another determining factor that
will influence the decision between AL2 and SSBs is the availability of in-house
skills with ability to implement SWIFT and also assist with other related
projects. The implementation of SWIFT is seldom a standalone project, but is
most likely part of a bigger project to consolidate the banking landscape,
implement an in-house bank (IHB)/payment factory or improve TMS integration and
straight-through processing (STP).

Having the required skills in-house
would enable a corporation to conduct their own formatting and mapping of
information to the required SWIFT formats using their TMS or ERP system,
providing future independence from a third party. Should these skills not be
available, then choosing an SSB could be an attractive option as this is one of
the areas where an SSB can provide a value-added service in using the existing
TMS or ERP output and translating it into the required SWIFT formats.

Choosing
between AL2 and an SSB could thus imply a choice between outsourcing a part of
the solution and keeping it in-house.

The Future

With AL2’s entry into
the market, there is now greater choice when it comes to selecting connectivity
to the SWIFT network. One can simplify the task by considering how you would use
the AL2 option and then consider reasons why that would not be possible or
desirable.

Currently, the recurring issue mentioned as a major reason for
not selecting AL2 remains the use of hard tokens. This affects more than one of
the major decision-making areas including IT security, integration and STP, and
is probably the main disadvantage standing in the way of AL2 becoming an even
more serious contender in the current SSB market.

With SWIFT indicating
that it is working on resolving this issue in the near future, SAP’s development
of its financial services network and the consolidation expected between the
SSBs could set the scene for increased competition among the major players in
this market. This in turn should enable treasurers to benefit from better
service, performance and a more secure connection solution.

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