SWIFT for Corporates Grows Up

The SWIFT for Corporates offering has reached adolescence. The journey began more than a decade ago with the launch of the Member Administered Closed User Group (MA-CUG) in 2001 and took a major step forward with the advent of the Standardised Corporate Environment (SCORE) connectivity option in 2006. Today almost 1,000 corporates connect to their banks through SWIFT.

It has been the corporate treasury community itself that has driven this development, compelling banks to help them build a product which, in their minds, would solve the problem of cumbersome multi-bank connectivity. The cost savings associated with a single banking channel was a secondary consideration for corporates at this early stage. Fundamentally they wanted a standard, straight-through process (STP) with robust security and a less complicated, more easily manageable infrastructure. They also wanted to reduce the risk associated with multiple bank channels.

The first companies to join entered the world of SWIFT with bold expectations and clear objectives, although with a limited roadmap. Through collaboration and cooperation, the ecosystem comprised of corporates, banks, technology vendors and SWIFT has been able to put together a revolutionary treasury solution that continues to evolve today. This is a true game changer for global treasurers.

Basics

The first corporates on SWIFT used it mainly for payments and information reporting. SWIFT FIN accommodates all SWIFT-formatted message type (MT) messages, while FileAct was designed as a batch file transfer for all other formats.

Table 1. Traditional SWIFT Payments Application

 

 FIN  FileAct
 MT101 is the only debit type allowed in SCORE
 High-value payments
 Non-US low-value payments
 Automated clearing house (ACH): US low-value ACH files, acknowledgements and reports in NACHA format
 MT900 debit advices  Global integrated payables files and acknowledgements in EDI 820, ISO 20022 XML, proprietary ERP, etc
 MT910 credit advices  Account reconcilement cheque issuance, daily paid and cycle-end output files typically bank proprietary format
 MT210 advice to receive  
 MT199 cancellations/investigations  

Figure 1: SWIFT Payment Options

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Table 2: Traditional SWIFT Reporting Application

 FIN  FileAct
 MT940 – previous day report (PDR)  PDR/CDR: BAI or ISO 20022 XML format
 MT942 – current day report (CDR)  Lockbox: data files in BAI2 format
 MT941 – intraday balance  Comprehensive receivables files ISO 20022, BAI, EDI 823, etc
   Account reconcilement paid cheque files

Figure 2: SWIFT Reporting Options

 

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Hundreds of companies are now taking advantage of the efficiencies that SWIFT access can provide. Some are doing either payments or information reporting, but those that have already implemented both are exploring new areas where SWIFT can be used and pushing the industry to do even more through this new channel.

Beyond the Basics

FIN
Since FIN’s rollout, SWIFT has expanded the supported message types in SCORE to include some securities, foreign exchange (FX), and trade MTs. Companies can now use their SWIFT connection to receive FX confirmations (MT300), securities trade confirmations (MT515) and letter of credit (L/C) messages through the use of the MT798 message.

Multi-banking
The intent of SCORE was to provide companies with secure and direct connectivity to each of their banks. Two obstacles are still standing in the way of this. First, pricing – not necessarily SWIFT or bank fees – but third party SWIFT service providers often charge per bank connection. In an effort to save on connectivity fees, companies are asking their banks to continue their support of relay services. Second, not all banks are offering SWIFT’s SCORE services to companies. The SWIFT website has a link where companies can search for banks that support SCORE but may still find themselves in a relationship with a non-SCORE bank. In this scenario, relay or multi-bank connectivity may be the only solution.

Single BIC solution
To reduce implementation efforts and fees, corporates have pushed for a single Bank Identifier Code (BIC) solution. Traditionally, banks had different delivery addresses (BICs) for each country where they held accounts. Companies have made the reasonable request for a single address for delivery of all their FIN payments, no matter where the account is domiciled. This request requires the bank to do its own internal transfer among supported countries and shields the company from the complexities of bank infrastructures.

MT798
This is SWIFT’s multi-bank standard for trade messaging between corporates and their banks. Companies typically maintain a number of different banking relationships around the world to issue and advise commercial L/C, along with standby L/Cs, bonds and guarantees. Today, every new banking relationship means a new platform to integrate. Adopting a standardised SWIFT messaging process allows companies to streamline their banking relationships and keep their trade instruments in a single repository.

FileAct
Perhaps the biggest game changer has been the FileAct service. Corporates striving to get maximum value from their investment are finding ways to put more through the SWIFT FileAct channel, including lockbox data, positive pay issue files, end-of-month statements, supporting trade documents, and bank account administrative requests with supporting documentation. As a format-neutral solution, FileAct has unlimited capabilities; basically any corporate-to-bank communication can be sent through SWIFT FileAct if both parties agree to it. Many innovative solutions in this space are being driven by company demand and developed in a rare collaborative approach.

Digital identification
Although not tied specifically to SWIFT FileAct, the introduction of a bank-agnostic personal authentication key (3SKey) with robust security is helping to develop additional solutions that require industry cohesiveness around security and certifications.

eBAM
Electronic bank account management (eBAM) is an industry-led initiative designed to provide a bank-agnostic solution for the repetitive bank account administrative processes. These messages can package together an administrative request with legal documentation signed with an authenticated secure digital signature for authorisation, which is sent through the SWIFT FileAct channel. Some early adopters will be sending production eBAM messages in the near future.


Case Study: BMC Adopts eBAM Strategy

Software company BMC began its journey
to eBAM in October 2008, when it implemented a treasury management
system (TMS) in order to reduce the manual workload involving over 200
bank accounts in 40 countries and 30 different banking partners.
Automation of bank statement reporting and payment processing by
interfacing with their banking partners over the SWIFT network via a
service bureau was a significant first step in improving treasury
automation.

On the back of the statements and payments
automation through a TMS, BMC has taken a lead role in eBAM pilot
programmes with their bank relationships. “We’re very focused on
technology to eliminate manual effort and opportunity for errors, most
importantly to allow a more strategic focus as a treasury operation,”
says Corey Walsh, treasurer at BMC. “eBAM obviously fits in with that
mould.”

Rather than waiting for the product to become available,
BMC decided to take a more proactive stance. “We realised it was very
much in the infancy stage – it was a concept rather than fully
functioning. We wanted to be at the forefront of development of eBAM so
that we could help drive decisions,” says Walsh.

Walsh admits
that taking a lead position in the eBAM journey is a significant
commitment of time and resources, but he feels that this investment is
more than justified by the benefits: “We’re in a position where we’ve
been on the forefront of electronic payments [e-payments] and initiatives like SWIFT
for Corporates. We feel we can leverage this to the company’s benefit by
being proactive and helping define the eBAM process. From there, we can
strongly encourage other financial institutions to comply with the way
we’ve helped define it. So there will be less work for us in the future
if we devote our time today.”

 

Account statement images
Once a company has connected to SWIFT, it’s easy to see why they would look for more ways to leverage it. Physical delivery of cheques and statements has been cumbersome at best. Delivery by CD-ROM or paper poses security and risk issues as well as the question of physical storage needs. In a recent gtnews article, one company describes how they use their SWIFT delivery channel to receive electronic statements (e-statements) for local storage with administrative access within their company. Their effort has allowed them to eliminate paper storage, enhance their processes to help ensure compliance with their rules, and ultimately reduce their overall carbon footprint by saving many reams of paper each month.

Trade document presentations
With FileAct, clients (and/or their logistics partners) can submit export documents associated with L/C or open account transactions in a structured XML format or any ‘free format’ mutually agreed between buyer and seller. The order-to-cash (O2C) cycle time is accelerated by eliminating mail couriers and reducing discrepancies that typically delay payment.

Table 3. New SWIFT Applications

 FIN  FileAct
 MT300 – FX confirmations  Account analysis statements
 MT515 – client confirmation of purchase or sale  Electronic statements (e-statements) in PDF format
 MT798 – trade L/C messages  Trade and supply chain
 Purchase order files
 Export document files
 Bulk L/C application files
   eBAM in ISO 20022 XML format

 

Improvements and Developments

Innotribe
In an effort to drive innovation, SWIFT has launched an initiative called Innotribe, which aims to foster innovation in the industry. Innotribe made its debut at the 2009 Sibos in Hong Kong, gathering together strategists, business and technology leaders, trend-setters and trend-watchers to foster creative thinking in financial services, through debating the options (at Innotribe events) and supporting the creation of innovative new solutions, through the Incubator, Start-up Challenge and proof of concepts (POCs).

Expanded membership
In 2008, SWIFT changed the SCORE membership criteria to include privately-owned companies with member bank sponsorship. Rather than requiring companies to go through the cumbersome MA-CUG process, privately-held companies are now able to join SCORE when sponsored by one of the member banks. This change helped open availability to many more corporates.

Readiness certificate
In 2011, SWIFT introduced the Corporate Bank Readiness certification. Corporates reported difficulty in finding contacts and understanding the capabilities at the banks where they held accounts. After investing in their SWIFT infrastructure, some companies want to select banks based on their ability to provide service through the SWIFT network. The SWIFT Readiness certification and the SWIFT website give companies the ability to find and understand their bank’s capabilities in a single location.

Specialists
More recently SWIFT developed a training class geared specifically for those who consult, advise on or implement SWIFT SCORE services. Vendors, bankers and even some corporate associates can go through the accreditation process and become certified corporate specialists. With just the right amount of technical and business knowledge, these specialists may prove to be a good resource for any company considering joining SWIFT. In addition, the training helps standardise the knowledge base among different banks and vendor participants to ensure consistency.

Community and standardisation
One of SWIFT’s most beneficial roles is to act as an industry catalyst. As the single place where financial institutions can play in a non-competitive space, SWIFT is well-placed to act as the facilitator for consensus around new bank neutral solutions. eBAM and 3SKey are good examples of how SWIFT took an idea and worked within the financial community to develop standards for everyone to build to.

SWIFT has demonstrated its commitment to corporates, and more developments are possible. For example, one area that SWIFT could play an important part is guarantees.

Some companies are turning to their banks as trusted authorities to authenticate a trading partner and verify availability of funds. The FIN service as a non-repudiation guarantee and the bank’s requirements around KYC rules make SWIFT the ideal channel for such a transaction. However, there is no SWIFT MT or rule for performing such a transaction. Therefore, this process is neither reliable nor acceptable in much of the industry. Trading partners want this service so they can ship a product with a payment guarantee. SWIFT is an ideal place to create such a process.

Conclusion

In the short amount of time that SWIFT corporate access has existed, the industry has moved from an early pioneer’s assessment in 2004 that “SWIFT is not for the faint of heart”, to “SWIFT implementation is no more difficult than establishing standard data transmissions to a single financial institution,” according to Wayne Whitaker, vice president, treasury at Oxbow in 2012.

All in all, the SWIFT for Corporate offering has developed well. Given the innovation it has triggered, it will be interesting to watch how it grows from adolescence into a fully mature, multifaceted adult offering over the next five to 10 years.

 

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