SWIFT for Corporates: Taking the Next Step

Since SWIFT introduced corporate connectivity in 2002, more than 650 corporates have connected to the service and these numbers continue to grow year-on-year. Richard Martin, deputy head of cash and trade at Barclays Corporate, said: “We believe SWIFT corporate connectivity has been a major development and has been instrumental in enabling corporates to achieve greater efficiency and control in payment initiation and liquidity management.” He added that SWIFT connectivity can benefit a range of corporates, not just those that operate shared service centres (SSCs) or payment factories. “We have a number of customers that use SWIFT to initiate payments and receive account information, because this enables them to integrate SWIFT into their treasury management system (TMS) and reduce reliance on bespoke bank platforms.”

Barclays was the first UK bank and second globally to offer SWIFT connectivity to corporates, initially via a Member Administrated Closed User Group (MA-CUG) in 2002. Herve Postic, chief executive officer (CEO) of treasury consultancy UTSIT, added that SWIFT sat across all treasury departments. “There is no thing such as a SWIFT project, but SWIFT is often a key element within broader business projects. Banks are the SWIFT providers – SWIFT only provides the messaging platform and standards.”

Is SWIFT Right for You?

First, Martin examined the process of considering whether to implement SWIFT in the first place. He highlighted the opportunities for SWIFT’s integration with existing systems, for example with TMS and enterprise resource planning (ERP) systems, especially in a multi-bank situation. Another benefit he mentioned was improved cash forecasting, liquidity management and internal control – “to ensure you don’t have pockets of liquidity you’re not making use of.” As access to liquidity is a key issue for corporates, the use of SWIFT can be a compelling argument.

Other benefits he listed were:

  • The cash management service gives the ability to move money around securely and efficiently.
  • Information: the corporate has the ability to query where the payment is in a situation where the beneficiary claims non-receipt.
  • Allows for a reduction in the number of electronic platforms required – there is the opportunity to standardise, harmonise platforms and gain a transparent view of payment operations.

In terms of a cost analysis, Martin said, “Implementing SWIFT is becoming less expensive, especially as part of a TMS/ERP project.” He added that there were also savings to be realised on compliance costs and banking fees, while the straight-through processing (STP) reduced the number of staff needed, as well as the number of potential errors.

Corporate Testimony

Raffi Basmadjian, deputy treasurer at France Telecom, owner of Orange, described why the telecoms giant had decided to implement SWIFT. “SWIFT is more than a network – it offers stability and security.”

Basmadjian described how the company, which now has 400 subsidiaries in 94 countries and 182 million customers, was forced to adapt, after moving from a state-owned monopoly to the fiercely competitive global telecoms sector. In the process, the company moved from local to global management and from a narrow to a broad product range, as well as moving into emerging markets. The changing environment (such as the invention of Skype) is creating the need for flexibility and speed.

But, he said, the company had found its existing networks too restrictive. “Where we want to be global, we need global standards. Payments generated remain 2% international and 98% domestic. For banks, the challenge is dealing where we are. No bank is everywhere.”

Basmadjian continued by describing why he implemented a universal solution to managing cash and treasury. “The sharing of information is key – how much am I going to pay and how much will I receive. What currency will it be in, in which account and on what value date. A universal TMS allows you to avoid the burden of pulling treasury management information manually from different places.” He added that the more international the company, the more universal the solution needed to be. “A universal e-banking system is needed to support a universal TMS. All TMS need to send and receive files with banks. We are looking for something global, to allow us to connect with all the banks using a single set of formats.”

He described how the company had examined the following processes to manage liquidity:

  • Netting – full control of inter-company settlements.
  • Payment factories: full control over external payments.
  • Cash processing crowns and completes the processes by mobilising external revenue streams.

Basmadjian said that for a group treasury in need of a universal IT system, SWIFT represented an extension of e-banking coverage, with better functional coverage, allowing the management of FIN and FileAct flows and offering better geographical coverage. He described SWIFT as the largest e-banking network in the world. “At least within the eurozone, the domestic channels are going to disappear,” he added.

He described France Telecom’s system prior to SWIFT as convoluted and inefficient. To resolve this, the company had three main aims:

  1. Replace the X25 messages (ETEBAC) with IP messages (SWIFT).
  2. Outsource SWIFT connectivity to a service bureau.
  3. Extend the use of SWIFT to all corporate-to-bank transactions.

“It became clear that X25 was becoming increasingly fragile; SWIFT had the necessary geographical and business coverage. Our subsidiaries were also able to use our tools remotely. It was also possible to handle large volumes of payments, such as payroll and collections.” Basmadjian said the company had saved €11,552 per year, minus the indirect costs of servers and staff. The migration is now also completed bar the signing of SCORE agreements with other banks, and technical tests and user acceptance testing (UAT).

Basmadjian explained the benefits of migrating to a SWIFT service bureau as he perceived them. “It allows us to benefit from the expertise of their specialists. It also allows us to be more responsive, especially when connecting new banks.” He said that the type of service bureau, whether provided by a bank or non-bank, depended on the requirements and type of services expected. For us, the most difficult aspect was the IP/VPN link between the treasury and the service bureau infrastructure.”

The question and answer session provided a chance for corporate treasurers present to quiz the panel on considerations at the decision stage of implementing SWIFT for Corporates.

One delegate asked if the reluctance of some corporates to embrace a service bureau was because of the perceived counterparty risk. Basmadjian explained: “This can be an issue. There are two aspects: there are cut-off times – who is responsible if you miss that? And if you leave the operation of your SWIFT infrastructure to someone else, who is responsible if they use it fraudulently? The solution is in achieving the right architecture.” He added that there was possible recourse to the bank in case of fraud.

Another member of the audience asked what key items Basmadjian would like to see excluded from corporate-bank SWIFT contracts. “Contracts can sometimes be cumbersome – one page of contract and 50 pages of disclaimer,” he said. “We want to see who is responsible for what. I want one standard contract for all my banks. Some banks feel the need to have one separate contract for every country – whereas I am looking for global access to all the banks.”

Neil Gray, director, corporate solutions at SWIFT added: “Bilateral agreements are established directly between the corporate and each of their banks – SWIFT isn’t even a party. “The complexity of these agreements typically depends on what services a particular bank is providing. For end-of-day statements often a single page letter agreement is sufficient. However, where the bank is executing payment instructions these contracts will normally be longer and more complex.

“For our part, SWIFT has developed a standard ‘template agreement’ which banks can use and personalise using a series of addendums,” Gray added.

In answer to how long it was before he realised savings from the implementation, Basmadjian said: “I am positive I have broken even since the beginning. Although the move to SWIFT has generated cost savings, we didn’t implement it just for the savings, but also to simplify the operation. For us, it is about control, simplicity and compliance.”

Implementation Options

The discussion turned to the practicalities of the implementation process. Connectivity options and whether to use FIN or FileAct is key, while the pilot process is also central. Choosing a bank and a business unit as pilots will help ensure the smoothness of the whole process.

James Holden, from foreign exchange (FX) currency trader Currencies Direct, gave his account of their SWIFT implementation process, which is currently at the internal testing stage of rolling out SWIFT through a service bureau. Currencies Direct needed a fast and cost-effective implementation.

Holden said the company had sought an increased level of customisation, scalability and increased control over queries, tracing payments and recalls, as well as quick access to SWIFT messages and better STP rates. “When we go through SWIFT, if a payment is rejected, we can have visibility over this and the reasons why. Our STP rate was already 99%, but that 1% was costing us a lot in repair charges.” He explained the integration challenges Currencies Direct has faced. With part of the system, processes and business rules all affected by SWIFT, Holden has had to examine treasury and cash management, reconciliation of accounts, security and controls, as well as IT systems. “At the moment we have deployed SWIFT as a payment gateway with a single bank. Payments from other banks will use the single gateway. We are still in the very early stages of deployment. It is something we are sure we can do a lot with as we build on the functionality.”

A major concern for Currencies Direct was how existing systems talk to SWIFT. To address this, a STP payment file including account details, value, beneficiary and ordering client details, value dates, currency and payment references was generated from in-house software. Non-SWIFT users are able to see payment information on the company’s in-house systems.

He explained: “SWIFT simply becomes a payment gateway, fed by our internal system. Existing controls are retained despite the change in the payment gateway.” Another hurdle was security and control. “We look at who can create the payment? Who can authorise the payment and what limits should be set on authorisation amounts? Also, who can modify or reject payments?”

The next stage was testing. Holden examined:

  • The testing of controls and flow.
  • “Is what we have done really practical?”
  • Deployment of the solution in stages.
  • Validity from an IT perspective versus from a payment point of view?

Holden was asked about the unforeseen benefits of implementing SWIFT. “There have been a lot of positives,” he said. “We have certainly been able to improve our payments expertise. It has also been an opportunity to re-evaluate and streamline our existing processes and controls.”

Deploying SWIFT for Corporates

Engaging multiple banking partners and rolling out across affiliated and group entities is the next stage, once the implementation has been thoroughly planned and tested.

UTSIT’s Postic examined the myths and realities around SWIFT deployment, including the notion that at a global bank is one entity. In reality, it is likely to have a complex structure as a result of a legacy of different regional takeovers. Another myth is that IT systems are systematically interlinked rather than existing as a ‘spaghetti’ of connections between different layers of the system. A third misconception is that SWIFT is standard. “For example, FIN and FileAct are separate; even if the bank can provide one, it doesn’t automatically mean it can provide the other,” he said.

Sharing his experience of the deployment stage was Paul Davis, general counsel at PacNet Services, a payment service processor, which has 580 accounts with 216 banks across 79 countries. “It enables a small or medium corporation to process all their payments in the countries in which it sells, so that it seems as though it is physically present in each country. Managing bank accounts as a company grows is a big headache.”

However, as he explained, not all banks can offer the same full suite of reporting messages, with 96 of his banks offering the MT940, three offering the considerably more expensive intra day MT942 and 46 currently accepting the MT101 payment request message. Davis cautioned against the assumption that using these messages would lead automatically to cost savings. “Don’t buy into the myth that all these will be free just because you are a member of SWIFT. You don’t need lots of messages – just a good understanding as to what they can and cannot do for you. You need to know you’ll get enough business benefit from SWIFT – if there’s not enough benefit you might as well do it the old-fashioned way.”

Davis also gave an assessment of the reach of different types of payment messages, commenting “that not all banks were able to support the SWIFT for corporates model.” He added “You can’t use eBAM to open an account with a bank that’s never heard of you. I don’t feel ISO 20022 is going to be widely supported in the remoter regions of the world.”

Neil Gray countered by commenting that, “The major banks active in treasury and cash management around the world are increasingly able to support the SWIFT for corporates model. However, Davis responded: “We do bank in exotic places. The areas where we most need this type of service are those least organised to provide it.”

Davis was asked to what extent using the ‘new’ meant dispensing with the ‘old’. He said decommissioning legacy systems had been a huge educational project. “We still have legacy access to those where we mostly need MT101 type services. In terms of fully decommissioning, systems, we have achieved 25%, but when it comes to decommissioning of use, this stands at 40%.” He continued: “A cost analysis shows we have saved more than we have spent in accounting wage costs and fraud management alone. We broke even in year one and there has been a net gain for us ever since.”

In conclusion, Ian Buckley, senior director, banking and corporate markets at SWIFT, focussed on the early days of SWIFT. He explained how the founding of SWIFT was an attempt to gain scalability, in particular in relation to the provision of cash management services by banks to their banking clients. He compared the early days of SWIFT with the current status of SWIFT for Corporates, with the industry again striving to achieve standardisation, operational efficiencies and scalability.

The views and opinions expressed in this article are those of the individual quoted and do not necessarily represent the views and opinions of Barclays.

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