Three years ago, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an exclusive bankers’ club, opened its membership to corporations. Multinational corporations with many banks were expected to quickly see SWIFT for Corporates as a way to standardise and simplify connections and communications with all their banks. Leading-edge corporations such as GE, Microsoft, DuPont, and Dow joined and, in doing so, have reportedly realised a return on investment (ROI) of 300 – 400%. Now more than 500 corporates are members.
Interest in joining SWIFT is high among treasury executives, but many have yet to turn that interest into action. Hesitancy is understandable: SWIFT implementation can be a large-scale project not suited to the cash-strapped or faint of heart. Clients often ask me if they should look into joining SWIFT for Corporates. These are the top 10 factors they should consider in their decision-making.
Critical mass that would drive standardisation and simplicity has yet to be reached. Companies that have adopted SWIFT to communicate with their banks worldwide report that every bank has a different set of agreements, ranging from two pages to 50. No consistent, best-practice map for implementation has emerged, and testing still is an ad hoc exercise. Over time, as more corporates adopt SWIFT, the incentives will build to create standardised, consistent processes that are quick, simple, and foolproof.
Until that happens, you’ll need to decide whether the immediate benefits justify dealing with these inconsistent processes, or whether it is better to wait for mass market solutions to be perfected. It is a bit of a chicken-and-egg situation – wide adoption will drive standardisation, and standardisation will speed up adoption. Like anything market driven, companies and banks respond to demand. The real question for the corporate user is: do you want to be a leader in adopting, or wait until things become more standardised? Ironically, corporations join SWIFT to get one universal, standardised communication channel. And SWIFT is indeed standardised. Only the banks are not.
If you decide to join SWIFT now, you’ll need to develop a broad, strategic plan for how SWIFT will fit into your treasury operation. You want to see the destination before you start the journey. With your big picture, end-to-end plan in place, move forward deliberately in small, well defined steps. Set a series of milestones and a timeline. Monitor your progress, and make adjustments as you go. And don’t try to rush the process. Companies we have seen that tried to do everything too quickly, within two or three months, have experienced more frustration and more problems than companies that have taken a year or so following a carefully drawn roadmap.
3. Value of bank neutrality
One of the demonstrated benefits of SWIFT is that it frees you from all those proprietary products that banks use to connect you to them. We see this as good for both you and your banks. Without SWIFT, banks compete on how robust, secure, and user-friendly their connections are. With SWIFT, they can concentrate on things that matter more and differentiate themselves on the quality of their payments and payment-related information. Thus, bank neutrality can drive product quality improvements.
Once you have a single, bank-neutral communication channel, it becomes much easier to add or remove banks or divert business from one bank to another as your company grows or as the banking landscape shifts. This would have come in very handy in 2008 when the financial crisis brought down some major banks. SWIFT provides a constant communications link that can evolve with you and adapt to your changing needs.
4. Efficiency gains
Maintaining multiple pipelines to multiple banks with multiple procedures and passwords takes time, both for treasury and IT. There is a real cost, in both time and money, to supporting multiple connectivity. How much time and money you spend dealing with proprietary connections determines how much you potentially could save by adopting SWIFT.
5. Working capital optimisation
Working capital is the watchword in the new normal economic climate. Senior managers need to know how much money your company has and where it is at all times. The more pipelines you have to your global accounts, the more piecemeal may be your visibility into them, even for companies that use a single enterprise resource planning (ERP) system. With the need for real-time visibility into the company’s total cash picture, a single pipeline for information to and from all banks can be a crucial tool.
6. Business recovery
SWIFT is a very reliable network that has never gone down. In the case of a catastrophic event or network failure at the bank level, being on SWIFT allows you to shift payment files, for example, from a bank that is down to a bank that is operating and do it quickly and easily. You don’t have to switch from one bank’s proprietary network to another’s. Simply go in and change your bank identifier code.
7. SWIFT connectivity options
The first users of SWIFT for Corporates were large, technologically sophisticated companies that saw an opportunity to build and control their own infrastructure for connecting to SWIFT, much as a large bank would. That made SWIFT well-suited to scale players with plentiful financial, treasury, and IT resources. But in the past two years, options for starting small with SWIFT have emerged. Service bureaus are growing rapidly now. They build one infrastructure for connecting to SWIFT and rent access to that infrastructure to a variety of companies to effectively spread the cost. SWIFT Alliance Lite, available for limited message volumes, uses a browser-based connection that can offload much of the infrastructure burden. If you’re interested in SWIFT, look at all the connection options available to you.
SWIFT consists of a growing array of FIN messages that are more or less formatted and standardised for machine-to-machine communication. But SWIFT also offers FileAct, which is a wrapper that is built to travel smoothly through the SWIFT network. What is inside that wrapper can be all sorts of files in all sorts of formats – BAI, NACHA, ANSI, bank proprietary, etc. It’s not necessarily a SWIFT message, but it travels in a SWIFT envelope. That means you can eliminate proprietary connections with your banks and still send files in the proprietary formats that your systems and their systems are programmed to handle.
Some treasury staffs see FileAct as a stepping stone-switch to the SWIFT pipeline to move all data to and from all banks now, and put the data into SWIFT messages later, when you have time, when your banks are ready to handle SWIFT messages, or when the SWIFT messages themselves become more robust and inclusive. FileAct can provide the first phase of a two-phase divorce from multiple proprietary data transmission standards.
9. Soft cost benefits
Many of the ROI case studies measure hard dollar return, but treasuries have a lot of soft dollar costs tied up in testing, maintaining, and upgrading multiple proprietary bank products and connections. Whether that time is considerable or minimal, it is time that would be better spent on other projects.
10. Peer experience
Banks, consultants, service bureaus, and SWIFT itself are available to advise corporations on how, when, and whether to connect to SWIFT, but there’s no substitute to talking to your treasury peers who have been pioneers, made mistakes, forged pathways, and generally learned what worked and what didn’t. More than 500 corporate members don’t constitute critical mass, but they do add up to a lot of potential role models. Find a company with treasury operations similar to yours and learn from their experience.
SWIFT has the exciting potential to bring standardisation and consistency to corporate-bank connections and communications. It won’t happen overnight. But, as more and more corporations decide to plunge into the SWIFT current, the tide will turn.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?
The benefits of an in-house bank are increasingly evident, but some treasury departments still hesitate to take the plunge. This article offers a step-by-step guide.