SWIFT for Corporates: What’s Next?

Since the Society for Worldwide Interbank Financial Telecommunication (SWIFT) introduced corporate connectivity in 2002, more than 650 corporates have connected to the service and these numbers continue to grow every year. SWIFT corporate connectivity has become an important facilitator for corporates to achieve greater efficiency and control in payment initiation and liquidity management. It is no longer only an option for global corporates operating a shared service centre or payment factory – it can benefit a wide range of corporate clients. Using SWIFT to initiate payments and receive account information enables them to integrate SWIFT into their treasury management systems and reduce reliance on proprietary bank platforms.

In 2009, the pattern of continuous growth in annual traffic volumes for SWIFT was slightly interrupted, reflecting conditions in the industry. However, corporate involvement continued to rise in terms of the number of firms joining as well as the traffic volumes generated. With initiatives such as Alliance Lite, smaller corporates are finding it easier to make use of SWIFT both operationally and from a cost perspective. Corporate involvement has been spreading geographically, too.

This has been most notable in the US, where a number of well-known Silicon Valley companies, such as eBay, Google and Cisco, have found the SWIFT value proposition convincing. The same is true in Asia, where the appetite for a standardised, bank-agnostic financial communication platform is growing steadily. This is partly a result of the global financial crisis, which has brought about a surge in the use of message reporting. Achieving improved visibility on cash positions has been a key priority for corporates, particularly for those who lacked such visibility during the crisis. One of the first things new SWIFT corporate customers take advantage of is the ability not only to receive end-of-day statements and timely, high quality information on their intraday positions, but also to integrate this information into their applications.

Counterparty risk has also gained a level of importance unknown before the crisis, given that the crisis actually caused some banks to fail. After years of treasurers trying to reduce the number of their banking partners and centralising treasury operations, having all their eggs in one basket no longer seemed such a good idea, particularly if a company is locked into a bank’s proprietary electronic banking (e-banking) solution. Corporates want easy access to multiple banks. Furthermore, to mitigate counterparty risk, they need to have a flexible channel in case they need to quickly switch or add banks.

New Initiatives

To make its offering more complete, SWIFT is undertaking a number of new initiatives that will ease the administrative burden on corporates in dealing with their financial service providers. There is a strong corporate appetite for electronic bank account management (EBAM) and, although developments in this area are at an early stage, SWIFT’s EBAM messages have already been accepted as ISO standards. HSBC has been involved since the early stages of this initiative.

In a related project, SWIFT launched a pilot programme for its digital identity solution (3SKey), with a view to going live with this solution by the end of 2010.Four banks, nine corporates and seven vendors are currently involved.

There is also good news on the trade and supply chain side. Banks and corporates now have a single channel for exchanging standardised corporate-to-bank trade data. Trade for corporates now covers 43 flows for import and export documentary credits, guarantees and standby letters of credit (L/Cs). This more than doubles the original offering made available in December 2008.

This article gives further details on these new developments and initiatives.

eBAM

While payment processes have largely been automated, bank account management remains surprisingly manual for most corporates. This is a real issue for banks as well as customers. In response to requests from the SWIFT community, SWIFT has developed standards for eBAM, which can be accompanied by electronic attachments where necessary and transported securely over SWIFT’s content-agnostic file transfer mechanism, SWIFTNet FileAct.

The standards cover four key areas: account opening, closing, maintenance and reporting. Fifteen XML messages have been developed to cover the scenarios envisaged.

Account opening messages are designed for existing customers to open new accounts at their banks. To some extent, the ability to complete that process entirely electronically depends on local legislation. In some jurisdictions you still have to provide a copy of your identity card, but at least you can now exchange this in an electronic way.

Account closing may at first sight appear to be a simple process, but it requires instructions on how to handle the remaining balance on that account. As for maintenance, SWIFT does not expect management of the normal characteristics of an account to generate huge volumes of traffic. By contrast, SWIFT expects mandate maintenance messages to be widely used. These cover issues such as: who can sign up to what threshold, the combination of signatures required for higher thresholds and the types of transaction that only particular signatories can perform.

Trade for Corporates

Banks need to offer a multi-bank, multi-business facility to their corporate customers: a single channel for cash management, treasury and trade finance. This was the priority during the first development stage of trade finance flows in 2008, when the trade community – banks, corporates and vendors – was already very involved with SWIFT. Trade for Corporates enables banks to meet corporate customers’ needs in these areas.

Banks and corporates now have a single channel for exchanging standardised corporate to bank trade data. Banks can also streamline their own operations, processing messages from their corporates on to the next bank in the chain with minimal handling. In turn, corporates already connected to SWIFT can leverage this investment using a single channel and communication standard with all their trade banks. They benefit by saving time and money, adding security and often easing compliance as they gain a centralised view of their trade transactions worldwide.

Supply Chain Finance

The trend of open account trading, coupled with the growing stress placed on liquidity management, is spurring demand for banks to provide greater innovation in the world of supply chain solutions. An initial response to these changing market needs was the launch three years ago of the Trade Services Utility (TSU), which enables banks to establish a common view of supply chain transaction data and to monitor events from inception to completion.

In 2010, the TSU was enhanced with the launch of Bank Payment Obligation (BPO) – an irrevocable undertaking given on the part of one bank to pay another, provided that a number of pre-determined conditions have been satisfied through the electronic matching of data within the TSU. The first live BPO transaction was issued by the Bank of China on 2 April 2010. For BPO to achieve critical mass, however, it must provide the same level of assurance that trading counterparties associate with traditional documentary instruments. These have well-established and accredited guidelines, with dispute resolution procedures built around the Uniform Customs
and Practice (UCP) published by the International Chamber of Commerce (ICC). A targeted accreditation process with the International Chamber of Commerce is now under way for BPO.

E-invoicing

A further area of corporate activity ripe for automation is the invoicing process. In November 2009 the expert group on electronic invoicing (e-invoicing) established by the European Commission (EC) set out its vision for this area. Among other suggestions, its European Framework for e-Invoicing highlights the need to get small and medium-sized enterprises (SMEs) involved in the drive to adoption. It encourages interoperability through standardisation and calls for increased EU harmonisation of legal and VAT frameworks.

Actions to implement these recommendations are expected from the EC later in 2011. The Euro Banking Association (EBA) has also organised a financial sector initiative around e-invoicing. In addition to a working group exploring ways in which the EBA and its community of members may contribute to pan-European solutions in electronic invoicing, it has also set up a Proof of Concept Group, where financial sector stakeholders have joined forces with non-bank e-invoice service providers.

SWIFT, meanwhile, has initiated an e-Invoice Ad Hoc Group to explore how to exchange e-invoice messages over SWIFT’s network and how core SWIFT components can be used to support an interoperable ecosystem for e-invoicing.

3SKey: Personal Digital Identity

SWIFT Secure Signature Key (3SKey) helps authenticate received data (e.g. payment instructions) at the level of the individual (e.g. a specific representative in the corporate’s treasury department), rather than at company level. When a bank interacts with their corporate customers through e-banking channels, it may need to authenticate received data at the level of the individual(s) authorised to serve instructions to it.

For example, a specific individual in the corporate treasury department must approve payment instructions. In practice, banks and their corporate clients must often manage and use multiple and different types of personal signing mechanisms (for example, multiple tokens with different passwords). With the 3SKey solution, SWIFT supplies subscribers (typically banks) with Private Key Infrastructure (PKI)-based credentials for redistribution to their 3SKey users (typically, corporates). 3SKey users then use these credentials to sign messages and files exchanged with one or more 3SKey subscribers over any mutually agreed channel.

Conclusion

SWIFT for Corporates has become a global trend, not just for large corporations but for mid-cap companies, too.

To learn more about HSBC Global Transaction Banking, please visit the company’sgtnews microsite.

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