In recent years, SWIFT service bureaux (SSBs) have
proliferated and prospered as the pain and cost of maintaining a SWIFT
connection has increased. However, this era is quickly coming to an end.
Service bureaux have been by far the most popular way to access SWIFT.
But now, with its release a year ago of Alliance Lite2, SWIFT is forcing the
consolidation of the industry. Enter the corporate into the SWIFT ecosystem,
which are further changing the size, shape and nature of the Service Bureau
2012 SWIFT decided to enter the service bureau business with its release of
Alliance Lite2. Their rationale was that there were simply too many small
service bureaux providing connectivity that did not match up to the standards
that SWIFT now espouses.
It was seemingly a reputational concern.
Service bureaux that provide only marginal service can reflect poorly on
SWIFT. The end user perceives – and often times believes – that the SWIFT
network itself is to blame for message delays or service interruptions and not
necessarily the connectivity vendor. With the recent revisions to its
certification programme SWIFT will force these players to leave the playing
field or search for stronger hands to help, as the cost of complying with
stricter standards will erode their profitability. This is accelerating a
trend that has already begun, where service bureaux are bundling additional
services alongside SWIFT connectivity.
In the last few years we
have seen SunGard acquire Syntesys to expand its SWIFT connectivity. Brown
Brothers Harriman acquired privately-held Syllog, operator of the largest SWIFT
service bureau in the US, back in 2004, while more recently Bottomline
Technologies acquired London-based SSB provider SMA Financial. Even major
institutions have jumped on the bandwagon, with Bank of America Merrill Lynch
(BofA Merrill) partnering with BankServ through a white label agreement to
provide its corporate clients with outsourced access to SWIFT financial
messaging. And so it goes on.
Back to Basics
Service bureaux need to get the basics right before they consider
anything else. Much like SWIFT itself, the service bureau vendor needs to
provide reliability, robustness and total knowledge of where any message is
within their internal messaging workflow. Anyone wishing to connect to SWIFT
via a third party should demand this fundamental level of service.
Managing the Message Flow
Status messages inform
SWIFT users of the progress of their messages over the network. However, there
are different levels of sophistication adopted, depending on the specific
business needs of the end-user.
Users will readily accept that
SWIFT is a highly resilient and secure network, trusted by all major banks,
and that it never loses a message. Consequently, some users assume that the
payment instruction, or SWIFT message, will arrive at its destination as
intended and the instructions will be executed as sent. This is a logical and
practical assumption for some, but in today’s world many users are
demanding improved visibility.
The more sophisticated demand greater
oversight, because they need to know the status more definitively and in a
timelier manner. The timing of message delivery might be even more critical
than the details of the message itself. For example the notification of a
securities transaction, or a derivatives trade within a cut-off window, might
be critical in the settling or clearing process.
This is basically
dictated by the use of status messages. Essentially there are two forms of
messages sent over SWIFT: business messages and SWIFT informational messages.
The business messages will probably be the most familiar to business users,
such as payments, account statements and debit/credit advices. These are the
messages that corporates might require for cash management, visibility of
their cash balances or to check whether a payment has been made.
Informational status messages go to the next level, in the form of a message
sent by the SWIFT network itself. Acknowledgement and
negative-acknowledgement (ACK and NACK) messages are basically confirmation
updates that SWIFT has received your message and either accepted or rejected it
for delivery with accompanying reason codes. These informational messages can
then be passed back to the original sender for visibility and tracking.
How elegantly service bureaux handle these messages, and how they
subsequently inform their customers, is part of what SWIFT is striving to
improve by setting higher accreditation standards.
the Corporate ‘Game Changer’
In recent years SWIFT has
been courting multinational corporations (MNCs) to join the SWIFT eco-system,
although to date this has proved a slow process. Among the barriers to
adoption has been the requirement for corporates to first join the
Standardised Corporate Environment (SCORE) was set up in 2007 to be a closed
user group, administered by SWIFT, to facilitate corporate interaction with
banks. However, in some cases corporates then discovered that not all their
banks were members of SCORE, while the process for joining could prove
Corporates need greater simplification in managing their
banking relationships and messaging, while at the same time their routing and
delivery instruction grow more complex. Computer monitors or dashboards provide
some help by offering a simple overview of message traffic, the ability to
quickly drill down to resolve any rejected messages or to review details of any
message, along with an audit trail of the events.
SWIFT can help
here by enabling all banks to be part of SCORE – or at least the banks wishing
to interact with corporates, at the same time as they begin to streamline the
process. They might even consider allowing the corporates to interact with one
another, which until now has been forbidden.
The advent of dashboards, cloud computing and big
data has provided various benefits:
- The adoption of software as a
service (SaaS) solutions has eliminated one burden that was an obstacle to
progress. Through the use of Saas, corporates can now connect with their
internal branches and their external banking relationships in a fraction of
the time taken previously and at a fraction of the cost.
dashboard or monitoring facilities offered by service providers allow users to
organise their message data, quickly spot processing stall points and view
- Big data, or vast repositories of messages, are ideal
for data mining. This was illustrated by SWIFT itself two years ago when it
launched its advanced gross domestic product (GDP) indicator. The huge storage
of the world’s payment traffic mirrors economic activity. SWIFT has refined
this data and modeled it into an index that becomes a reliable barometer of
GDP. On a smaller scale, owners of big data can provide invaluable information
that can also be used for analysis and forecasting.
- Not only are
corporates moving to SaaS and outsourcing but banks are beginning to see the
benefits. According to analyst house Celent, in its recent study ‘Thinking the
Unthinkable: Banks Relinquishing Control of Their Payments Infrastructure’, we
will begin to see outsourcing of the sacrosanct payment engine, with cloud
computing offering the most scope for change.
The longer term
benefits are also becoming clear. By eliminating the client’s IT involvement,
the applications (solutions) are now in the hands of end-users, with faster
implementation times, lower costs and better service.
Winners and Losers
Connectivity alone is not
enough. Service bureaux with the deepest pockets and most relevant value added
services will survive and flourish. That means providers that layer value-added
products to integrate easily with the SWIFT infrastructure will be the
best-positioned. Increasingly, users are looking for end-to-end solutions and
not just connectivity to the network. This is especially true for corporates
that want a single vendor to provide the solution, be it a payment hub, trade
management or a cash management system where SWIFT connectivity is a small
piece in the whole puzzle. SWIFT connectivity will then simply be considered
as one part of the overall plumbing and not necessarily the end game.
On the other hand, solutions vendors who do not provide connectivity will be
at a disadvantage, often dealing with missing messages or reconciliation
problems – even though they had nothing to do with the physical connectivity
or messaging protocols of another vendor.
More and more companies are going global. Even
where their physical location is domestic, their trading partners and supply
chains are spread around the world. A service bureau providing global
management must have global support and knowledge of local business practices.
Only a large global partner can provide this 24/7 in the major trading
capitals of the world.
A growing number of vendors offer financial software for a variety of
customers such as mid-tier banks, asset managers, and corporates and for a
variety of applications. The back end of most, if not all of these products and
services is a connection to SWIFT.
If the service is offered on a
SaaS basis and hosted in the same data centre as the service bureau resides
then this enables seamless integration, eliminating the problems associated
with interfacing systems. New SWIFT members going to a service bureau can
often benefit from one-stop shopping for powerful business applications,
bundled with SWIFT connectivity, for secure counterparty communications.
Those service bureaux and
software vendors that bundle business solutions with SWIFT connectivity will
move ahead of the game as they spearhead the adoption of SWIFT. This is
especially true for corporates looking for an end-to-end solution or a
financial institution looking to drive down costs.
In recent years
corporates that recognized the value of SWIFT were joining with the expectation
of solving a business need, but found instead that they were connecting to a
very unforgiving financial network with strict protocols that were difficult
Those service bureaux and software vendors that integrate
business solutions with SWIFT connectivity, while shielding their clients from
the burden of maintaining a SWIFT infrastructure will drive adoption faster
and can expect to prosper.
When Mark Cuban declared that "Data is the new gold" he highlighted why information is possibly the most valuable asset a business has. APIs are the unsung heroes that make it possible to extract that value.
How treasury stands to benefit from blockchain: Ripple’s goal to revolutionise cross-border transactions
Imagine a world where cross-border transactions can occur in real-time, at a few cents per transaction, to and from any bank, in any ... read more
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.