Debunking the SWIFT Myth

The financial crisis has ramped up pressure on corporate treasury to increase efficiency and straight-through processing (STP), as well as improve cash visibility, reporting and payment reconciliation. There is now a much greater focus on working capital and the cash conversion cycle. Treasury needs to centralise its operations by consolidating and rationalising connectivity to its banking partners in order to reduce inefficiencies, streamline processes and save money.

Counterparty risk has also gained an importance not seen before the crisis as some ‘too big to fail’ banks did actually fail and others were eaten up in the mêlée. After years of treasurers trying to reduce the number of banking partners and centralise treasury operations, having all the eggs in one basket no longer seems such a good idea, particularly if a company is locked into a bank’s proprietary electronic banking (ebanking) solution.

“Corporates want easy access to multiple banks,” says Elie Lasker, head of corporate market, SWIFT. “Plus, in order to mitigate counterparty risk, they need to have a flexible channel in case they need to quickly switch or add banks.”

By providing a single, standardised and secure channel, SWIFTNet can help corporates:

  • Optimise cash and liquidity management.
  • Reduce operational and counterparty risk.
  • Improve security.
  • Improve STP and systems integration.
  • Reduce costs.

Marilyn Spearing, global head of trade finance and cash management corporates, Deutsche Bank, and chair of SWIFT’s Corporate Access Group, says: “The first thing is STP, the second is the ease of switching, and then the final thing is the anticipation of added-value services, so an enriched linkage over time.”

So if SWIFTNet holds the promise of making life a lot easier for corporate treasurers, why aren’t there more corporates signing up? To date, there are just over 600 corporates with direct access to SWIFT, out of a pool of possibly 20,000. Although this represents a steady increase from 108 in 2005, the tipping point for corporate adoption is far off.

Removing Barriers to Adoption

Historically, most corporates perceived SWIFT as an inter-bank club with select mega-corporates, such as Microsoft, General Electric (GE) and DuPont, invited to join the party. Most still see SWIFTNet as expensive to run, over-complicated, difficult to access and maintain, and needing specialised knowledge.

However, in recent years, SWIFT, banks, technology vendors and service bureaus have developed business propositions specifically aimed at corporates, which has changed the SWIFT corporate community’s demographics. It is no longer solely the domain of the largest multinational corporates, now that smaller corporates – i.e. with less than €1bn annual turnover – and even domestic players are looking to SWIFTNet connectivity for efficiency gains.

SWIFT

As part of the strategy to expand its user community, SWIFT has made a number of changes to make access easier for corporates. In June 2009, SWIFT widened the eligibility criteria so that any corporate will be eligible to join the Standardised Corporate Environment (SCORE), provided that it is recommended by an existing SCORE bank located in a Financial Action Task Force (FATF) member country (see Box 1). Before that corporates had to be listed on a regulated stock exchange, effectively barring entry to privately-owned multinationals such as Ikea and Cargill.

BOX 1: SWIFT Membership Schemes
A corporate can join one, several or all of these membership schemes.

Treasury Counterparty (launched in 1998)

The Treasury Counterparty (TRCO) model allows a corporate to exchange treasury deals confirmations (e.g. spots, forwards, currency options, money markets) with any financial institution on SWIFT (for example there is no need to register in a closed user group). This model can be used by both listed and non-listed companies. To register for this scheme, the corporate needs to be sponsored by eight financial institutions which are members of SWIFT. Note that the TRCO model does not cater for business needs other than treasury confirmations, for example sending payment instructions, receiving statements, buying and selling securities.

MA-CUG (2001)

The Member Administered Closed User Group (MA-CUG) is a bank-administered scheme where a corporate can communicate with its bank via SWIFT. In this scheme a company would contact each of its banks separately to establish a SWIFT relationship. In this scheme the company’s access to the SWIFT network iscontrolled by the bank. Each bank defines and operates its own service over SWIFT. Corporates may join multiple MA-CUGs.

SCORE (2007)

In a Standardised Corporate Environment (SCORE) scheme, a single relationship with SWIFT is established which provides the link to many banks – it is in effect a many-to-many closed user group (CUG) administered by SWIFT. Corporates and banks join one CUG. It is for the exchange of single transactions and/or batches (files) of transactions. This scheme supports financial messaging for payments and reporting between eligible corporates and their banks or other financial institutions. Any corporate can now join the network, provided it is recommended by a bank located in a Financial Action Task Force (FATF) member country.

Earlier in 2009, SWIFT released a shortened version of the SCORE agreement, which made the whole legal process of onboarding banks much simpler. John Ballantyne, UK sales manager at SMA Financial, a UK-based SWIFT service bureau, explains that one of the major issues for a corporate joining SWIFT is the legal documentation. “This is something that is a necessary evil but it’s nevertheless quite time-consuming and I would always flag it up as a key risk because it is quite an onerous process,” he says. In December 2009, SWIFT announced a revised version of the service level agreement template to improve the quality of cross-border payments services.

Importantly, SWIFT has taken steps to address the biggest barrier to corporate uptake – the cost. In September 2008, SWIFT launched Alliance Lite, touted as ‘SWIFT access on a USB stick’, which is a low-cost, plug-and-play solution (see Box 2). According to Lasker, 30% of corporates that joined last year chose to connect through Alliance Lite.

BOX 2: SWIFT on a USB Stick
Direct, low-cost access to SWIFTNet.

Alliance Lite is SWIFT’s internet-based connectivity product that provides direct, low-cost access to its network. Lite is a much less expensive way to connect in terms of its pricing model and the technology investment needed to connect.

SWIFT established a new pricing model for Lite in which everything is included: the software, bank identifier code (BIC), SWIFT membership, SWIFT user handbook, online training, PKI certificates, standard support, and built-in reference data. Customers can choose between two models: a flat fee or pay-as-you-go.

  • A monthly flat fee standard pricing is €850 per month, or €10,200 per year, which includes up to 4,000 items sent or received per month. Above that, it is €1 per additional item sent or received.
  • For pay-as-you-go customers, SWIFT charges a flat fee of €200 per month for the service and €1 for every item. Alliance Lite is accessible over the internet through a USB token, which is an identity token containing certificates issued by the SWIFT certification authority. The certificate supports basic public key infrastructure (PKI) principle scenarios.

And lastly, SWIFT is also looking at additional services such as:

  • Exceptions and investigations.
  • Trade finance.
  • Secure e-mail.
  • SWIFT Secure Signature Key (3SKey).
  • Electronic bank account management (eBAM).
  • Electronic invoicing (e-invoicing).

“Everybody is talking about electronic bank account management and e-invoicing – in other words really expanding what can be done through the same channel,” says Spearing.

Banks

Banks are beginning to take a different attitude towards SWIFT for corporates, particularly those involved with the Corporate Access Group, which Spearing chairs.

Speaking from a Deutsche Bank perspective, she says: “Historically, Deutsche Bank was agnostic on the channel – whether a corporate chose SWIFT or the bank’s proprietary channel was the corporate’s choice. But now we promote SWIFT access. If a corporate is changing its environment, whether the enterprise resource planning (ERP) system or treasury management system (TMS), etc, we think that it should join SWIFTNet because this is the way everything will move in the future.”

But won’t many banks hesitate before abandoning hugely expensive proprietary ebanking systems? “You can sense a concern – and some banks are questioning whether it is a good idea to endorse SWIFT, particularly some of the major players with large installations,” says Spearing. “But on the other hand, everyone is saying that we have to make it easier and do what we can do to communicate better.”

Franklin Van Weezendonk, senior vice president, Axletree Solutions, a US-based SWIFT service bureau, agrees that banks’ attitudes are changing. “Previously, a bank liked having its proprietary platform because it helps to create a sticky relationship. But now banks realise that SWIFT has a value for corporates and they can’t remain on the sidelines from a competitive standpoint, particularly the larger banks.”

Technology vendors

SWIFT has reached out to the vendor community, particularly ERP and TMS solution providers, to develop standards that will help to drive adoption and make it easier for corporates. These vendors are also finding benefits for themselves.

“TMS providers are actually supportive of systems limitations in their own right,” says SMA Financial’s Ballantyne. “Integrating an application with the SWIFT gateway, rather than five or six electronic banking platforms, actually reduces the complexity on the TMS side and within the corporate back office, and also reduces cost.”

SWIFT service bureaus

SWIFT service bureaus offer SWIFT connectivity on an outsourced basis so that corporates do not have to make major investments in technology, infrastructure and specialist personnel. Lasker estimates that about 70% of corporate users are connected via a service bureau instead of maintaining the SWIFT infrastructure in-house.

Van Weezendonk highlights another benefit: “With a service bureau, a corporate doesn’t have to reinvent the wheel – a service bureau will have the resources in terms of hands-on experience, expertise and certified technicians.” Such experience is crucial when onboarding banks and also when upgrades are made available for SWIFTNet.

Deutsche Bank’s Spearing believes that developing service bureaus will be an opening point for greater corporate adoption of SWIFT, mainly because this will be a cost-effective alternative for most corporates. “The first companies were major corporates that spend a lot of money on treasury technology, but the average corporate doesn’t. It costs a lot of money to operate an in-house platform, if you take into account hardware investment, software investment, personnel, etc.

“A service bureau already provides the whole package, as well as value-adds, and almost at a pay-as-you-go price. Plus, a service bureau will be able to get a corporate up and running much faster and more efficiently,” she adds.

Please click here to download the free buyer’s guide to SWIFT service bureaus.

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