Financial Messaging Challenges and Opportunities for Corporates

Financial messaging provided a number of talking points at Fundtech’s recent Insights EMEA conference 2014 in London. In a breakout workshop on Day One, Monie Lindsey, managing director at Treasury Strategies, picked out the following points as being key trends in financial messaging today:

  • More corporates are using SWIFT and there is an increasing use of SWIFT service bureaux (SSBs).
  • There is a trend towards FileAct messages, particularly in the US.
  • Common extensible markup language (XML) payment formats are taking off.
  • SWIFT standards are increasingly being used over private networks, to enable point-to-point communication for straight-through processing (STP).

Treasurers require fairly immediate access to relevant data from the business and their banking partners, and to know that this data is accurate. Lindsey likened today’s corporate treasurer to Captain Kirk at the controls of the Starship Enterprise, with systems linking the treasurer to data from key departments such as accounts payable and accounts receivable (AP/AR) and the supply chain side of the business.

“We always tell our banking clients that they need to make sure their systems are in a position to access that data very quickly and ensure it is accurate,” said Lindsey. “You then need to integrate that data into the corporate’s system, which is where financial messaging helps by enabling STP.”

A banker in the audience shared his opinion that over the next five to 10 years’ financial technology development will be all about the data. From a perspective of how the data is transmitted, he noted that corporate clients who want the more enriched data need to be focussed on the XML ISO 20022 standard as they will be the formats that give the corporate the value-add that drive their back end enterprise resource planning (ERP) and treasury management systems (TMS) in a more effective way.

He then suggested that the SWIFT message standards are old and have limitations around the amount of reference data that they can carry. “They are fit for purpose if you are just looking for balance information, but if you really want to get into automation, reconciliation and all the other additional value from financial messaging, in my view the MT standards have had their day,” concluded the banker.

Despite this, ISO 20022 also has its challenges. “We have worked with a number of corporates that are implementing XML ISO 20022 for their global payments and the big challenge here was that every bank they went to interpreted the standard just a little bit differently,” said Lindsey. “To iron out these differences, nearly all of the major banks that are supporting ISO 20022 are part of the Common Global Implementation (CGI) group, which is looking to enhance the implementation of this standard. I still think there are other banks that are not quite there yet, so what’s happening is that companies are partnering with some of their larger banks, and then working with those that aren’t quite ready to get them on board.”

Case Study: SWIFT Implementation at the BBC

Day Two of the conference provided an insightful look at a SWIFT implementation project from the inside, in a case study from Chris Corner, deputy treasurer at the British Broadcasting Corporation (BBC). Over the past 18 months, the treasury department at the BBC has changed its structure quite profoundly. Following the licence fee settlement agreed with the UK government in October 2010, which essentially froze the annual licence fee which funds the BBC at £145.50 (US$242) for six years and took 20% out of budgets across the corporation, there was a finance-wide initiative to look at how the corporation could continue to deliver what it needed to but by costing 20% less. The solution came partly from headcount – one treasury professional left during this time while many of the other savings have been driven by organisational and technology changes.

In terms of structural changes, the BBC consolidated its two existing treasury teams – its public service team and the treasury of BBC Worldwide, the corporation’s commercial arm. This provided an opportunity to realign and update the treasury’s governance structure. The BBC also set up a new back office function that allowed it to consolidate all its accounting and reporting capabilities into a single dedicated team. Technology changes were also implemented in support of this, including an extension of the functionality of the treasury management system (TMS) and the implementation of a bank account management (BAM) platform.

The BBC’s largest and most challenging technology project at this time was to join up to SWIFT. “There were two broad objectives to joining SWIFT, simplification and greater independence from our banks,” said Corner. “On the simplification side, SWIFT allows us to access all of our reporting payments functionality on a single platform. This is useful not only to the BBC’s cash managers, but across the organisation, particularly for the system administrators. For the bank independence part, we were very keen to get ourselves into a position where we were able to move between banks as and when we required it.”

For the implementation plan, the BBC first evaluated how it wanted to connect to SWIFT. The organisation chose to connect via an SSB, which, it was decided, would make the best use of its resources. This decision was made in 2012, and was followed by the technical build that took the project well into 2013. On the SSB side, Fundtech had to ensure that its system met the BBC’s requirements, while the BBC needed to ensure that its SAP accounting platform and its TMS could speak to the SSB.

The contractual onboarding of the BBC’s banks has also taken a long time. At the outset, the corporation just wanted to work with its three main clearing banks and started discussion with this group. “In time later on this year, we will roll things out across the rest of our banking group,” said Corner.

As the SWIFT implementation project has rolled on, Corner described how the realities of the experience have compared against his expectations at the start of the process. For example, he noted that the bank contractual formalities had been far from straightforward, as there was no standard approach. “There were also many connectivity challenges during the technical development phase, whether this was getting the BBC and Fundtech networks talking to each other or getting users access to the Fundtech platforms,” said Corner. “There’s one example where we found that the BBC’s version of Java was causing a block between the two systems. Nobody had thought to work out whether this would be a problem before as it was a level of technical detail way beyond our understanding.”

The BBC’s progression from SWIFT’s FIN message standard to FileAct had been far more involved than expected at the start of the process. “Not many corporates have been extending their SWIFT functionality to include FileAct, so perhaps that is why there isn’t as much knowledge out there,” said Corner.

BBC re-phased its implementation to stagger the go-live dates, both per territory and per bank. Banks have separate implementation teams, but another factor is where they are coordinating things centrally they want to focus on one implementation at a time in case of problems – rather than, for example, going live in India, Mexico, the US and the UK at the same time.

Corner also made an important point regarding project management: “Focus on getting the right balance between business as usual – getting the day job done – alongside the SWIFT implementation,” he recommended. “There are times where you have to make a choice between the two and in those situations you always have to focus on business as usual. That then obviously disrupts the whole SWIFT project, which has been an ongoing challenge for us.”

The presentation concluded with the following series of key takeaways that Corner had learnt from the BBC’s SWIFT implementation project:

  • Determine the full project scope at the outset. The BBC specified its early steps in order to get all of the stakeholders on board. This project plan needs flexibility to cope with unforeseen hold-ups.
  • Secure dedicated in-house technical and project skills. This stops project staff being pulled away by business as usual.
  • Ensure that the third parties you choose to be involved with your implementation project have the necessary technical experience.
  • Allow for variation in your banks’ SWIFT capabilities and approach. During the BBC implementation, they were surprised to discover that one of their three main clearing banks didn’t process FileAct.
  • Maintain a strong dialogue with, and close management of, third parties.
  • Conduct a phased implementation, per territory, per bank.
  • Do not underestimate the work involved. “You get what you work for,” noted Corner.

 

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