Published: October 25, 2010
Starting this article has strong overtones of déjà vu for me. Every year, around this time, I write an article outlining the progress that has been made towards the adoption of SWIFTNet for bank connectivity by corporate users. Every year, we talk about how a new initiative, SCORE, Alliance Lite etc. will encourage new users. But nine years on from the launch of the MA-CUG (member-administered closed user group) model for corporate connectivity for SWIFT, and three years since SCORE (standardised corporate environment), it has become clear that while SWIFT connectivity has a valuable role to play, it complements rather than replaces existing connectivity tools. Furthermore, while connectivity is clearly a vital foundation to the bank-to-corporate relationship, it is only one factor in an efficient technology infrastructure and transaction and information flow.
SIBOS, the annual conference organised by SWIFT, which this year takes place in Amsterdam in late October, attracts only a select number of potential or actual corporate users of SWIFT connectivity to the dedicated Corporate Forum. The fact that more corporates do not choose to attend is not, however, a reflection of lack of interest or lack of recognition of the importance of connectivity. Rather, as Neal Livingston, Managing Director and Global Head, Client Access, Standard Chartered Bank explains,
“For a sophisticated corporate, connectivity is not simply about sending information to a bank, but more about the overall process flow, such as auto-reconciliation and achieving real-time visibility of data. Consequently, we are seeing a subtle but important shift from an emphasis on corporate-to-bank connectivity to integration of the corporate financial supply chain.”
Corporate-to-bank connectivity is not a discrete objective, but part of a broader initiative to optimise flows both within and beyond the organisation. One of the outcomes of this is that few corporates engage specifically in connectivity projects, but typically it as one element in a wider project. Neal Livingston, Standard Chartered continues,
Alliance Lite enables smaller, less sophisticated organisations to take advantage of multi-bank connectivity through SWIFT without the need for up-front investment.
“Adoption of SWIFT connectivity is invariably part of a wider business project such as payables centralisation, an ERP or TMS upgrade, or a merger/acquisition. In reality, therefore, the timing of such a project is rarely driven by treasury, but opportunistic depending on other initiatives within the company.
Marie-Laurence Faure-Lepetit, Head of Marketing Channels Products at BNP Paribas concurs,
“SWIFT connectivity is typically part of a wider business initiative, such as establishing a payment factory or migration from local payment processing such as ISABEL in Belgium or ETEBAC in France.”
Glen Solimine, Head of Sales, Wallstreet Treasury, Wall Street Systems, identifies the same trend, but emphasises that as the services available through SWIFT evolve, its value to corporate users will make the proposition more compelling,
“The priority of bank connectivity will depend typically on the maturity of a company’s treasury infrastructure. When embarking on a new project, such as implementing or replacing a TMS, connectivity becomes key. In the case of companies with a well-established infrastructure that is already working well, reviewing and optimising connectivity is less of a priority. However, new initiatives such as eBAM are creating new opportunities and are likely to drive connectivity change. Having implemented SWIFT for one service, companies are likely to then seek to expand their use of the channel further.” [[[PAGE]]]
NetWhile inevitably, large, sophisticated corporations were early adopters of SWIFT Corporate Access, there have been a variety of initiatives to help enhance its convenience, simplicity and cost-effectiveness. For example, the majority of new users now outsource SWIFT connectivity to a service bureau, pricing has been revised, and Alliance Lite enables smaller, less sophisticated organisations to take advantage of multi-bank connectivity through SWIFT without the need for up-front investment. As Richard Spong, Financial Services Industry Marketing Manager, Sterling Commerce summarises,
“Although SWIFT has been promoting Corporate Access for some time, the uptake has not been as rapid as they might have liked. This has resulted in a number of initiatives, such as Alliance Lite and changes to the cost structure, that aim to make SWIFT connectivity easier and cheaper for corporates, the results of which are just coming through now.”
However, despite the range of alternatives that now exist, Marie-Laurence Faure-Lepetit, BNP Paribas illustrates some of the characteristics of corporations that opt for SWIFT,
“While corporates of different sizes and profiles are attracted to SWIFT, there is invariably a multi-banked, international requirement. There are some exceptions, such as some large domestic corporates that are attracted to the security offered by SWIFT, but these are the minority.”
Richard Spong, Sterling Commerce also illustrates that bank independence is an important consideration,
“Large multinational companies wish to retain multi-bank connectivity particularly through times of economic difficulty, and are therefore attracted to SWIFT as it gives them the agility to select the best service from their banking partners. However, treasury needs to justify its need for investment in technology compared with the company’s core activities, and therefore, treasurers are seeking the most cost- and resource-efficient solutions possible.”
“Smaller companies lack the scale and complexity of larger multinationals, but still want to maintain the agility to change banks or source alternative services if required. Consequently, even though the opportunities for bank connectivity through SWIFT are less familiar, SWIFT should be just as attractive for these companies, if not more so as they lack the resources to maintain multiple proprietary banking systems.”
Glen Solimine, Wall Street Systems, agrees,
“Bank independence has become a priority for many corporates, and SWIFT is a highly effective way of achieving this. Furthermore, having implemented SWIFT, no-one regrets doing so, although the same cannot be said for those who choose not to adopt it.”
There are other advantages of SWIFT connectivity too, particularly security, availability, and the cost and control implications of rationalising multiple proprietary banking systems. Adoption of SWIFT is not yet consistent on a global basis, partly due to differences in maturity of financial technology, as Neal Livingston, Standard Chartered outlines,
“There remain some regional differences in experience and sophistication of SWIFT connectivity, but in Asia for example, an increasing number of state-owned Chinese and Indian entities are attracting expert skills, so they can accelerate their adoption of sophisticated processes and technology. Consequently, these companies are rapidly catching up with their western peers and smaller companies too are becoming surprisingly sophisticated in their aspirations.” [[[PAGE]]]
Marie-Laurence Faure-Lepetit, BNP Paribas continues,
“Maturity and experience in SWIFT connectivity varies across markets; where capabilities are well-developed, such as in France, corporates have plenty of offerings from which to choose; in others, where SWIFT Corporate Access is still emerging, it may be more difficult to establish a cohesive connectivity infrastructure.”
Tom Nelson, Cash Management Specialist, Wall Street Systems also illustrates that there are regional variations in the way that corporates choose to communicate through SWIFT,
“Although in the past, SWIFT has had a more significant footprint in Europe, this is changing and we see far less regional variation amongst new adopters of SWIFT. Service bureaus are more readily accepted in Europe than in the United States, for example, where companies have tended towards direct connectivity, but again this is changing as companies recognise the cost and resource benefits of indirect connectivity.”
Even so, while the number of corporate users of SWIFT continues to increase steadily, its growth is not meteoric, and it will not be applicable or preferable for many corporates. As Neal Livingston, Standard Chartered articulates,
“In reality, connectivity solutions need to be client-led: while SWIFT brings considerable benefits, it is not a silver bullet. In many cases, a mix of connectivity tools make sense; for example, web-based tools enable rapid and convenient data analysis, while host-to-host solutions that connect the bank and a corporate’s ERP directly enables low-cost integration of high volumes of data with significant STP potential. SWIFT typically only comes into the equation when connections with multiple banks is required. These connectivity solutions, including SWIFT, are complementary, not competing capabilities, either within a bank, or with other banks.”
The point raised by Neal above is an important one: SWIFT is just one complementary connectivity solution, not a competitor to banks’ proprietary tools. One of the original objections to corporate access to SWIFT by some banks was that they would not be able to differentiate their offerings if connectivity was standardised. This concern has now largely been assuaged, and both banks and corporates recognise that the connection between a corporate and its banks is simply the channel for communication as opposed to having value in its own right. Marie-Laurence Faure-Lepetit, BNP Paribas explains,
“Banks are no longer differentiated by connectivity but by the services they offer. Corporates are therefore seeking comprehensive service delivery, geographic coverage, experience and expertise, and efficient onboarding, as opposed to focusing on connectivity.”
Neal Livingston, Standard Chartered is of the same opinion,
“Connectivity, whether web-based, host-to-host or through SWIFT, is the foundation of a bank-to-corporate relationship, but delivers no transactional services in itself. Having established the foundation, therefore, the conversation can move from communication to services that the company actually requires, and the bank can play a more advisory role. Without this foundation, it is impossible to have this conversation.” [[[PAGE]]]
Consequently, we are seeing closer discussions between corporate treasurers and finance managers and their banks about the nature and format of information that is exchanged in order to fulfil their process flow requirements across the financial supply chain. The format of information, as opposed to simply the channel through which it is delivered, is often an essential element in this conversation. With banks and corporates frequently using proprietary formats, or variations on SWIFT MT messages, the ability to consolidate information and process it consistently is limited when a company has multiple banking partners. ISO 20022, based on XML, is widely expected to become the standard for payments and cash management, but although significant progress has been made towards definition and adoption of the standard, many corporates have expressed frustration that they are not in a position yet to implement it fully. As Neal Livingston, Standard Chartered describes,
“While adoption of ISO 20022 is still variable, there is no debate that an XML-based standard is the convergence point to which we are all headed, but the standard itself is not yet fully determined. There is considerable support for ISO 20022, but everyone needs to be aligned with the standard before the full benefits can be realised. There are still some developments that need to be made, such as local language support, before we see widespread adoption, but this is likely to ramp up once these enhancements have been made.”
Marie-Laurence Faure-Lepetit, BNP Paribas has a similar view:
“ISO 20022 is still a new standard that needs time to mature. In some areas, such as SEPA Credit Transfers, SEPA Direct Debits and payment status reporting the standards are now established and in active use. In reporting, however, there is still further definition required to enable auto-reconciliation and full STP.”
While ISO 20022 is not yet fully developed, the more demand from corporate users, whether or not they use SWIFT or a proprietary tool, the greater the momentum will be toward standardisation of financial messaging. This in turn will significantly enhance corporates’ ability to implement efficient, consistent processes and integrate information more easily across systems.
We are currently seeing new developments in the information that corporates can exchange through SWIFTNet, such as eBAM (electronic bank account management) and enhancements in trade. Looking ahead, as Neal Livingston, Standard Chartered emphasises, the variety of services available through SWIFT is likely to evolve further,
“In the future, there are a number of obvious areas in which SWIFT can develop, specifically those where organisations can benefit from a shared infrastructure and greater collaboration, such as informatics and transaction monitoring that every organisation currently performs individually.”
There remain challenges, however. As Neal Livingston, Standard Chartered continues, corporate treasurers and finance managers still need to be more closely engaged in a dialogue alongside banks, vendors and SWIFT, to ensure that their needs remain at the forefront of the design and priority of new developments to services through SWIFT,
“The SWIFT community still needs to bring corporates more closely into a dialogue, and indeed, corporates are demanding this. While corporate participation at Sibos is one attempt at achieving this, other approaches such as regional user groups may be more effective.” [[[PAGE]]]
Richard Spong, Sterling Commerce also emphasises that continued momentum is largely dependent on the relative benefits for each party engaged in the connectivity process,
“Key to the success of SWIFT Corporate Access, and STP more widely is interoperability. This brings a host of challenges, not least that there needs to be sufficient incentive for each party to make the necessary changes to their systems and processes. In many cases, therefore, corporates are instrumental in realising successful connectivity and efficiency initiatives as they have the ability to motivate their banks and vendors.”
Connectivity is not an issue that will keep treasurers and finance managers awake at night, but the ability to access liquidity information from across the world probably is. The right connectivity, whether web-based, host-to-host or through SWIFT, is instrumental in achieving this. As Tom Nelson, Wall Street Systems summarises,
“Connectivity will not always be a driver for change, but it will be an enabler.”
So in many ways, yes, SWIFT has now arrived on the corporate stage, now that it is established as a viable and proven alternative to proprietary bank tools for international and/or multi-banked corporates of varying sizes. Those expecting a revolution in connectivity may be disappointed, and there is still considerable progress to be made, not necessarily in SWIFT adoption, but in integration across the financial supply chain that facilitates efficient financial processing.
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