Published: May 01, 2009
Communicating with banks in a secure, automated and timely manner is one of a corporate treasurer’s key priorities. Selecting the right connectivity approach to achieve this is not simply a technology decision, but a holistic organisational endeavour, as it plays an essential role in achieving effective cash management, cash centralisation and visibility, automated reconciliation, secure payments and control over collections.
The more efficiently corporates can communicate with their banking partners, the more effectively banks can deliver services that enhance the way they do business.
Enhancing the way in which corporates communicate with their banks is one of the most significant ways in which today’s treasurers deliver value to their organisations, by optimising the visibility and efficiency of financial processing across the company. The more efficiently corporates can communicate with their banking partners, the more effectively banks can deliver services that enhance the way they do business.
Excellent corporate connectivity capabilities are an essential part of cash management propositions. This includes how to connect the corporates’ systems and applications with the banking systems, the message standards supported, and the connection channels. HSBC’s approach to providing connectivity solutions includes integration with the corporate systems, use of leading-edge messaging standards such as XML/ISO20022, the multi-bank connection service SWIFTNet and data enrichment options. The objective is to deliver real value to our customers.
The way in which corporates communicate and integrate with their banks has become one of the most significant issues which today’s treasurers need to address. But connectivity is not simply the domain of technology experts; it is the key to effective cash management: cash centralisation and visibility, automated reconciliation, cheaper and more secure payments, regulatory compliance and efficient control over collections. All require an effective communication channel between a corporate and its banks.
One of the primary challenges faced by corporates, whether working with multiple banks or in some cases even with a single bank, is the difficulty in connecting various banking systems, each of which uses its own format, to multiple internal systems which again use their own formats. To achieve this, corporates often need to expend significant resources, as do their banks and system vendors, to set up new interfaces whenever the corporate changes or adds banking relationships, or upgrades or replaces internal systems. This is exacerbated even further when corporates engage in mergers and acquisitions, as treasury may inherit an entirely new banking and systems infrastructure which needs to be integrated within the existing framework.
There would seem to be two possible solutions to the problem. Firstly, it would be a great deal easier if internal systems, which generate information to transmit to the banks, or receive information from them, and the banking systems to which they connect, all used the same format of information. That way, while a similar number of interfaces may still exist, these would be uniform and new banks and systems could simply be plugged in to connect to each other.
Secondly, rather than establishing multiple interfaces between systems, an alternative would be to channel all financial messages through a common network to which all financial counterparties are connected.
The past few years have seen significant progress in achieving both of these aims; standardisation by XML ISO 20022 and SWIFT connectivity. While the complexity of corporate connectivity requirements has never been greater, the solutions now available to manage these and optimise cash management have also never been more advanced or more convenient.
The ability for a treasurer to send and receive information in a secure way with the company’s banks, directly to and from internal systems is crucial to every aspect of a treasurer’s role, so having the right connectivity solutions should be a priority.
The options are diverse, but the opportunities are endless. With some exceptions, SWIFT has primarily been the domain of corporates with large cash-flow volumes or numerous banking relationships. New pricing arrangements and simpler ways of connecting to SWIFT, including SWIFT initiatives in 2008, and the convenience of service bureaux and member concentrators, means that bank independent connectivity is accessible to a far larger spectrum of corporates than ever before. At HSBC, we anticipate that our customers will increasingly seek to connect, both to HSBC and other banks, through SWIFT as the experiences of corporates with similar treasury and cash management challenges becomes more widely publicised. [[[PAGE]]]
Standardisation is another related trend. Whatever the preferred way of communicating with banks, the process of connecting banking systems with corporates’ internal systems should be as straightforward as possible. The widespread agreement between banks, vendors, corporates and SWIFT, on the use of XML ISO 20022 represents a major step forward in delivering plug and play communication between systems. HSBC want to make it as easy as possible for the customer to do business with us, by supporting recognised standards and promoting high levels of automation between all corporate systems.
Connectivity is a cost to everyone - bank, corporate and software provider, so it makes far more sense for all the parties to collaborate to provide high quality connectivity channels.
We envisage that the momentum driving a standardised approach to communication and integration, which is supported across the financial community, will continue to accelerate, bringing significant benefit to our corporate customers. HSBC is an active participant in the working groups that are helping to make standardised XML a reality throughout the financial supply chain.
It may be surprising to some corporates that there has been such a focus on collaboration between competitive organisations such as banks and software vendors. One of the key benefits for corporates of standardising their integration, and/ or connecting to their banks through SWIFT, is that they achieve greater independence from their banks, i.e. they can change or add banks more easily than having to replace complex systems with multiple interfaces.
However, forward-looking banks recognise that the channel through which information and services are delivered are not the reason that customers choose to do business with them; rather, the range of cash management services, quality of customer service, value and geographic footprint are among the factors on which corporates base their decision to work with, or continue to work with a bank.
While a bank might think that using proprietary formats and systems encourages customer loyalty, it is a short-sighted attitude and undesirable in the longer term. After all a bank does not do good business by preventing customers from leaving, it does good business by attracting new customers with first class products and services, and making it easy for them to join. Consequently bank independence should be considered an opportunity more than a threat. Connectivity is a cost to everyone – bank, corporate and software provider, so it makes far more sense for all the parties to collaborate to provide high-quality connectivity channels.
HSBC’s holistic approachSWIFT, whilst an important component from a corporate perspective, is only part of the overall picture. HSBC’s strategy in the corporate space has remained consistent, the customer relationship is very much “centre of plate” for us.
Essentially we continue to focus on our customers’ needs. We try to anticipate their objectives and aims around centralisation, increased automation and STP rates, integration with their back office systems, improved visibility of cash, re-engineering of processes, bank relationships and multi-bank connectivity.
Now is a good time for banks as a number of external factors such as SWIFT for corporates, XML ISO 20022, SEPA and the Payment Services Directive (PSD) are acting as catalysts for change. Banks are pro-actively assisting their clients to harness the benefits of these initiatives. Many of our clients have already re-engineered, or are planning to re-engineer, their back offices and this in turn leads to a fundamental review of file formatting protocols and connectivity issues. These projects frequently require us to develop a suite of propositions in response.
We are seeing a growing number of companies actually accessing SWIFT today and our dialogue with existing and potential corporates very often includes detailed discussions on the connectivity options, which inevitably includes SWIFT. As an example, many of our larger customers use our host-to-host solution to connect to the bank. This solution is now evolving into a direct SWIFT access model. [[[PAGE]]]
Our modular approach, using best in class componenets, allows the client to build out from a foundation of SWIFT connectivity.
The decision taken by the corporate with regard to SWIFT access focuses on three key drivers; cost, volume and complexity. Because of our decision to support the full suite of access options, we can help our clients make an informed decision on which route is the most appropriate for them. Indeed, we at HSBC have taken this one step further.
We have developed a relationship with one of the major service bureaux and we are looking at ways of delivering real value to our clients. In essence we are focusing on addressing the connectivity issues mentioned earlier and developing “any-to-any” mapping tools. However, our approach is to look beyond pure connectivity and use value-added technology solutions and the power of HSBC’s worldwide footprint to provide our customers with global treasury, payables and receivables solutions which can be integrated seamlessly into the back-office, delivering end-to-end straight through processing.
We believe our unique solution will meet the needs of multinational corporates wishing to integrate transactional banking flows into their back-office applications with minimal effort and gain maximum benefit in terms of operational efficiency and cash flow.
The service involves the deployment of market-leading technology applications to provide:
The model, based on SWIFTNet, supports a multi-bank approach.
The technology solution utilises SWIFTNet or HSBC Connect applications and network to deliver standard messages into HSBC’s core bank applications. As a result, instructions are able to be processed with the highest levels of straight-through processing.
The corporate contracts with HSBC for all services. HSBC’s underlying contracts with the service bureau guarantees performance. From the corporate perspective, this provides a much greater degree of comfort than when dealing separately with technology vendors. By buying a packaged solution, including a TMS, there is no need for the corporate to maintain separate vendor relationships. The solution we are offering includes automatic upgrades as software releases are implemented, saving on annual technology maintenance costs.
The package is also scaleable, such that corporates do not need to invest in excess capacity. Our customers will simply pay more if and when they transact more business over the platform - it is a “pay as you grow” model.
In summary, our solution puts connectivity to work for the client. Our modular approach, using best in class components, allows the client to build out from a foundation of SWIFT connectivity to include: data mapping from/to legacy back office formats; overnight, intraday or real-time reconciliations and exception reporting; filtering and capture of payments against AML check-lists; bulking of payments into cost-effective ACH-formatted files; use of SWIFTnet FIN and FileAct to connect to banking partners. We have even integrated a market-leading Treasury Management System into our solution, to enhance even further the already rich functionality of our SWIFT connectivity offering. We like to think of this as real in-sourcing in action.
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Looking further afield, we believe we will see even more technology integration and centralisation of processes, with connectivity continuing to be a major theme. We think SWIFT will also evolve as an enabler for the financial supply chain and this can only result in a win-win situation. We will see an increase in demand for real-time information. SWIFT prides itself on its resilience and security and these are fundamental attributes when dealing with financial data. Might we see corporates transferring information between each other using SWIFT within the next five years? Why not?!
By achieving greater visibility and control over cash flow, cash can be centralised more easily and global positions leveraged to reduce foreign exchange risk, limit the need to borrow and optimise investment returns. More significantly in terms of value of the corporation, cash held on the balance sheet can be minimised and surplus cash used to pay down debt, buy back shares and pay dividends to shareholders. Consequently, the value of an optimised connectivity solution, as part of an efficient cash management structure, with the right banking partner, can deliver both operational and strategic value, both from a treasury and finance perspective and for the group as a whole.
...the value of an optimised connectivity solution, as part of an efficient cash management structure, with the right banking partner, can deliver both operational and strategic value...
The centralisation drive will give a further boost to payment factories, as they are another tool in improving cash management, cash centralisation and visibility, and efficient accounts payable and accounts receivable processes. Of course the payment factory model has been around for a number of years. The main benefits of setting up a payment factory are not new: better visibility into funding needs, enhanced liquidity management and improved control over payment timing. But technology now allows payment factories to integrate with a plethora of corporate systems, such as the ERP, TMS, Payroll Travel & Expenses in order to handle incoming payment information in multiple data formats, payment approvals and links to multiple banking systems. The introduction of initiatives, such as SWIFTNet, XML-based standards and SEPA has helped to increase the capability of payment factories.
The use of web-based models where subsidiaries directly access the technology via the intranet allows the subsidiaries to handle their own payments. So even though the corporate may operate a centralised treasury, the self governing subsidiary can handle their own payments, which are then processed via the payments factory. The payments factory can be directly connected to the SWIFT network, therefore enabling the corporate to send all payments to different banks through one channel.
But the challenge of centralising the global collections process requires further work. In many cases, the Account Receivable process is manual and time consuming. The launch of the SEPA Direct Debit instrument should facilitate the centralisation of the collections function in Europe. Beyond Europe, the global account receivable propositions are less clear. Payments banks are expending efforts on the entire Order to Cash cycles, and solutions will soon be available covering the Financial Supply Chain.
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