A Sibos Review
by Helen Sanders, Editor
While Sibos 2007 was mostly attended by large, multinational corporates with multiple banking relationships, this year’s event saw a broader spectrum of companies expressing an interest in SWIFT connectivity, from mid-sized corporates to the largest multinationals, including companies with a primarily domestic focus, low volumes and few banking relationships.
As the interview with Elie Lasker on Alliance Lite illustrates, SWIFT are focusing on solutions for smaller companies, but there are alternative approaches in which an increasing number of corporates are already expressing an interest, such as service bureaus, member/concentrators and packaged solutions provided by some banks. In France in particular, there is a growing appetite amongst mid-sized corporates for a cost-effective, bank-independent connectivity solution to replace ETEBAC 5 as it is retired over the next few years.
With this theme, one of the most interesting sessions at Sibos was a panel on the subject of “SWIFT for mid-sized corporates”. In this article, we provide a précis of some of the key observations and experiences articulated by the panel.
Panel:
Olivier Brissaud, Chairman of the EACT Board and Treasurer of Volkswagen Group Services S.A.
Lionel Garnier-Denis, Group Treasurer, Alten
Jean-Louis Glorian, Head of Bank Services – Large Corporates, Crédit Industriel et Commercial
Marcus Treacher, Head of e-commerce, Global Transaction Banking, HSBC
Luc Meurant (Moderator), Head of Corporate Access, SWIFT
Lionel Garnier-Denis, Alten
Lionel shared his experience of connecting with his banks through SWIFT, which he summarised as ‘Few Banks, Lots of SWIFT’. Alten is a hi-tech engineering and consulting company with 12,000 employees, 87% of which are high-level engineers. In 2007, the company’s turnover was €701.2m, 25% of which was derived from international operations.
Alten Europe has over 30 entities across Europe, including Central & Eastern Europe, and Alten Finance has more than 10 entities in other parts of the world. The company works with five banks in France and 12 across Europe, with around 50 bank accounts. Cash is centralised through a pan-European cash pooling arrangement and payments are also conducted centrally. Before implementing SWIFT, Alten used ETEBAC 3/5 and Isabel for banking communications managed by a team of four in Group Treasury.
Alten’s Treasury department has a number of different projects under way, including introducing a new treasury management system (TMS) to provide the company with a greater range of functionality and provide scope for expansion as Treasury’s needs change over time. Alongside this project, the decision was taken to update the bank communication software to put in place a simpler solution which was consistent across banks, and to introduce a standardised approach to payment security. With the combination of a new TMS and bank communication software, the aim was to reinforce the centralisation of both treasury functions and payments.
Olivier Brissaud
Although Alten is smaller than many corporates which have connected so far, the company made the decision to use SWIFT for its bank connectivity. There were a variety of reasons for this: firstly, SWIFT connectivity is highly flexible and as the network through which banks communicate globally, it was more of a ‘future-proof’ option than alternative solutions. All types of payments and formats are supported, providing significant versatility. All of Alten’s banks could be reached via SCORE, and connection and maintenance could be outsourced to a service bureau, avoiding the need to provide specialist support internally. [[[PAGE]]]
Alten decided to use FileAct, partly because FIN is an expensive option for mid-sized companies. Furthermore, while there are often difficulties due to differences in file formats and interpretation using FIN, such as MT 101 and MT 940, banks are obliged to respect a unique format for these messages through FileAct. Alten has had a highly successful project in connecting to SWIFT, assisted by its primary banks. Their banks have been very supportive of their project objectives and have provided technical assistance. The SWIFT product offering has been clear and straightforward, together with transparent pricing. By connecting to SWIFT through a service bureau, Alten has also benefited from the expertise and experience brought by the service bureau team.
Lionel concluded that SWIFT had already proved the optimal connectivity choice for Alten, providing a strong platform to facilitate the company’s future growth plans, particularly as it is a global solution supported across the banking community. Messages can be integrated into the back office to provide a high degree of automation, and the processing of payments is now more tightly controlled.
Olivier Brissaud, EACT and Volkswagen Group Services S.A.
Olivier explained that Volkswagen was one of the earliest companies to connect to SWIFT, justified by its high volumes. However, he raised a note of caution to mid-sized corporates: as SWIFTNet is a bank-independent network, they should avoid creating the impression with their banks that there was a risk that they were seeking alternative banking partners. Particularly in today’s climate, companies may be heavily reliant on their banks for credit.
Jean-Louis Glorian, Crédit Industriel et Commercial
Jean-Louis characterised 2008 for users of SWIFT as the year of Simplification, Accessibility and Lower Pricing. He emphasised the reasons why the bank supports SWIFT for corporates, specifically:
- Clear market demand for SWIFT, with the first large corporate users using SWIFT since 2003
- Technical know-how, emphasising the value of a service bureau
- An innovative approach to packaging solutions to meet corporate clients’ needs.
He stressed that the corporate market is maturing, with an increasing awareness of alternative connectivity options. Over the past few years, corporate connectivity to SWIFT has become easier with service bureau solutions available, and looking ahead, with internet-based plug-and-play options, there are a wider range of options to satisfy the growing need for mid-sized corporates to connect to SWIFT.
Marcus Treacher, Head of e-commerce, HSBC Global Transaction Banking
Marcus compared the connectivity needs of mid-sized corporates with the large multinationals who have been amongst the first to connect to SWIFT. He characterised mid-sized corporates as having fewer banking relationships, in fewer countries, with smaller volumes and smaller treasury functions. As a result of their smaller scale, they also often enjoyed greater standardisation in the use of their ERP technology. However, he noted that these firms had an acute need to support growth whilst maintaining simplicity in banking connectivity and a low cost of ownership. Therefore despite the differences in profile between mid-sized and larger companies, the value of SWIFT connectivity is similar, albeit on a smaller scale. Furthermore, the need to support business growth amongst the former is even more compelling, to which bank connectivity through SWIFT is ideally positioned.
Looking ahead, there are a wider range of options to satisfy the growing need for mid-sized corporates to connect to SWIFT.
In order to be a feasible option for mid-sized corporates, SWIFT solutions need to satisfy their business requirements, and there have already been substantial developments in achieving this. For example, outsourcing SWIFT connectivity to a service bureau is a lower cost option for many as opposed to connecting directly. Training and implementation support is more readily available than in the past to enable corporates to get started on SWIFT more quickly. Costs are predictable, which is vital as a company expands its breadth of banking relationships and locations, and with standardisation initiatives gaining momentum, bank connectivity can be rolled out in a consistent way in line with business growth.
Alliance Lite is the next chapter in the story of SWIFT for corporates, particularly mid-sized corporates: it is browser-based with low set up costs; it is an easier solution in which to train staff and more economic for companies with low transaction volumes.
Question: To what extent do you think Alliance Lite is competitive with or complementary to existing connectivity options such as service bureaus?
Marcus Treacher explained the view that Alliance Lite is complementary to existing indirect connectivity models such as service bureaus. He emphasised that companies have different requirements and motivation for connecting to their banks through SWIFT and therefore it was important to have a variety of connectivity options available, appropriate to different market segments. For HSBC, the objective is to make it as easy as possible for corporates to connect with their banks, through whatever mechanism. [[[PAGE]]]
Question: Does the panel support the view that banks are no longer competing on connectivity? Can banks simply survive by relying on their proprietary solutions rather than embracing SWIFT for corporates?
Jean-Louis Glorian emphasised the need to accept both connectivity routes. As customers have different requirements, banks need to support different models to satisfy them.
Outsourcing SWIFT connectivity to a service bureau is a lower cost option for many mid-sized corporates as opposed to connecting directly.
Olivier Brissaud highlighted the risk inherent in the decision to achieve connectivity through either a single or multi-bank channel. If a company relies on a single bank, what happens when that bank’s fortunes change? Treasurers have an important role to play as part of the overall risk management process and should therefore be seeking a multi-bank connectivity solution.
Marcus Treacher stressed that other methods of connectivity were also suited to client needs – more so in some cases, and that there are certain criteria which contribute to the value of SWIFT connectivity in an individual situation. SWIFT is not the same as the integrated internet banking systems to which most corporate treasurers will already be accustomed, it is simply a channel. Therefore, while banks will collaborate to ensure that basic services are commonly available through SWIFT, each bank will also want to differentiate itself by providing more sophisticated services and data manipulation. Therefore, he emphasised the value of both proprietary and generic connectivity solutions according to the individual business need of the customer.
Question: What constitutes a ‘mid-sized corporate’ for the purposes of this discussion?
Jean-Louis Glorian indicated that companies with a turnover of between €150m and €500m would constitute the mid market but recognised that there were different opinions on this between banks and corporates.
Marcus Treacher suggested that turnover or market capitalisation were less significant criteria than a company’s behaviour, in particular their global reach or ambition, the complexity of their activities and company structure. If the complexity and energy in the business is sufficient, irrespective of size, then SWIFT could have value.
Luc Meurant
Question: What differences are there across geographies?
Marcus Treacher described how companies in different geographies often have different attitudes towards connectivity. For example, there has been an early appetite for SWIFT in Europe, particularly France. Now there is a stronger trend in the Middle East, Asia and the Americas, often driven by the large multinational firms. As awareness continues to develop, there is likely to be increasing interest globally. French corporates are still a couple of years ahead of other markets in terms of recognising the value of SWIFT, but firms in other countries are catching up. [[[PAGE]]]
Olivier Brissaud discussed how companies in emerging markets have the opportunity to leapfrog the evolutionary steps which companies in other countries have taken, with the potential to achieve a high degree of automation, giving the example of Slovenia. SWIFT could provide a valuable tool for companies in markets which have historically not enjoyed significant automation, and Alliance Lite has the potential to be an important step in this.
As awareness of SWIFT continues to develop, there is likely to be an increasing interest globally.
Marcus Treacher stressed that SWIFT is complex, not helped by the fact that it is often described in complex terms. Alliance Lite makes SWIFT a simpler proposition which corporates can more easily evaluate and inform their decision-making.
Jean-Louis Glorian emphasised the need for simple marketing, a simple contract and a simple allocation of tasks between the service bureau, bank, SWIFT and the customer. Pre-packaged connectivity solutions help to achieve this, including the main services which companies need.
Olivier Brissaud noted that as SWIFT promotes its services through the banks, mid-sized corporates often work with mid-sized banks which may not be in a position to sell and support SWIFT connectivity. He recommended that corporates would benefit from seeking advice from their national treasury association for impartial and practical guidance as opposed to relying solely on their banks.
Lionel Garnier-Denis described the experiences at Alten, saying that the issue of SWIFT was not the connectivity itself, but selling it internally. This is often difficult as a relatively new proposition, which is not well-understood within the business. Furthermore, as banks use different formats, the overall solution can be very complex.
Conclusions and final thoughts
Marcus Treacher – SWIFT is at a critical inflection point. There are strong offerings in place, but these need to be simpler and the value to corporates needs to be more clearly articulated.
Jean-Louis Garnier – There needs to be a decision on the software to be used for connectivity and contracts need to be simplified.
Olivier Brissaud – Large corporates have understood the value of SWIFT. Are mid-sized corporates ready to embrace SWIFT and is it essential for them?
Lionel Garnier-Denis – We hope to see XML standards in place for credit transfers, ensuring the same standards between banks and corporates.