Treasury Today Country Profiles in association with Citi

SWIFT for Corporates: do costs outweigh benefits?

Companies are increasingly realising the value of connecting with their banks via SWIFT. With falling costs and an ever-growing array of messaging services geared specifically to the corporate market, the business case for SWIFT access is becoming easier to quantify. However, there are still obstacles to adoption, and the benefits will not outweigh the cost for many companies.

The main reasons why corporate treasurers first investigate SWIFT access are cost reduction, process simplification and standardisation. SWIFT is also perceived as being independent across banks, and as having a high level of security

Process standardisation

SWIFT access facilitates consistent formats across all banking counterparties. This reduces the need to maintain separate proprietary banking platforms and the multiple IDs and passwords needed to operate them. It also removes the need for a corporate user to manage multiple connections to its banking partners, which removes the cost of maintaining IT support for multiple channels, as well as the actual servers and hardware themselves.

In addition, a company’s choice of banking partners can be made independent of location, as Kimmo Helle, Vice President, Treasury Development and Trade Finance, Metsä Finance, explains: “We are no longer dependent on the location of banks, so we can choose the best partner with the best service.”

The high level of consistency in corporate-to-bank communications that SWIFT provides makes it possible to increase transparency around critical operations.

For example, with cash position reporting, SWIFT offers companies an opportunity to receive near-real-time updates of balances and transaction-level detail of what is going through their accounts. Outside SWIFT, on a host-to-host or proprietary connection with a banking partner, it can often be the next day before corporates can see this level of detail in other regions.

Robert Blair, Executive Director, J.P. Morgan Treasury Services, says: “The long list of benefits from this connectivity is compelling. SWIFT for Corporates can increase the geographic reach of financial operations, improve the visibility of idle cash throughout bank networks, enhance audit compliance, improve STP and processing capacities, provide a highly secure communication infrastructure and offer support for the non-repudiation of payments – just to name a few.”

However, there is still only a limited number of corporates that have direct access with their banks via SWIFT – around 600 worldwide. This is in part because banks have historically been hesitant to encourage direct corporate access to SWIFT and in part because of the time, effort, and expense that used to be involved in setting up and maintaining a SWIFT connection.

Much of that has now changed. Access is easier and cheaper, and banks themselves are now big proponents of SWIFT for Corporates. As a result, corporate uptake is on the rise.

Banks on board

SWIFT is now actively marketing itself to the corporate audience, and in fact had a full conference stream dedicated to corporates for the first time at the 2010 Sibos conference.

Notes Enrico Camerinelli, Senior Analyst at consultancy Aite Group: “Until now it was very difficult for corporates to access SWIFTNet, because they had to be presented by a bank, and banks were very protective of their corporate clients. Now, they still need to be presented to the SWIFTNet community by a bank but there are fewer limitations in terms of who can participate and banks are encouraging their clients to use SWIFT. They are actually working closely together to develop more bank-agnostic services for SWIFT, which could be a benefit to the corporates.”

So proponents of corporate access to SWIFT argue that not only does this trend further cement the relationship between a bank and its corporate client, it also gives the corporate access to services that many banks are no longer able to invest in continuously. Corporates get best practice solutions, and access SWIFT through their bank. Furthermore, access is now much easier than it once was.

Tool for risk management

In the past few years, most corporates have increased their focus on counterparty risk management, as the security of a company’s banking partners has come into question. Pre-SWIFT, it was difficult for corporates to change banks in a timely fashion, as days, weeks or even months of work might be involved in getting accounts and connections set up, tested, and running smoothly. SWIFT helps cut through that process.

John Cowart, Sales Officer, Global Transaction Banking, Deutsche Bank, notes: “The events that transpired over the last couple of years forced corporates to be aware of the risk in having a single channel to a single banking partner. Now corporates are looking for the ability to diversify risk among banking partners. SWIFT access gives the corporate the opportunity to quickly and easily redirect payment traffic to another banking partner.”

Thus SWIFT helps companies to switch to a secondary provider easily, should anything happen to affect the operation of their primary service provider. Of course accounts still need to be set up and connections tested, but nonetheless the single channel reduces much of the time and headache associated with switching banks during an emergency. Consequently, many companies are viewing SWIFT as a counterparty risk management tool and increasingly as part of their contingency planning.

Typically a company will either take a geographical approach to choosing banking partners, for example by appointing one or two banks in each region or country in which they operate and using an overlay bank with a global footprint to bring it all together. With SWIFT, geography becomes less important, as corporates can send and receive messages with any of their banks anywhere in near-real-time.

SWIFT Bank Readiness Certification

Although a corporate may believe that most banks are able and ready to meet its SWIFT connectivity needs, that is not necessarily the case. Many banks only support some of the messaging solutions that SWIFT can offer to corporates.

As a result, SWIFT has established a readiness certification programme to ensure that banks making such claims meet certain standards. If a bank has a SWIFT Bank Readiness Certification, corporates can more easily assess what the bank can and cannot provide in terms of corporate-to-bank connectivity via SWIFT.

“The timeframe for realising value varies by company and depends on the investment needed to support using SWIFT for corporates.”

Kenneth Deveaux, Head of International Solutions, Global Transaction Services, RBS Americas and Citizens Financial Group, notes: “These standards are based not only a bank’s ability to support SCORE standards for FIN and ISO20022 message formats, but also on the operational readiness of its central and branch network to support such messaging as well as being commercially ready from an advisory and customer support perspective.”

SWIFT Bank Readiness Certification gives companies – even those with little knowledge of SWIFT – the ability to assess their current or potential banking partners and get a clear picture of what those banks support.

This can be invaluable when undertaking a SWIFT access RFP, creating a shortlist of banks that support the SWIFT file format the corporate is using or wants to use, or when sourcing new bank relationships, for example. Before this process was made available, companies had to perform all the preliminary research themselves through a series of exhaustive interviews with all potential banks.

Finding the ROI

However, despite the advantages, for many corporates the cost of SWIFT access and use will outweigh the potential benefits. Much of that will depend on cost reductions gleaned through reducing the number of host-to-host and proprietary connections that they must maintain with banks. In addition, interest in SWIFT will depend on a particular company’s appetite to invest in the treasury department.

Blair says: “A recent delaying factor has been the economy. This appears to be changing and the pace of SWIFT corporate implementations is picking up.”

The move to set up SWIFT access is often associated with another major related project, for example the implementation of a new ERP application, significant organisational change such as development of a shared service centre, or entry into new markets.

In fact, having a relatively advanced ERP system is a prerequisite for SWIFT access, as the system must be able to create and receive FIN and FileACT messages in the first place. So for mid-sized companies or those approaching large corporate status but without having invested as yet in an advanced ERP solution, the investment will not make sense.

When considering SWIFT, companies must evaluate the potential return on investment and total cost of ownership, including costs associated with SWIFT such as registration, connectivity and messaging, and non-SWIFT expenses such as project management, operations and application integration.

The cost savings can be difficult to quantify, as these may include improved security, which reduces fraud and creates fewer manual errors; enhanced compliance, creating fewer control points and reduced documentation needs; and improved control over the payment-initiation process, according to Blair. “Obviously, the timeframe for realising such value varies by company and is dependent on the investment needed to support using SWIFT for Corporates.”

The advantages are clear, however, for companies of a certain size, and with complex banking relationships. The more complex the organisation and the greater their transaction volumes, the better return on investment that they will see.

For example, Alcatel-Lucent now sends and receives messages with around 85 banks through SWIFT. By connecting through SWIFT, the company was able to go from maintaining and supporting connections with all of these banks to connecting via SWIFT with them through 12 direct bank connections. The company vastly reduced its expenditures on banking system maintenance as a result. Alcatel-Lucent receives MT940 bank account statements for more than 1,000 bank accounts, and initiates thousands of high-value payments in almost 60 currencies each month via MT101 messages.

GE, as well, has long used SWIFT for such things as for balance reporting and worldwide funds transfers. The global company connects with more than 80 banks via SWIFT. Companies such as Intel, Microsoft, Novartis, and Iberia airlines are all using SWIFT for various functions, and countless other companies have also recognised benefits through direct SWIFT access.

New services and solutions designed specifically for corporates are also helping companies realise value through their SWIFT connections. The introduction of electronic bank account management (eBAM) solutions for SWIFT should prove a big boon for companies considering the business case for SWIFT. In addition, developments around trade finance messaging, digital identities and exceptions and investigations (E&I) will also help create value for corporate users.

Finnish forestry company Metsäliitto Group is a key example of how SWIFT access is further enabling corporate-to-bank connectivity. For them, the challenge was improving efficiency in managing trade finance data.

“Implementation of SWIFT with the banks can be relatively quick. The challenge is the initial connection.”

In late 2008 SWIFT began offering corporate-to-bank MT798 messaging in SCORE for Import Letter of Credit, Export Letter of Credit and Guarantee/Standby Letter of Credit flows. Metsä became a pilot company for MT798 messaging via SWIFT.

Metsä looked to Canadian system provider GlobalTrade for a SWIFT-ready solution that could manage trade services messaging between the company and its trade finance banking partners via SWIFT Alliance Lite. Notes Helle at Metsä Finance: “The reason we started to look at the SWIFT option is that we knew this information was being transferred between banks via the SWIFT network.”

“The big problem that we faced was that when we received information from our advising bank we were not able to work on the data directly because it was received via telefax or as a scanned document from the bank,” Helle says. “Therefore we wanted it to come automatically into our systems to avoid mistakes when rewriting data to our own databases.”

Metsä is now live with three of its banks – including Nordea and SEB – to receive export letters of credit (LC) data across business units via SWIFT. Notes Helle: “It is a big advantage to get data from our advising banks directly into our systems.” He says the biggest issue they face now is that few banks are as yet able to handle MT798 messages.

Alliance Lite, Service Bureau or direct access

Companies can choose different mechanisms for accessing SWIFT – either through a direct connection, via a SWIFT Service Bureau or via Alliance Lite.

SWIFT Alliance Lite lets corporates with fewer messaging needs connect through an internet browser, rather than requiring the time-consuming implementation and expense of a direct connection or service bureau connection. However, the service is still suitable for mid-sized corporations. For example, It allows companies to send and receive up to 200 items a day.

Alliance Lite supports manual message entry and a range of payments and cash management message types, along with FX confirmations. In addition, companies can use the Autoclient function for back office message integration.

With a Service Bureau, a bank partner will provide outsourced SWIFT access: the company sends a file to the bank, which converts it into a SWIFT FIN or FileAct file and sends it via the SWIFT network to the receiving bank(s).

The advantage of purchasing a direct connection and maintaining the hardware is that the ongoing variable costs are lower and the company has more control over the process. With a Service Bureau the initial outlay is less and the corporate is not required to manage hardware maintenance or have dedicated IT support services. A direct connection requires the purchase and maintenance of VPN boxes, routers, and digital subscriber lines. With a Service Bureau, the bank maintains this equipment and allows multiple users to access SWIFT via their direct connection.

Notes Deveaux: “For corporates, the implementation of SWIFT with their banks can be relatively quick, depending on each bank’s capabilities and SWIFT experience. The greater challenge for companies is their initial connection to SWIFT, which is a prerequisite to and sits outside of the implementation with their banks. Increasingly we see the use of the Service Bureau option to ‘speed up’ this portion of the implementation.”

Taking a multi-phase approach to implementation can have the best results. First, companies should evaluate SWIFT as a connectivity and messaging solution and consider how it suits their particular needs. Once the business case has been clearly determined, the next phase is implementing a connection to SWIFT – whether through a direct connection, a service bureau or Alliance Lite. Lastly, companies will enable SWIFT connections with their banking partners and complete testing.

Implementation timeline considerations

Factors that influence the timeline for implementation include:

  • The number of banks to be included.

  • The number of countries and accounts to be included.

  • New vs. existing bank account structures.

  • The scope of payments and reporting to be included.

  • Just reporting via FIN (ie MT940 messages)?

  • Payments and reporting via FIN (MT 10X and MT940)?

  • In-country, low value payments via FileAct?

  • Is there a larger dependency (TMS or ERP project completion)?

  • Method of connection.

Source: RBS/Citizens Financial