After a slow start, SWIFT for Corporates is finally gaining ground. In this article Treasury Today examines the evolution of SWIFT for Corporates and its core components.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) for Corporates allows companies to access the SWIFT network, a standardised communication platform. It is seen by many corporates as a highly secure and reliable solution, but one that has struggled with a slow and costly infrastructure in the past.
There are currently over 900 corporates registered with SWIFT worldwide. These businesses are able to connect to over 8,500 financial institutions on the SWIFT network. Corporates based in Europe, the Middle East and Africa make up the majority of SWIFT participants – some 71% – while businesses situated in the Americas and Asia account for the remainder.
Originally the preserve of large, heavyweight corporates, such as Microsoft and General Electric, SWIFT membership has now evolved to encompass smaller businesses, ie those with less than €1 billion in turnover. This change can be largely attributed to the co-operative’s efforts to tailor its services to suit the requirements of small-to-medium sized corporates, such as the introduction of Alliance Lite (see below). Recent initiatives, such as 3SKey and eBAM, aim to further capitalise on this development. In this article, we look at the evolution of SWIFT for Corporates and its current services.
A not so swift start
The origins of SWIFT stem back to 1973 when major banking institutions agreed that an industry-wide co-operative should be established so as to facilitate the secure transfer of financial communications. The platform soon proved a tremendous success. It was only in 1998, however, that SWIFT launched its first service to corporates.
With its Treasury Counterparty (TRCO) model, a system facilitating FX deal confirmations and money market trades, SWIFT hoped to attract a large amount of corporate business. Banks, for their part, were happy to allow SWIFT to carve a market niche for itself because the TRCO system did not directly compete with their cash management services. These hopes were to quickly dissipate however. Encumbered by an expensive framework, SWIFT’s initiative was not popular. In the end it attracted the business of just 15 corporates. For the overwhelming majority of corporates, the costs of using SWIFT’s facility far outweighed the benefits on offer.
SWIFT’s new corporate offering was to prove more popular. In 2001 the co-operative launched Member-Administered Closed User Groups (MA-CUG). These entities were established and maintained by individual banks that offered a treasury and cash management solution to corporates. Although less expensive and unwieldy than their predecessor, the system was still orientated around the bank’s interests. The bank was the medium through which corporates could tap SWIFT’s services. Corporates had to agree to the bank’s terms and conditions, often stringent, in order to avail of MA-CUGs. Furthermore, corporates with multiple banking counterparties required the same number of MA-CUGs. This was an expensive undertaking. Still, for many corporates, MA-CUGs were the first opportunity to make use of SWIFT’s network.
In 2007 SWIFT introduced Standardised Corporate Environment (SCORE). The advent of SCORE was a ‘game changer’ for SWIFT and its development of a corporate solution. For the first time corporates could access SWIFT’s financial network through a single gateway. While MA-CUGs were structured in such a way that allowed banks to determine the corporates’ access to the SWIFT network, SCORE established a direct relationship between the corporate and the co-operative. This meant that corporates could now manage a number of counterparty relationships by means of one secure channel rather than joining multiple MA-CUGs. A consequence of this was that corporates no longer had to be ‘sponsored’ by a bank to access SWIFT. The number of corporates registered with SWIFT rose to over 680 by late 2010.
Nevertheless SWIFT’s solution still seemed expensive, involving the incorporation of a hefty infrastructure. Many small corporates could not afford to join SWIFT despite initiatives such as SCORE. This situation was changed in late 2008 with the launch of SWIFT Alliance Lite. A low-cost, portable solution for corporates, Alliance Lite allowed businesses to connect to SWIFT via a USB stick plugged into a computer. It was an initiative that removed costly barriers of SWIFT implementation.
Adapting to corporate needs
With the exception of Alliance Lite, however, connecting to SWIFT places a heavy strain on limited resources. Furthermore, effective maintenance of such a network requires specialist knowledge. Treasury operations, however, are often restricted with limited manpower and means. The emergence of service bureaus in recent years has sought to address this problem. Corporates are able to ‘outsource’ the task of establishing and maintaining SWIFT to an external team of experts. This has proved to be a cost effective solution for many businesses, as service bureaus can also offer value-added services such as format validation and enrichment. As a result between 80% and 90% of all new comers to SWIFT now connect via a service bureau.
The drive to adapt to corporate needs has also taken on other forms. The recent launch of 3SKey, SWIFT’s ‘multi-network personal digital identity’, allows individuals within corporates to use a USB signing device that enables them to sign off financial messages and documents when sending to banking counterparties. Beforehand, corporates were forced to use several devices and passwords for different banks. 3SKey introduced an international standard that is simple to use, leading to cost reductions and efficiency gains. The development of electronic bank account management (eBAM) is also promising. SWIFT hopes to ‘dematerialise and automate’ bank account management – an area of business that is still dominated by manual paper work and inefficient. eBAM offers to reduce both time and cost and improve STP and customer satisfaction rates. The process is still in its early stages, however, and pending revision based on the feedback of early adopters in the corporate and banking worlds.
Nearly four decades have passed since the creation of SWIFT. The co-operative’s steps into the corporate world since 1998, however, have been difficult ones. SWIFT has struggled to lose its reputation as a communications platform ‘made by banks, for banks’. And, in a sense, the evolution of SWIFT’s corporate solution can be seen as the gradual realisation that more must be done for its corporate clients. Companies, for their part, now realise the genuine benefits offered by SWIFT, and are taking full advantage of the option to outsource maintenance. SWIFT’s early TRCO model attracted just 15 corporate clients. Now, thanks to offerings such as SCORE and Alliance Lite, over 900 corporates are registered with SWIFT.