Treasury Today Country Profiles in association with Citi

SWIFT standard for trade finance messaging arrives

Message in a bottle on a beach

Last Wednesday, Citi went live with the corporate-to-bank SWIFT Message Type (MT) 798, which corporates hope will have the same impact on trade finance communications that standardised messaging has already had on the payments side. While Citi has chosen to enter the market early, will other banks soon follow suit? And what do the bank’s corporate clients think about the new standard?

Large corporates have been using SWIFT for payments for many years now, but the financial messaging co-operative’s latest project is extending its footprint in the trade finance arena.

The MT798 is the first message that can be used by corporate clients to communicate with their banks for trade transactions. The new standard is essentially an envelope that allows a corporate to enclose various different trade finance requests to send to their banking partners.

For corporates wishing to submit trade requests, such as a commercial letter of credit (LC), the options have previously been limited. One option was to use each bank’s own proprietary client portal, a rather time-consuming and inefficient method for large multinationals with multiple banking partners. Alternatively, they could turn to a third party vendor.

“All the banks have their own website portals, of course,” says Andre Casterman, Head of Corporate and Supply Chain Markets at SWIFT. “Corporates must access these sites to enter their transactions. But that is unmanageable for large multinationals with as many as 15 websites to access.

“In addition, proprietary vendors require the corporate and the bank to use same software, so that doesn’t work either,” he adds. “We can do an analogy with GSM technology. Although we are using different handsets, the GSM standard enables us to choose the device we each prefer. In trade, the lack of a standard has been a big issue over the past ten year as nearly all the vendors tried to lock in their customers into their application.

“We need software independence,” he adds. “And that is what this standard enables.”

Building a single portal for everyone

Corporate demand was the main force driving the development of MT798. Companies wanted something which would allow them to extend best practice in payments and cash management to trade finance. Fran Martell, Global Trade Capabilities Product Manager at Citi, says that because SWIFT were already helping to facilitate bank-to-bank trade flows with the MT700 standards, they seemed like the obvious organisation for corporates to call upon.

“Banks have invested significantly in their proprietary portals to meet the needs of their trade clients and were unsure if this new communication channel would succeed. So it was really the corporates who pushed for something to be done. And they chose to work with SWIFT, for it could provide what was desired – one portal and one communication method, which allows corporates to talk to their different banks.”

Getting ready

Citi is one of the few banks currently using MT798, but according to SWIFT a further 28 banks are either live or in the process of implementing. Adoption on the corporate side has admittedly not been as speedy. At present, only eight corporate clients are live with the new standard, according to recent figures.

But it is still early days, Martell says, and implementation has not been without challenges, for both banks and corporates. Corporates, for example, have needed to work with their ERP providers to enable their system to send the new message type. In some cases, corporates may even need to consider a new ERP vendor. Banks also needed to adjust their systems in order to send and receive messages – and this, Martell says, was far from straightforward.

What feedback has the bank had from its corporate clients since it completed the implementation process?

“Our corporate clients are very excited about it,” she says. “Particularly those companies who are working with 15 or more banks, as they know that this is going to make their lives so much easier.”

In her view, corporate adoption will gradually pick up over the next two years as companies begin to get passed that initial legwork. “It’s going to be a gradual ramp up,” she says. “I think probably in the next 12-24 months most of the corporates, for whom this model makes sense, will be ready to go.”