Treasury Today Country Profiles in association with Citi

Is SWIFT service bureau consolidation a good thing?

Motion blur of a high speed train

Treasury Today asked a similar question at the beginning of the year with regards to consolidation in the TMS space, after Wall Street Systems swallowed IT2. But does it make a difference that SWIFT itself is pushing for greater consolidation in the market?

With Bottomline Technologies’ recent announcement that it was picking up two SWIFT service bureaus (SSBs) – Sterci and Simplex – in one go, whether or not consolidation in the marketplace is in the best interest of the clients they serve becomes a topic of immediate concern.

According to SWIFT, of the more than 850 corporates who have a SWIFT BIC, 80% are supported by an SSB. Worldwide there are more than 130 SSBs that operate their own infrastructure.

The SSB space has seen a rash of acquisitions over the past few years. This isn’t Bottomline’s first foray: in October 2010 it picked up SMA Financial. In addition, SunGard acquired Syntesys in September 2011, whereas Fundtech was an early mover, acquiring three bureaus: BBP (1999), Datasphère (2004) and Synergy Financial Systems (2008).

For Bottomline, these recent transactions build on the financial messaging expertise that SMA Financial brought to the organisation. “That experience has been a great success for us – the business doubled in terms of revenues in three years and brought us some important customers – so that made us hungry for more,” Marcus Hughes, Director of Business Development, Bottomline Technologies, told Treasury Today. “By adding Sterci and Simplex, the group now has more than 530 financial messaging customers in over 20 countries using us for SWIFT, with 200 SWIFT experts in key financial hubs, such as Geneva, Frankfurt, London, New York, Paris, Toronto and Singapore. We have expanded our global footprint in order to support our growing customer base.”

But is consolidation in the best interest of the market as a whole? Hughes argues that the trend has been encouraged by SWIFT itself and its member banks. “The financial community wants fewer but stronger SSBs to mitigate operational risk, which is consistent with what we are trying to accomplish – we are helping that flight to quality.”

It is true that in the recent years SWIFT has made the criteria for operating as a SWIFT-certified SSB much stricter, including the new SWIFT Shared Infrastructure Programme. All service bureaus will have to comply with minimum operational practice requirements by the end of 2013, and with even stricter standard operational practice requirements by the end of 2015. The intention is for SSBs to “demonstrate high standards of security and resilience, as well as appropriate business practices”, according to SWIFT.

Bottomline is creating a new global centre of excellence in financial messaging with a growing product range to support its customers, to make them feel “secure and confident” about their SWIFT connectivity, explains Hughes. The company is also adding many value-add services in the cloud around payments, reconciliation, data transformation, SWIFTNet funds messaging, data management, etc, in order to reduce cost and risk and cater for a full range of customers – banks, corporates and non-bank financial institutions (NBFIs).

This trend towards consolidation in the SSB market is set to continue and may impact the treasury management system (TMS) market, according to Enrico Camerinelli, Senior Analyst in Wholesale Banking at Aite Group. “Bottomline adds the capability to reach out to both corporate and banks, which further increases its competitive advantage. It can also claim experience in supply chain finance (SCF). This additional capability positions Bottomline as a serious partner for TMS vendors which want to help their clients extend the reach beyond the four walls of the corporation. Therefore, Bottomline is a serious contender in the TMS arena for a possible acquisition of a local treasury system vendor.”