Cash & Liquidity Management

Running in the family

Published: Apr 2013
Family of elephants

By pulling cash and trade together, André Casterman, the new Head of Corporate and Supply Chain Markets for SWIFT, hopes the bank-to-bank, corporate-to-bank and now the corporate-to-corporate sectors will become one happy family. This structural realignment within the co-operative took place in December 2012. “We’ve followed the trend of global banks: pulling the two closer together into a transaction banking unit,” he explains, which gives more visibility to the not-always-easy-to-comprehend business of trade finance. The new approach is based on four pillars, the first relying on the core SWIFT offering of multi-bank connectivity for its 1000+ corporate members.

For those corporates that are multi-banked and which wish to have a channel (whether direct or via a service bureau) to reach their banks, SWIFT remains “the proven value proposition”. But there is more, states Casterman. “In order to increase the quality of payments and decrease the number and cost of rejections by banks, we have now extended our reference data product, SWIFTRef, to corporate users as well.”

SWIFTRef is a central repository of data built around payments reference codes and updated on a monthly basis by SWIFT. International Bank Account Numbers (IBANs) and Bank Identifier Codes (BICs), for example, are linked together in the solution to ensure that when a payment leaves the enterprise resource planning (ERP) system of the corporate “it guarantees that the corporate will have the minimum processing cost”. Having scoured the various reference lists from around the world – including national clearing codes – and cross-referencing the results for accuracy, SWIFT is enabling corporates to upload the data to their ERP systems. Currently, coverage extends to SAP systems, but other interfaces (Oracle, Microsoft, etc) will follow.

Contrary to the belief that SWIFT requires users to have access to the SWIFT infrastructure, the modernisation of the society sees it delivering new solutions as channel-independent offerings. SWIFTRef, for example, will typically see the corporate become a client of SWIFT, just as it might buy market data from Bloomberg or Reuters. Of course, banks are not cut out of the loop and they can buy a global licence from SWIFT enabling them to pass the data to their own corporate clients via web portal as an added-value feature motivated by “transaction quality”.

Security: 3SKey and eBAM

Another motivation is defeating the cyber-threat. To this end, SWIFT’s 3SKey (a purely commercial product) and electronic bank account management (eBAM) propositions – again, both independent of the SWIFT channel – have been aligned to offer technical standards “to organise personal security services”, so security connected directly to the individual, not the corporate or institution. 3SKey’s primary function is in validating payments instructions: confirming the level of individual access, how much can be signed-off and so on. A secondary use relates to administration purposes and this is where SWIFT’s re-structure has purposefully brought its eBAM offering into the same corporate services pillar as 3SKey.

The eBAM solution is intended to remove paper-based bank mandate management. 3SKey is a natural bedfellow in that electronic mandates can be digitally signed and the bank can validate the request. Both solutions can also be used to manage workflows within the corporate to ensure mandates are managed internally.

Plans for an eBAM and 3SKey central utility, where SWIFT would provide a multi-bank portal through which corporates could liaise with their banks, have been suspended indefinitely, says Casterman. The idea did not get as far as a practical offering. “We haven’t been able to attract sufficient interest from banks so we have put this idea on hold for the foreseeable future,” he explains. “We need to work at the pace of the market and in that market we couldn’t develop a business case.”

3SKey has to date only been adopted by French corporates, although it has been implemented around the world by these companies. BBVA, for example, announced last year that it had implemented 3SKey in six Latin American countries as well as Spain, Portugal, UK, France and Belgium, for its client, Airbus. “We now have banks in 50 countries getting ready or having adopted 3SKey,” says Casterman.


The fourth pillar of the new SWIFT structure brings in what Casterman refers to as “certainty and efficiency in the supply chain”. SWIFT’s Trade Service Utility (TSU) was launched in 2007 as a matching system for trade documents (letters of credit (LCs) or open account) so banks could provide funding at various stages throughout the progress of the physical supply chain (from order to payment). As part of the TSU bank-to-bank offering, in 2009 the Bank Payment Obligation (BPO) was introduced. This is an irrevocable obligation by a buyer’s bank to pay a specified amount to a seller’s bank upon completion of an agreed deal.

Until recently, BPO rules had been limited to banks acting on behalf of corporates. These rules have now been re-written to meet the standards of the International Chamber of Commerce (ICC) and are set to be approved in April, giving it the same legal weight as a traditional LC.

ICC had offered the similar electronic Uniform Customs and Practice (eUCP) for documentary credits, which was an attempt at de-materialising documents by scanning them, but this was never used. BPO is a fully-fledged electronic document capable of fitting into an automated environment.

The ICC BPO moves SWIFT firmly into the corporate-to-corporate space, adding another option next to the LC, the demand guarantee, credit insurance and so on. Casterman, who sits on the executive committee of the ICC Banking Commission, co-chairing the BPO project, says LCs payments terms are linked to UCP 600 rules that govern the way banks exchange documents and data when executing LC requests from corporates. “The BPO is the same; it is a payment term implemented under the Unified Rules for Bank Payment Obligation (URBPO) for banks intermediating those transactions.”

ICC is the legal weight behind SWIFT’s messaging and matching technology for the BPO, although once again, corporate use of the ICC BPO does not require access to the SWIFT channel as it is brought to them via their banks (they will get a copy of the MT700, SWIFT’s message format for the LC) who will charge similar risk fees for its use.

Case study

BPO in action: BP Chemicals

BP Chemicals was one of the first corporates to use the BPO, adopting it in Q1 2012 and working with its Oman-based client, Octal and banking partner, Standard Chartered.

As one of the corporate representatives on the BPO workgroup, David Vermylen, Global Credit Manager at BP Chemicals, has been involved with its progress for some 18 months. This has given him an up close and personal view of what it is capable of. “When I started to analyse what a BPO was and what the TSU was doing in the context of a BPO, I started to realise that there were a number of benefits for the way we do business at BP Chemicals.”

The fact that it is electronic marks a “giant step” away from traditional paper-based transacting and in practical terms means messaging is almost instantaneous. Indeed, once it has been established and there has been a successful matching of a baseline in a data set by SWIFT, then the BPO becomes operational. This means it can be established a lot later in the process than paper-documentation.

An LC, for example, cannot be established after shipment, at least in the way BP Chemicals is working, as it tries to avoid letters of indemnity because they reduce the depth and level of security. Firms buying from BP Chemicals on LC are required to produce documentation five to seven days before the ship sails, at which point the use of credit has already been established and the importer is already paying for it. The BPO, however, can be easily delayed until the moment the bill of lading is secured from the freight forwarder, giving an instant five- to seven-day advantage. It is even possible to establish the BPO the moment the goods are discharged at the port of arrival, says Vermylen. In this case, the BPO becomes more like a documents-against-payment arrangement, in which the exporter instructs the presenting bank to hand over shipping and title documents to the importer only when the importer pays in full.

Although it has very experienced staff dealing with LCs on a daily basis, there are other efficiency benefits for BP Chemicals that can be derived from the BPO. “All that transacting, manual handling and pushing around of documents will be reduced significantly, taking the sting out of selling in a LC-based secured way,” notes Vermylen. “What often creates pressure is being able to present documents on time. Once you have the BPO, the documentation you need to produce is not part of the critical path to obtain secured payment anymore, relating only to certifications for the shipment, concerning its origin or quality, for example, rather than being payment-related.”

BP Chemicals’ only experience with the BPO to date is with its customer, Oman-based PET manufacturer, Octal, via Standard Chartered. “Not all banks are at the same level as Standard Chartered, which has been a significant hurdle to doing more transactions,” says Vermylen. “Another hurdle is that not many corporates understand what the BPO could mean for how they operate.” There is, he notes, a lack of knowledge and a degree of “uneasiness” about the newness of the BPO. Even some product managers and sales managers in banks “don’t yet really know whether to place it as an open account or LC product”.

The arrival in April 2013 of the ICC’s Unified Rules for BPO will be the “absolute confirmation that the BPO is a serious product”, states Vermylen. It will certainly replace some LCs, but he feels it has the potential “to do so much more”. Even if it is used simply as a tool to manage the timing of payments, he feels it “opens up as a conduit for all kinds of working capital optimisation”. For now though, he comments that “we’re happy with it and it does what it should do”.

Future plans

There are no additional products under development by SWIFT for the corporate community. “We are contemplating ideas such as how to extend 3SKey to mobile devices but there is no product development for the time being on the SWIFT side,” Casterman confirms. Although banks still play the major role in facilitating the SWIFT-for-corporates relationship, the task of SWIFT now is seen by him as one of “de-mystifying” and demonstrating the inter-connectivity of its newly aligned and integrated portfolio of corporate solutions. To this end, SWIFT is set to release in 2Q13 a new set of certifications for consultants on the supply chain side.

There is willingness for most SWIFT participants to have “implementations that are as light as possible”, comments Casterman. This understanding comes direct from corporate feedback and has driven the emergence of Alliance Lite 2, monthly fees and the service bureau movement. “They don’t want to become technical experts in SWIFT connectivity; they just want something that allows them to access it without the need for a team of engineers to understand how it works.”

SWIFT’s aim is to become a multi-business connectivity service for trade finance. “In the course of this year we will see the trade vendors extend their applications from cash to trade and the data elements and transactional flows will be much more inter-connected,” comments Casterman. At least one multi-bank payments vendor will announce the extension of its application into the supply-chain finance realm, specifically the BPO, allowing a single software application for cash and trade.

SWIFT has been angling for corporate inclusion for a long time. It is now taking steps to offer a set of products that it feels will meet the needs of treasurers without tying them into a long, complex and expensive relationship that clearly few of them want. Perhaps 2013 is the year that SWIFT for corporates finally comes of age.

Bank talk

A brace of global institutions talk about their relationship with SWIFT.

Société Générale

Société Générale (SocGen) has had a long and productive relationship with SWIFT, says Alain Grugé, Head of Payments and Cash Management for the bank’s Global Transaction Banking unit. Although cash management is one of the primary uses of SWIFT by SocGen’s clients, Grugé explains that the bank also works with it on trade services, securities and card payments. “It is an increasingly global relationship and this is because SWIFT has been able to quite quickly move from its highly specific bank knowledge to include the accommodation of corporate needs.”

SocGen is part of SWIFT’s Corporate Advisory Group (CAG): the only French bank representative.

Grugé says, from a cash management perspective, that SWIFT provides very practical action with a “good adaptation of its products to the needs of corporates”. He cites the move to make the 3SKey digital signing tool available to a wider audience, and the ongoing workshops for the development of eBAM as examples of this consideration for the end-user.

Regarding eBAM, Grugé believes that the need for it is clearly evident and that many large corporates are anticipating its deployment. But SocGen is cautiously allowing its own clients to discover it at their own pace because, as Grugé notes, often they do not at first glance see the level of internal re-organisation that it can generate. So, whilst he feels eBAM is an important tool, he says “let’s take one step at a time”.

SocGen has never felt it is left to its own devices with SWIFT’s products. “We have constant dialogue with them,” states Lajeunesse. The bank has even established a working group on trade in France. Dialogue is similarly open on the cash management side, says Grugé.

SocGen readily undertakes development work with SWIFT and is currently looking to establish a pilot programme for a new 3SKey webstore. This, explains Grugé, will enable corporates to order the product as a standalone offering on the bank’s website, with direct provision by SWIFT. The end of 4Q13 should see this project in action, he says, noting too that the SWIFTRef solution is to be offered by SWIFT to the corporate community with the support of SocGen, but at a later date.

Bank of America Merrill Lynch

“SWIFT has really improved in regards to getting feedback from its member banks,” says Tom Durkin, Managing Director, Global Head of Integrated Channels at Bank of America Merrill Lynch (BofA Merrill). A bank such as this has a number of significant corporate clients but it needs to gather viewpoints from all corporate clients and convey them to SWIFT. In “opening up the road-map discussions”, he feels SWIFT is in a position where it now reaches out to the banks to ask for feedback.

SWIFT is naturally a sponsor of a number of key standards forums and BofA Merrill actively participates in these, presenting on different topics and leading workgroups. Durkin feels this is a good way of getting more “community-based” involvement. The SWIFT space is not just about banks and corporates; there are also technology-providers that have a vested interest; the standards forums provide an “excellent avenue for utilising better feedback” for SWIFT.

Amongst the corporate community, the early adopters – typically large MNCs such as GE and Microsoft – have maintained their push for standards. But amongst the “commercial market” membership, catering to a wider cross-section of businesses, Durkin notes greater interest in “ISO 20022, XML and harmonising their bank interfaces”. For smaller businesses, he sees SWIFT’s commitment come to life in the form of its Alliance Lite2 lower-cost cloud-based model. He also views the SWIFTRef data offering as further demonstration that SWIFT is responding to corporate needs.

The closer integration of cash management and trade services, under the guidance of Casterman is a positive move, Durkin believes. The conversation between cash and trade “intersects at multiple points now” and with the desire to draw out certain “product synergies”, this connection has driven the way BofA Merrill has structured its GTS group, incorporating trade within its channel product offering.

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