Multi-bank connectivity

Published: Mar 2011

Despite advances in bank connectivity, many corporates are still connecting to their banks individually, with different data streams and different formats to contend with. At the same time, proprietary bank connections, which make it difficult for corporations to change banking relationships, are looking less attractive to treasurers, who are more conscious than ever of bank counterparty risk. As a result, treasurers are showing more interest in multi-bank connectivity solutions. This Business Briefing reviews the types of solution on offer and how to choose between them.

Bank connectivity has come a long way in the last 20 years. However, for large corporations working with a number of different banks, connecting with these banks individually is far from ideal, with data coming from different feeds and formatted differently.

The answer could be to adopt a solution which allows corporates to connect to all of their banks in a more standardised way. In recent years banks have veered away from proprietary connections and are increasingly focused on working together to develop multi-bank connectivity solutions.

So far, so good – but for corporations today, there are a number of different connectivity options available, all of which have different pros and cons.

The argument for multi-bank connectivity

Corporates are moving away from maintaining proprietary connections with each bank in favour of adopting multi-bank connectivity solutions. This is happening at all levels; the physical connection, where SWIFT is one well-publicised option; the integration of corporate ERP engines with bank systems; and the application of emerging global standards like XML ISO20022 to the actual language of the information being sent and received between a corporate and its banks.

However, current multi-bank solutions are still limited in their richness and potential. “That’s leading to a plateau which we’re fast approaching, where the current offerings in the marketplace get the larger corporates connected and give them some degree of benefit – but not a great deal beyond that,” says Marcus Treacher, Head of e-Commerce, Global Transaction Banking, HSBC. “And the methods used and the associated costs are not really applicable to smaller organisations.”

The arguments for and against multi-bank connectivity vary depending on the size of the company. Larger corporates with a turnover of more than €25 billion have the resources currently needed to get the most out of such a solution: they can afford to pay SWIFT direct-connection rental charges or ERP software charges, and they can afford to hire dedicated project teams to meet with banking providers and determine the content of the messages. For smaller organisations, on the other hand, these costs may be prohibitive.

At the other end of the spectrum, small corporates with one or two banking relationships have little to gain by investing in a multi-bank solution. But those in the middle, the mid-caps, may have enough banks to make this type of connectivity attractive – for the right price.

“Creating a connection proposition that really is ‘plug and play’ across banks is important to get the middle market and smaller corps to see value in connecting,” comments Treacher.

Connectivity options for mid-caps

So how is this shortfall being addressed? Aside from a direct connection, SWIFT offers corporates two lower cost connectivity options: service bureaus and Alliance Lite.

Launched in 2008, Alliance Lite was intended to offer corporates a lower cost means of accessing SWIFT. The service is intended for corporates with a turnover of €500m – €1 billion who are looking to exchange less than 200 messages per day. “It hasn’t really developed at the pace that SWIFT would have hoped for,” comments Treacher. “The main reason is that its front end – the browser – is fairly limited in scope: basically an internet method of sending a SWIFT message, which doesn’t give a corporate user a great deal.

“However, Alliance Lite does have an interesting complementary service; a software tool that a corporate can install with its internal systems, enabling them to connect directly to SWIFT. That has more promise, and is showing good signs of adoption, but it will take more time to settle in.”

According to Treacher, service bureaus are currently a more attractive proposition for corporates looking for low-cost access to SWIFT. Aimed at corporates with a turnover of €1 billion – €25 billion, these bureaus provide the same services as Alliance Lite, but in addition they handle the SWIFT formatting and SWIFT management which corporates would otherwise have to do. In addition, the higher volumes processed by bureaus make this option cheaper than Alliance Lite.

SWIFT connectivity options by company turnover
€25 billion + Direct connection
€1-25 billion Indirect connection (service bureau or member concentrator)
€500m – €1 billion Alliance Lite

There are a number of service bureau providers in the market offering different added value services. Some banks also act as member-concentrators, which is a similar offering to service bureaus. “It is a free market, and I think corporates do well to shop around and find providers they can work with,” says Treacher.

As a variation on the theme, ERP and TMS providers are beginning to look into developing connection solutions with both banks and SWIFT, so that their software effectively starts behaving like a bureau, with SWIFT sitting inside. “That’s very promising going forward, and if you could combine that with a cloud computing approach – ie renting applications rather than buying them outright – where the corporate just connects to their ERP provider’s systems housed in a remote datacentre, within which is a SWIFT connection,” comments Treacher. “After all, that’s what a bureau is – a data centre that someone rents out to you.”

Multi-bank connectivity beyond SWIFT

SWIFT is not the only option for corporates looking for multi-bank connectivity. Another option is to use the open internet, supported by another encryption and authentication method such as Identrust or SWIFT’s 3SKey, and to adhere to common global standards. This is where XML 20022 comes in.

“Companies that work at that level are able to get much more value out of the corporate connectivity relationship,” says Treacher. “What they are doing is streamlining their treasury process by making sure that the information that comes back from their banks, which they use to reconcile against their payments, can fit perfectly inside their ERP systems for automatic reconciliation. So it takes a huge amount of manual work away.

“They can also automate the other financial processes around assessment of risk and assessment of cash flow forecasting. As long as the information coming back from their partner banks is standardised, it’s possible to treat those banks as if they were branches of the same organisation.”

Over 700 corporates are now connected to SWIFT, but there is no means of counting the number of corporates adopting multi-bank connectivity over the open internet. However, Treacher estimates that the number of top corporates opting for this route is at least as large as the number choosing SWIFT connectivity.

Caveats to bear in mind when considering this approach are that the open internet connection doesn’t provide the level of security given by a secure network like SWIFT – nor are messages independently verified.

Competition or collaboration?

Historically, bank connectivity has been viewed by the banks as a competitive space, with banks providing corporates with proprietary connections which made it difficult for corporates to switch providers. However, largely driven by demand from corporates for a more standardised approach, in recent years this focus has changed.

The benefits for corporates are clear: in addition to enabling data to be collated more efficiently, avoiding the issue of multiple standards, multi-bank connectivity also means that it is easier to change banking relationships. While some banks may suffer from no longer locking clients in to proprietary software, many others are welcoming the opportunity of competing more effectively for business.

“Banks have started saying, what would happen if we did do things together?” says Treacher. “What we’ve found is that the more we collaborate on this basis, ironically the more potential opens up. If you are a strong bank with good credentials and high service quality, if you can tick all the boxes, then being able to pick up more of your clients’ business without barriers is good for you. On the other hand, it’s bad news for banks that are poor at what they do. Clients can transfer traffic to banks they are more comfortable with.”

Treacher also argues that with less of a focus on the mechanics of connectivity, banks will be able to improve their own service quality and focus more wholeheartedly on differentiating themselves through their offerings. “Corporates can get more attentive banking providers, can reward those that do a good job, can get out of relationships that aren’t working for them.”

A number of banks are now actively pursuing the multi-banking approach by offering access to a number of different banks via their own portals.

Case study

Pierre Fabre Laboratories

Yann Guengant

Assistant Group Treasurer

Pierre Fabre Laboratories (“Pierre Fabre”) comprises three key business areas: pharmaceutical, dermo-cosmetics and family healthcare. The company employs 9,800 staff and had a turnover in 2009 of €1.8 billion, 50% of which was derived from its international activities. Group Treasury is made up of five people who manage the treasury requirements for France, which includes both the holding company and 40 subsidiaries. The company is also present in a further 35 countries which have not historically been covered by Group Treasury.

A decentralised approach to treasury and cash management made it difficult for Pierre Fabre to apply consistent policies and procedures globally. As a result, visibility and control over cash, cash management efficiency and risk management procedures were limited. In order to standardise cash management at a global level, the decision was taken to establish a global centre for treasury and cash management. At the same time, the company was looking to leverage SWIFTNet in order to achieve standardised connectivity between Pierre Fabre’s entities and the banks – in essence, creating a virtual payment factory.

“With the existing treasury technology framework relatively fragmented, the first step was to centralise the treasury systems infrastructure to reduce the number of systems and data silos currently in operation and leverage the standardisation that SWIFT offers,” comments Yann Guengant, Assistant Group Treasurer. “Without a standardised approach to technology, it is difficult to implement and monitor global treasury policies and processes, to manage risk, to strengthen security or to leverage shared investments in technology. By rationalising and standardising our technology and communication infrastructure, our people will be able to spend time analysing, rather than inputting, information in order to make better and faster decisions.”

In order to facilitate a global approach to reporting and real-time information sharing, a third-party system was implemented which would act as the internal communication highway for connecting the various applications across the group. “Information is then consolidated within the system and consolidated files are transmitted through to HSBC,” explains Yann Guengant. “HSBC then sends the relevant messages to the appropriate banks.”

Pierre Fabre Laboratories assessed a range of different connectivity solutions for communicating with the company’s numerous banks, assessing geographic range, range of services and support for XML-based standards and protocols. “We quickly recognised that proprietary electronic banking tools would not support our requirements; not only are they inconsistent in their formats and security protocols, but we would need to replicate our systems infrastructure across each of our 60 banks,” says Yann Guengant. “Similarly, there were limitations with host-to-host systems, as they were also proprietary and not standardised; furthermore, as they would be ‘hard coded’ into our business, our ability to flex our banking relationships in the future would be compromised.

“We recognised that SWIFT was a global solution with a growing range of services available. SWIFT provides both a communication network (SWIFTNet) and acts as a standards body, so it is in a position to drive standardisation and international adoption of common formats. The security provided through SWIFTNet is best in class and provides users with significant protection through authentication, non-repudiation and message delivery guarantees.”

Once the decision had been taken to connect to SWIFTNet, the next step was to decide whether to connect directly – requiring Pierre Fabre to manage its own infrastructure – or indirectly, by outsourcing to a third party. Yann Guengant soon realised that the cost and effort required for direct connectivity would be prohibitive and the Service Buruea option was chosen. “The key to selecting the right Service Bureau was to ensure that our connection to SWIFT would be no weaker than SWIFT itself, so we were sure to check potential Service Bureaus’ availability, security, resilience, service level agreement and financial standing,” explains Yann Guengant. “Most were small software companies, which led to some concerns about the impact on our activities if their business were to fail. We decided that we would have greater leverage, as well as more confidence in business continuity, if we selected a Service Bureau supported by a bank.

“There are clearly some potential issues with this approach too – after all, we were looking for a Service Bureau to act as a processor in sending and receiving information to and from multiple banks globally, and we did not want these bank relationships to be compromised. Consequently, there needed to be some boundaries between the activities of the Service Bureau and the bank.”

The decision was taken to contract with HSBC for Service Bureau services. “The service is delivered by a third party, but the support of a banking partner with the financial standing of HSBC gave us considerable confidence in the continuity and integrity of the service. HSBC is a member of our revolving credit facility and provides cash management services in the UK, Mexico and Czech Republic, as well as in France,” says Yann Guengant.

In order to ensure the project’s success, it was essential to achieve standardisation internally, thus ensuring that there was no scope for local interpretation. Accordingly, policies and procedures were formulated carefully in order to achieve the right degree of standardisation while ensuring local buy-in.

The new infrastructure is currently undergoing final testing and the virtual payment factory is set to be rolled out later this year, starting in mainland Europe. Yann Guengant has plans to extend the company’s use of SWIFT from cash management to FX and trade finance automating the existing manual processes for FX transactions and confirmations as well as guarantees issuance and management.

Choosing a multi-bank solution

While it might seem counterintuitive, Treacher’s advice to treasurers looking for a multi-bank connectivity solution is to ignore the issue of connectivity – at least to start with. Instead, treasurers should focus on the change they are trying to achieve, such as establishing better financial visibility and awareness across the organisation, or centralising operations for greater efficiency, or empowering local treasury teams with greater autonomy to support dynamic businesses.

Once the objective has been identified, the next step is to imagine how this might be achieved in a perfect world. What information would be needed from the banks and when? When do you want to transact with your banks?

Corporates should then start exploring the topic with a group of trusted banks on an informal basis. Again, this conversation should start with the business need: how can automatic reconciliation be achieved? How can the company’s cash concentration needs be met?

“Start really high, and that will lead the conversation naturally like a waterfall down into the message standardisation, the next place to look – the XML, what services the banks can provide,” says Treacher. “Only later should you get into the details of whether or not to go with SWIFT and the technical details. In an ideal solution, the banks you choose to work with should be able to focus on your commercial needs.”

The future

Treacher sees the next couple of years as key to the development of multi-bank connectivity. As well as working more closely with competitors, the solutions on offer are set to evolve in conjunction with non-banking service providers.

“There are some exciting ideas brewing. The more you standardise the basics, the more potential you get,” comments Treacher. “It could be possible to integrate extra services such as getting really good updates on jurisdictional barriers to cash pooling. Then there are the extremities of the business cycle, both at the distribution and the sourcing end, and the whole supply chain in between. It all happens outside banking. If a banking service provider becomes ubiquitous and standardised and open, it will be possible to offer end to end services.”


HSBC’s commitment to supporting your cash management needs goes well beyond our extensive global coverage. We are continually investing in cash management products and services to deliver value-added solutions to enhance your working capital management and meet the evolving needs of our clients’ business. Through our process of listening to your needs and delivering the right solutions, we are committed to helping you make the most of your financial assets.

We operate on a global basis but also work on a local level to ensure that cross-border differences are identified and any related benefits utilised. Our teams of specialists ensure that whether you need solutions across the world, regionally or locally, we have the skills, expertise and resources to deliver them. We automate as many functions as possible, while ensuring you remain in control.

Our cash management solutions are designed to integrate with our clients’ business systems and are delivered via HSBCnet (HSBC’s global Internet banking system), HSBC Connect (HSBC’s host-to-host delivery channel) and SWIFT.

Through a unique process of combining the development of our cash management solutions and our delivery channels, HSBC brings truly innovative solutions to its clients.

For more information on our connectivity solutions visit

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