SWIFTnet MA-CUGs: A Growing Pathway To Bank Services

Centralization of treasury and commercial flows is recognised best practice for companies looking to make best use of their group working capital. While working with one bank in each region may be the ideal, multi-banking is often the reality, particularly where a company is centralising accounts payable and receivables processing (AP/AR) for multiple countries. Efficient one-to-many connectivity quickly becomes important. One route to consider is the Member Administered Closed User Group (MA-CUG) via SWIFTNet. It is important for corporate treasury and AP/AR departments to understand the scope of services available through SWIFTNet in setting future strategies.

Corporate Access to New SWIFT Capabilities

Corporate participation through SWIFT members is not new. Over 7,000 financial institution end points (over 6,000 of them at banks) can be reached through SWIFTNet using common connectivity and security. Limited corporate access was first introduced in 1997 for corporate treasury counterparty activity.

Today over 40 banks have launched MA-CUG’s, providing access to multiple locations. Several companies are already implemented or being implemented and many more have approached their banks to discuss MA-CUG access.

Closed User Groups

Bank users of the traditional SWIFT FIN messages (like the MT103 or MT940) form the oldest and largest user group in SWIFT. There are many other user groups however. Several market infrastructures, cash or securities clearing systems such as EBA Step 2, are actually closed user groups using SWIFT.

Unlike the FIN ‘bank to bank user group,’ participants in the new MA-CUG capability can only communicate with the member (financial institution) that administers the user group. They will not be able to communicate with each other or ‘across’ user groups- thus the name ‘closed.’

To become ‘enabled’ in an MA-CUG a company must first establish connectivity with the SWIFT network which includes purchasing the proper interface hardware and software and agreeing to the rules of governance of SWIFT. Once a company has installed the interface and signed the SWIFT agreements, they can join several banks’ closed user groups through application to each bank. There is usually an additional contract with the bank offering the MA-CUG.

The service or member administrator sets the additional rules and governance policies associated with their MA-CUG including the mode of billing (based on administrator or participant), the type of messages or network services that will be allowed, etc.

New Capabilities

SWIFT’s new capabilities include:

• An IP-based network leveraging the latest technology. Migration from the X.25 network should be completed by year end and Public Key Infrastructure (PKI) will be phased in, replacing ‘physical’ network security, in 2006-2007.
• New services providing file delivery in any format (FileAct), real time XML (Extensible Markup Language) messaging (InterAct) and connection between web applications (Browse). Non-repudiation and message delivery notification can be added as options.
• New XML messages that can be used either within the SWIFT network or independently of it. While the syntax of FIN messages is already validated there have been requests to validate the new SWIFT XML messages as well. This would add further value to using SWIFTNet.

Value Proposition

Three principles are clear as the banking and corporate communities develop their value propositions for using SWIFTNet:

1. 1. It should be positioned as another channel through which customers can directly access the bank’s systems from theirs. At ABN AMRO, we see a SWIFTNet MA-CUG plan as an integral aspect of our overall strategy for providing direct access from customer applications.
   2. MA-CUGs can provide this direct access to a variety of transaction footprints through a common channel. Banks can provide access to any of three sets of transactions through their MA-CUG:
      • The wire and information footprint associated traditionally with SWIFT using FIN MT messages. (Treasury)
      • The footprint associated with their file delivery platform, using the formats accepted by their file platforms and generated by ERP and workstation systems. (AP/AR)
      • Domestic payments using purely local formats

It is no surprise that the earliest adopters of MA-CUG already use SWIFT for treasury counterparty activity. Expansion to other treasury activities is an easy next step and virtually all banks offering an MA-CUG provide access, using FIN messages, to the right transaction footprint.

Although we see delivery of treasury transactions growing sooner and faster, the use of the MA-CUG for AP/AR has already started. Some companies have started using XML files for payables. Others are using an MA-CUG for local payments. We are, for example, going to pilot offering a local format, CLIEOP, in the Netherlands using FileAct.

Planning access across payment types and geographies is going to be driven by specific demands from companies.

1. 1. Common connectivity and security can benefit both the corporate and the bank. Quantifying these benefits is complex and spans implementation through maintenance of connections between companies and banks.

There have been many efforts to create common connectivity and security standards. These efforts include the AS1/2/3 family of transport protocol standards, ebms from ebXML and supply chain-specific protocols such as the RosettaNet Implementation Framework (RNIF). (RosettaNet promotes standards in the electronic components, technology and telecommunications industries.) However, each of these protocols supports different aspects of connectivity and security and no one bank might support all of them. SWIFTNet is organized, secure, reliable, resilient and well governed, addressing many of the concerns of Internet users today. It already provides connections to over 6,000 global bank end points.

Implementation Opportunity: Providing common connectivity and security eliminates what is often a pain point in the implementation process. Faster implementation enables the company to begin operations more rapidly and the bank to recognize the benefits of new business more quickly.

Maintenance Opportunity: As a company’s connections to banks multiply, the cost savings from a common interface increase. Many companies maintain regional or even local bilateral connections with their banks, often occupying a significant piece of the implementation process. Using SWIFTNet via a MA-CUG access allows the company to maintain a single interface into the banking community. These maintenance costs need to be weighed against the messaging costs for using SWIFTNet.

Messaging costs are usually assessed against either the corporate participant or the member administrator of an MA-CUG. High volume SWIFT users like ABN AMRO gain a price advantage that customers can benefit from. However, how each bank sets its fees associated with using SWIFTNet will vary.

Market Forces Influencing MA-CUG Growth

Four market forces will influence the growth of MA-CUG’s and how the strategies to use it develop.

• The number of treasury workstation, ERP and EAI customers that are able to leverage built in interfaces.
• Decreasing interface costs.
• The existing investments corporate treasury and AP/AR departments have in interfaces.
• The service footprint member banks make available through their MA-CUG.

Market Force 1: Built-In Interfaces. SWIFT is actively encouraging Treasury Workstation, ERP and EAI providers to build in links for their messages and network. The success of these efforts could enable many companies to benefit more easily from SWIFTNet.

• Treasury workstations and their hubs increasingly offer SWIFTNet interfaces, minimizing the need to purchase additional software.
• FileAct provides the flexibility to handle a variety of ERP-bank formats. Built in interfaces would allow these files to be delivered to potentially 1000’s of banks, leveraging existing ERP Internet capabilities. As clients upgrade their ERP system, often planned in a five to seven year cycle, both SWIFT XML and an easy link to SWIFTNet may become available. At least one ERP has already discussed plans for embedding SWIFT XML into their ERP interface in 2005.
• Supply chain efforts, such as RosettaNet, are increasingly looking to SWIFT XML for their banking transactions. Although the RosettaNet Payment Milestone Program, which includes such leading companies as Nokia, Intel, Cisco, National Semiconductor and Texas Instrument, does not use SWIFTNet itself, it is raising the profile of SWIFT XML. Such EAI vendors as webMethods, TIBCO and Microsoft, have already built the SWIFT XML formats into their products. Connectivity to the SWIFTNet is an easy addition.

Market Force 2: Gateway Costs. The cost of the SWIFT gateway continues to decrease, making banks within the Swift network increasingly accessible at lower costs. Costs already range from a low of 3,000 Euros for very simple connectivity to about 50,000 Euros depending upon the sophistication desired. Service bureau models are also developing that could provide access to smaller companies or banks that cannot afford direct access.

Market Force 3: Existing Investment. Companies are unlikely to change connectivity just because of the benefits SWIFTNet can offer. They have already made an investment to put systems in place, which we are supporting today. It is more likely that change will occur as the company changes other aspects of its treasury or AP/AR systems. With each change comes another opportunity to assess the benefits of using SWIFTNet.

Market Force 4: Accessible Transaction Footprint. Both the bank and the corporate need applications to translate, enrich, internally route and process the information exchanged through SWIFTNet. The footprint they make available through SWIFT is critical. Three aspects of importance are:

• Single or multibank MA-CUG model. Some banks have developed multibank offerings allowing an MA-CUG member to create transactions for initiation by another bank for customrs that want to engage a central bank to coordinate for them. At the same time, the elimination of network differences will leave many companies going directly to banks with an MA-CUG.
• Centralized or decentralized customer access. Access through the MA-CUG can either be provided directly to each bank branch or centrally for distribution throughout the bank. The first implementations of MA-CUG here used a ‘direct to each branch’ approach. We are now piloting centralized access because:
  • It provides customers with the benefit of simplicity. Customer activities such as key exchange are needed once rather then repeatedly.
  • It is more easily extensible. Future development at the bank can use the same infrastructure to build broader access to our services as we expand both transactions types and geography over time.
  • It allows consistent enrichment across transactions enabled through the MA-CUG.
  • It allows for consistency and completeness in MIS available within the bank, regardless of the external network options a company selects.
• Use of SWIFTNet might also evolve to allow delivery of non-financial messages or advices related to a payment between MA-CUG’s, leveraging the network across more of the payment related business process.

Transaction footprint, the type of value added capabilities, servicing and market knowledge will remain the significant attributes of a bank’s offering. Whilst use of SWIFTNet standardizes the bank-corporate interface each bank maintains its own points of difference around these more important attributes.

Bottom Line

Having an understanding of your bank’s strategy for expanding access through SWIFTNet and how you can leverage this within both treasury and A/P & A/R activities is an important first step in establishing a corporate MA-CUG strategy. These strategies are still developing as both banks and corporates watch the evolution of market trends.

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