Cash & Liquidity ManagementPaymentsSTP & StandardsMA-CUGs: The Corporate Gateway to SWIFT

MA-CUGs: The Corporate Gateway to SWIFT

A number of articles have been written about corporate access to SWIFT using a Member Administered – Closed User Group (MA-CUG). These articles have focused mainly on the technical infrastructure of SWIFT and the benefits corporates may realize by reducing multiple front-end systems to connect to their banks.

There is, however, another important dimension of SWIFT connectivity that requires consideration: the back-office implications. This article shares lessons from the collective experiences of a number of businesses that have worked with Wachovia Bank to explore the MA-CUG offering. It also summarizes the tasks required to fully realize the benefits of SWIFT connectivity.

What Wachovia Heard

The first thing we learned was that the MA-CUG is not a solution for everyone. The MA-CUG value proposition is currently most viable for larger corporations that hold multiple bank relationships and both generate and receive a mix of transaction messages: wires, ACH, information reporting, F/X, trade finance, etc.

From our conversations with these corporations, we identified four key objectives that led them to consider the MA-CUG solution:

  • cost savings
  • operational efficiency
  • improved functionality
  • full straight-through processing (STP)

These objectives are further supported by industry studies. For example, a study entitled ‘Electronic Payments Initiatives and the Internet’ released by the Association for Financial Professionals (AFP) in late 2000 indicated that “two-thirds of the respondents … have not integrated their electronic payment and accounting systems … a situation largely unchanged from two years ago.”

Further, according to a recent Federal Reserve Bank analysis, of the nearly four billion business-to-business remittance payments sent each year, only 14 per cent are sent electronically. In related research, findings from the Electronic Payments Network (EPN) indicate that 32 per cent of electronic payments cannot be applied automatically when they reach the corporate. Clearly there is room for improvement.

The key corporate objectives are known, but important questions remain regarding how the MA-CUG helps corporates (1) reduce cost and improve operational efficiency, (2) pick-up greater functionality, and (3) improve STP.

The Bank Experience

The answer lies in the experience of the banks as they began to first adopt SWIFT. The 1970s saw the introduction of message standards within a secure, reliable network. This innovation meant that, for the first time, messages were capable of being routed automatically among banks using the SWIFT message type code. Banks (and later other financial institutions) re-tooled their major transaction processing platforms to handle these new SWIFT messages electronically at a fraction of the previous cost.

While banks realized considerable efficiency gains by moving from unstructured telex messages to highly formatted SWIFT messages, it was the reengineering of their internal systems, including construction of powerful interfaces between them and their SWIFT front-end, that provided the immense efficiency lift.

Stages of Discovery

Since 2001, when the MA-CUG became a reality, Wachovia’s experience with corporations has shown there are three main evolutionary stages that unfold in the course of the MA-CUG dialogue. Without exception, they unfold in this order:

  1. Conversation begins with the corporate’s desire to simplify their multiple front-end connections to their banks; process usually starts with wire payments.
  2. The corporate then learns how the MA-CUG can be applied across more corporate-to-bank interchanges than they realized (ACH, information reporting, F/X, trade finance, etc.).
  3. The discussion then moves to back-office interfaces which provide the opportunity to illustrate how true STP can be achieved and how SWIFT can be used as an enterprise solution.

The SWIFTNet product suite offers a broad range of capabilities that are applicable to other business units within the corporation. FileAct, for example, allows corporations to send bulk messages covering wires, ACH transmissions, trade finance (images of trade documents) and to receive statements and transaction details. Transmission of check images is another potential use of FileAct. InterAct, Browse, and TrustAct round out the remainder of the SWIFTNet product suite.

Taking an even wider perspective, the ‘single window’ concept that enables the corporate to move its open internet networks into SWIFTNet where they could benefit from the secure, reliable aspects of this private IP infrastructure. SWIFT can be leveraged to reduce connectivity costs and promote greater efficiency.

Conclusion

If the corporate is to really achieve true STP, the reality is it must re-tool its interfaces and its legacy application systems to both take in and generate SWIFTNet compatible messaging.

This cannot be done alone. It requires full integration of the financial supply chain with banks, ERP vendors, application providers, SWIFT and corporate accounting and other legacy applications. It also requires financial commitment from the corporation to implement the necessary enhancements. It is this level of investment and commitment to the back-office that will lead to total STP and a fuller realization of the efficiency objectives that corporates seek.

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