Cash & Liquidity ManagementPaymentsSWIFTFuture-proofing your Messaging Infrastructure

Future-proofing your Messaging Infrastructure

If carnival psychics could accurately predict market dynamics and the technologies necessary to capitalise on new opportunities, planning for the future would rapidly become obsolete. But given the questionable record of crystal balls and tarot cards, technologies must be scalable and flexible enough to accommodate changing business needs.

This is particularly true for corporate treasuries, where justifying investment in new technologies is particularly arduous; thus any new technology must have a proven return on investment.

In the cash management space, the desire for greater efficiency, flexibility and control has fuelled corporate appetite for inter-operable messaging standards. SWIFTNet, primarily an inter-bank utility, has become a hot topic among the world’s leading corporates because of the resilience of the network and potential of the technologies under development that enable corporates to access it.

But why is it suddenly timely for corporate adoption of what has traditionally been regarded as a banking network? How are corporates restructuring their cash management strategies and operations to fully leverage the SWIFTNet network?

A New Era in Multi-banking

Although rationalisation of banking relationships is a long-term trend, the current regulatory climate is injecting renewed urgency to corporates’ desire to make cross-border payments more efficiently and at lower cost. In particular, Sarbanes-Oxley requirements for lower operational risk and greater accountability are prompting corporates to consider more efficient networks for communicating payment and cash flow information. And as banks face the legal, tax and infrastructure challenges of SEPA, the task for corporates is to ensure they can adapt their treasury processes to a new environment in which fewer specialist providers may emerge.

Traditionally, banks have developed their payment services to reflect their corporate customers’ needs, resulting in a host of disparate payment formats and file transfer methods. Consequently, large, multi-national corporates maintain a number of disparate systems and undergo time and cost-intensive upgrades to communicate effectively with multiple banking providers across different regions.

Corporate frustration at having to deal with multiple proprietary banking networks, coupled with the desire to drive message volumes up in order to drive costs down, prompted SWIFT to alter its membership rules in 2001 to enable corporates to benefit from its network. Although the MA-CUG concept has been around for a number of years, it is only now that SWIFTNet has been completely rolled out that banks and corporates are exploring its full potential.

With corporates pushing for even greater control over their banking relationships and communication networks, the MA-CUG is particularly appealing because it gives them more negotiating power. By replacing proprietary bank software with a single universal mechanism, it forces technology to take a back seat in the bank selection process. For example, corporates that are looking to diversify banking relationships with small regional players now have the ability to communicate with these banks over SWIFTNet, rather than across a host of different networks and applications.

The Snowball Effect

Not all banks have been enthusiastic about corporate migration to SWIFTNet, especially the global banks that already had messaging infrastructures in place. But as more of their large corporate clients gravitate towards SWIFTNet, even the global banks admit that investment in proprietary solutions is only rarely justified, with SWIFTNet increasingly seen as an attractive option.

Most banks now accept that communication standardisation across the industry will dramatically improve STP, reduce operational costs and risk and ultimately mean both corporates and banks need to invest much less on their financial messaging platforms. And in a regulatory environment where the emphasis is on risk reduction, efficiency and accountability, there has never before been such a push for cross-industry standardisation.

Although corporate use of SWIFTNet has the potential to remove proprietary bank software from the treasurer’s desktop, establishing a MA-CUG is not a cost- or technology-free task. Because each banking relationship requires its own MA-CUG initiated by a SWIFT member bank, it may appear a laborious and costly arrangement. But it is surprisingly easy to add new MA-CUGs once a corporate is up and running on SWIFTNet. In fact, some Trax customers have a dozen or more MA-CUGs; setting up an additional MA-CUG in little more than 24 hours.

And once a SWIFTNet interface is installed, the corporate can leverage the SWIFTNet network to perform a wide range of transactions including payment initiation (local, cross-border, financial and commercial), confirmations, securities trading and to send balance and transaction information across a secure network. As such corporates are already abandoning a host of different security protocols to communicate with their banks instead of over SWIFTNet’s secure Internet protocol-based network – thereby lowering system implementation, support and maintenance costs and enhancing back office efficiencies.

Yet initial costs, messaging fees and maintenance expenses should not be dismissed. It is difficult for most corporates, particularly the smaller players, to convince management that MA-CUGs are worth the initial outlay. Benefits tend to be longer term and particularly in the corporate treasury – frequently a non-profit generating entity these days – enhanced STP and operational efficiencies are not necessarily enough to make the business case for SWIFTNet investment.

It is the experience of many existing corporate users that their SWIFTNet message traffic increases much faster than anticipated, thereby accelerating ROI. Moreover, the use of a single infrastructure for communication with banking partners not only makes centralised transaction processing (e.g. through implementing payment factories) much easier, it also enhances the ability of corporates to switch between banks according to the quality of their service offerings. These benefits are already proving attractive to high-volume corporates, while smaller firms are looking to service bureaus, which offer the ability to leverage the SWIFTNet network without having to adopt the full SWIFTNet infrastructure.

Investment in Value-Added Services

These afore-mentioned existing benefits notwithstanding, most commentators agree that it is necessary for corporates and their providers to get creative with how they leverage SWIFTNet if they are to maximise return on investment. For example, MA-CUGs are already being used in the securities business to connect fund managers, but this is by no means the limit to their use.

Another innovative development is SWIFT’s FileAct solution, which effectively transmits any message file – regardless of format or size – between banks and corporates. This can be used to send a file to a local correspondent bank, for example, for clearing through the local automated clearing house, thus driving down bulk payment processing and infrastructure costs.

While many banks see SWIFTNet as levelling the playing field with global network banks, there is only a limited window of opportunity and banks are already under pressure to continually upgrade their service offering to corporates. SWIFT’s new exceptions and investigations processing which helps banks identify payment processing errors in the pre- and post-trade arenas is one example of the banks leveraging the SWIFTNet platform. A number are already looking at building on real-time cash reporting capabilities offered by SWIFTNet to improve their ability to deal with payment queries with immediate effect.

Lower operational risk, and greater efficiencies and STP are just a few of the benefits. As SWIFT continues to enhance and develop new solutions, those corporates that have the SWIFTNet interface in place stand to gain early adopter advantage.

The Future is Clear

As corporates continue to look for new ways to improve and realise efficiency in their treasury operations and SWIFT perfects the business case for corporate use of the network, there is a world of opportunity for forward-thinking treasurers.

But banks and corporates need to change how they work to fully capitalise on the benefits of SWIFTNet. Corporates need a flexible IT infrastructure that enables them to take advantage of new solutions that maximise current SWIFTNet applications and can accommodate future developments and enhancements. For banks, the challenge is in constantly finding new ways to leverage the SWIFT network. Corporates and banks need to work together closely to support efficient cash flow information and infrastructures that can adapt to changing business needs. Rules-based platforms extend this necessary scalability to ensure corporates can quickly take advantage of new SWIFTNet-based applications.

Future-proofing the treasury’s communications architecture now will ensure today’s leading corporates fully leverage the messaging technologies and new services being developed by their banking partners, in the present and going forward.

Comments are closed.

Subscribe to get your daily business insights

Whitepapers & Resources

2021 Transaction Banking Services Survey
Banking

2021 Transaction Banking Services Survey

2y
CGI Transaction Banking Survey 2020

CGI Transaction Banking Survey 2020

4y
TIS Sanction Screening Survey Report
Payments

TIS Sanction Screening Survey Report

5y
Enhancing your strategic position: Digitalization in Treasury
Payments

Enhancing your strategic position: Digitalization in Treasury

5y
Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation

5y