SWIFT MA-CUGs Near Critical Mass
At SMA Software & Consulting, there is a firm belief that we are getting close to critical mass for SWIFT corporate connectivity. The lead is still being taken in Europe, particularly France, but the UK, Irish and Nordic banks seem to be beginning to come around to the idea of the member-administered closed-user group (MA-CUG). And not before time – SWIFT has been promoting the concept since 2001, and the benefits for both sides are now being realised.
“The market is saying that customers want their banks to develop IP technologies so that the customers’ cash management and treasury services can fit with the newer financial supply chain IT architectures used by their business networks,” observes Michael King, who heads the UK region for SWIFT.
It has taken an age to close the circle of communication: SWIFT talking to the banks about talking to the corporates, but unable to directly contact the corporates themselves due to their governance. Corporates become aware of the concept of SWIFT connectivity through various channels, but they need to discover the banks that are promoting the MA-CUG. A bank connecting their customers through a SWIFT MA-CUG does indeed open the corporate’s options, making it easier for the company to switch banks. “For banks that prefer a free client to a captive one, it is one more reason to strive for excellence,” as one French head of cash management recently said.
When it comes down to getting a corporate to join a MA-CUG, connectivity to SWIFT is still one of the biggest questions. Both banks and corporates are aware of the bureau model; in fact many banks (and brokers) are attempting to emulate it by offering connectivity via their SWIFT connection. A good option, but of course this does tie in the corporate, and more often than not, this can be precisely what the customer does not want; nor should it be in the bank’s best interest to offer a technology based solution, rather than a business one.
One major UK high street clearer, who was an early adopter of the MA-CUG, with clients live since 2003, believes that “banks can no longer rely on sticky proprietary connections as corporates wish to take advantage of open standards and open connectivity solutions to improve their own back office efficiencies.”
As a SWIFT Business Partner, SMA always proposes direct as well as bureau connectivity options to prospective new SWIFT customers. Over the past 10 years, we have performed over 300 SWIFT direct implementations, several for corporate customers. New connections to SWIFT dwindled through Y2K, and potential new customers also stalled somewhat while the X.25 migration (SWIFTNet) was taking place. More recently, we find ourselves connecting around 10-15 new customers to SWIFT each year, and half of our new connections in 2005 have connected through the bureau. The number of new banks connecting to SWIFT is in decline, so these new connections have been fund managers, brokers, and the like, but moving forward, it is SMA’s view that the majority of new SWIFT connections will be corporates.
A few of our long term customers who have direct connections are also making the switch from direct to bureau, and these are not all small customers; one of our recent bureau customers process around 5,000 messages a day. As a concession to those institutions that cannot make their minds up, we are happy to connect new customers via the bureau with a migration to direct option in the contract.
A popular connectivity question asked of SMA by the corporate treasurers are: “How many transactions do I need to send to justify having a direct [rather than bureau] connection?” There is no definitive answer. A bureau will typically target the small to medium users, but there is no magic cut-off point where a direct connection becomes more worthwhile. The up-front costs are typically higher with a direct connection, but we find that the direct versus bureau decision is more often one of company philosophy and belief in outsourcing. Sure, it comes down to cost at the end of the day, but only if you want to manage the infrastructure yourself, and have the resource and time to spend on all the peripherals to the connection, such as re-formatting of data, resilience and AML filtering.
There are several other reasons people go bureau rather than direct, and data translation is one of the more significant. Automated payment processing is the goal for the corporate and the bank, so if the corporate can forward proprietary data to a bureau provider who will translate it to the current SWIFT standards (FIN), or convert it to the bank’s required file format (FileAct), before sending it from the corporate’s BIC to the member bank, then we are halfway there. Translate the MT300 confirmations and MT940 statements from the bank back into the corporate’s proprietary format, and the goal is achieved. This is a very simplistic example, and can reasonably easily be implemented using middleware such as A4SWIFT, the Microsoft Biztalk SWIFT connector. For more complex situations, it is possible to use products such as the Trax Corporate SWIFT Station either as a standard bureau offering, or to implement a bespoke workflow model hosted at a bureau. As well as assisting with the SWIFT solutions available through FIN & FileAct, products like Trax can also open the XML window for other key solutions such as real time cash reporting.
Bureaux will not be offering cash and treasury management, forex, or money market deals. Conversely, it is arguable that banks should not offer SWIFT connectivity, data mapping, AML filtering, or several levels of resilience depending on the business. There are two million corporates in Europe, and the players are standing by to help. It can be complex to integrate treasury management systems or to enable XML technologies, but SWIFT is certainly ready to go.
Once again, there is a focus on corporate connectivity to SWIFT this year at Sibos in Copenhagen. Several sessions are dedicated to corporates; SWIFT will be illustrating how corporates and banks leverage SWIFTNet beyond traditional risk and liquidity management, and Nokia join banks and Oracle in the regulatory costs versus operational efficiency debate. BNP Paribas and partners will be hosting the first Sibos Corporate forum on Wednesday and Thursday in Copenhagen, bringing more corporates to the world’s premier financial services event, and hopefully encouraging them to connect to SWIFT whichever way suits them. Critical mass will be achieved.