The Way Forward for SWIFT in the Corporate Space
With the recent increase in the number of corporates using MA-CUGs and the number of registered entities on them (i.e. bank branches), MA-CUGs have perhaps come to the point where they are in step with the times and when the market is more ready to accept them. While the corporates themselves have become more aware of the concept the banks have also become more prepared for MA-CUGs too.
Current demands for heightened security measures and increasing regulatory and audit pressure are in tune with the services that SWIFTNet offers. And though the concept of using a MA-CUG to link to your banks via SWIFTNet is not a new one – it is one that many corporates are becoming more and more interested in. Lasker explains: “We have seen the global banks embracing the MA-CUG concept, understanding the significant value they were bringing to their corporate customers.”
With open standards taking a long time to develop some companies are looking at what is available now – and finding that SWIFTNet fits the demands for what they require at the moment.
Lasker is adamant that the time is right for SWIFTNet to be adopted for corporate to bank connectivity. “I think in 2004 what we saw was increasing awareness in MA-CUGs and that has finally paid off in 2005. We are getting more and more corporates and banks involved. We have 92 banks that now offer access over SWIFTNet.” There are now over 70 companies using SWIFTNet to communicate with their banks and this is growing says Lasker.
He says that the role of the banks in establishing MA-CUGs within the market is very important. “The business model is that the bank is selling the service to its business clients. What we have seen is that the banks are becoming more and more proactive in doing this. What we saw in 2004 was that corporates were very interested in pushing the banks to be connected to MA-CUGs.” The change now is that the banks are being more proactive. “Quite a few banks are now trying to proactively sell the concept to their corporates,” he comments, pointing out that the number of corporates connected to MA-CUGs has almost doubled since last SIBOS in Atlanta (September 2004).
Lasker says there has been an interesting shift in the types of corporates that are considering using SWIFTNet for corporate to bank connectivity. “Until last year, SWIFTNet has always been looked at and considered by very large corporations – the GEs and the Totals of this world. But what we see now is that smaller corporates (less than $10bn turnover) are adopting the solution.”
This shift he says is partly due to the availability of service bureaus, which offer a more economically attractive way for smaller companies to connect to SWIFTNet. On the other hand he says: “the value proposition for the corporates has become clearer. There are some very significant regulatory and security drivers that are attracting some companies to use SWIFTNet.”
Lasker says that the main driver for a company to want to use SWIFTNet varies from company to company. For some he says the choice is mainly driven by efficiency improvements (e.g. working capital). For others it is regulatory pressure or the fear of fraud and the attraction of the secure network.
“The adoption of SWIFT in almost all cases comes together with an almost complete reengineering of the treasury department.” He says this is particularly the case if the company is simultaneously building a payments factory.
The setting up of the payments factories is, says Lasker, another driver towards SWIFTNet and one of the trends that he has seen in 2005. “We see corporates trying to centralise their payments function into a payments and collections factory. That is where SWIFTNet can help the corporate to link up with all its in-country banks through one channel.”
Given that SWIFT was set up and is owned by the banks – having corporates now involved – albeit indirectly through MA-CUGS – may gradually change the landscape in which SWIFT has been operating since its inception. SWIFT is rising to the challenge and has formed a corporate access group (CAG) to look at the long-term involvement of corporates in SWIFT. The CAG features 14 global banks in the corporate-to-banking space and aspirations are high, says Lasker. The increasing importance of corporates within SWIFT is shown by the fact that this year at the annual SIBOS conference there will be two days with more emphasis on the corporate to bank space. This is only the second year that there has been specific time within the conference devoted to corporates.
“In Europe the reason for the faster acceptance and adoption of MA-CUGs is not so much a cultural openness to these types of products – but rather the realities of having to deal with the Euro,” says Lasker. That he says has forced companies to look at how they do their cash management and scrutinise their bank relationships and their communications, and at the same time looking at the way they work. This scrutiny of the treasury department has lead many to reorganise and reengineer the way they operate – making it more attractive to adopt a MA-CUG connection at the same time as this reengineering.
US banks, says Lasker, are no more closed to the concept of MA-CUGs than their European counterparts. Instead he believes that an increased acceptance of the concept in the US is largely a matter of timing. Lasker says: “what we have seen is that SWIFTNet is being adopted by a US company for the European region – for example through its Belgian based treasury centre – and then the US regional treasurer has become interested in the concept.” He feels that there will be a take-up of MA-CUGS in the US but cautions that this may take some time. And he hints that there are several more US companies in the pipeline to sign up for MA-CUGs so this points to growing interest in the country.
It is too early to say just how mainstream SWIFTNet adoption by corporates will become. “At this point in time with the current offering SWIFTNet would probably not be attractive to the very small companies,” Lasker says.
“It is up to the SWIFT members (the banks) how we should go about developing corporates’ involvement in SWIFT. If the members find that their proprietary systems even for their smaller clients/corporates are costing them too much and there is value in having a co-operative approach to this issue, then it is up to the members to give us that mandate, and to exploit these avenues.” At the moment of course this is not the case with SWIFT members – the banks themselves – being keen to keep their proprietary communication platforms in operation in conjunction with their SWIFTNet access.
In terms of size he says it is difficult to put a minimum on how small a company could find benefits in MA-CUGs but that the cut off point is coming down. “It used to be that $1bn turnover per year was the cut-off point, but now we are seeing smaller companies with perhaps $0.5bn in turnover connecting to SWIFTNet. “It depends on the nature of the business, the company’s geographical spread, and level of centralization, more than on the amount of turnover a company has,” he says. “Even smaller corporates are becoming increasingly global and are having global needs – dealing with multiple banks. That is one of the main drivers: to what extent is your company engaging in multi-banking.”