Is a Single Cash Management Gateway Between Corporate Treasuries and Banks Finally in Sight?

There is a growing need for a standard communication protocol between corporate treasuries and their banks. This is most evident in the commercial payment initiatives where bodies such as RosettaNet and TWIST have engaged their community, their respective banks and their solution providers to develop common business processes to improve payment initiation and accounts receivable reconciliation.

This convergence is being facilitated by SWIFT, the industry owned cooperative supplying secure messaging services and interface software to financial institutions. SWIFT’s key role has been in organising and coordinating the responses of the financial institutions to these initiatives, ensuring where possible convergence of standards and a practical phased approach is adopted.

There is much at stake here and clearly convergence and adoption of common standards will save participants billions of dollars that are lost each year because receivables cannot be reconciled or straight through processing is not achieved. Adherence to standards could also provide savings because there are lower systems integration and switching costs, particularly for those who deal with multiple banks.

The solution principles agreed thus far by the banks are as follows:

• Develop common business process to improve payment initiation and accounts receivable automation, including reliable transfer of remittance advice or remittance advice reference through the banking chain.

For corporates wishing to use a H2H or File Transfer Protocol:

• Use open SWIFT XML standards for the message layer covering payment initiation and cash reporting, encouraging convergence with other EDI or XML payment standards and requirements.
• Use bank-approved security for the transport layer.
• Use messaging transport protocol agreed between customer and banks.

Clearly corporates would like to see interoperable security and transport layer protocols, with security being the most challenging in light of the various new regulations being placed upon the financial industry.

SWIFT potentially has that solution with its MA-CUGs (Member Administered Client User Groups). Essentially the communication protocol in use today between banks for payments, foreign exchange, trade and securities services transactions and reporting can be extended for use between banks and their corporate clients.

Indeed we have seen a noticeable increase in the number of corporate enquiries on the suitability of a MA-CUG solution as well as take up of such a protocol over the last 18 months. In France in particular, there has been quite a few sign-ups for MA-CUGs by corporate treasuries including Arcelor, France Telecom and Louis Dreyfus; there has also been a noticeable increase in usage from other large corporates including Shell, Microsoft, HP and GE, to name but a few.

Having achieved some momentum on a standard communication protocol by using a MA-CUG, corporates would like to see further improvements in the solution itself. In particular:

• Increase the types of messages that can be exchanged, in particular markets related confirmations;
• Standardise the contracts written between the banks and the corporates;
• Standardise the ways that a client set up is achieved, in particular the exchange of test keys;
• Greater transparency in pricing; and
• A more scaleable solution, particularly for the smaller companies.

In March 2005, SWIFT formed the Corporate Access Group to meet and discuss on a regular basis how a standard Communication Protocol can best be realised.

While much remains to be done, a substantial amount has already been achieved and there is a sense of optimism that progress will continue to be made. Success will, however, depend on the pace and broadness of adoption of these standards as they develop, which in turn depends on the corporates themselves demanding such standards and then adhering to them when engaging their banks in their working capital RFPs.