Standardisation in Mass Payments via SWIFTNet
If you ask leading employees in the treasury departments of global corporations about the key decision-making factors in their areas, then in a simplified model you will be able to identify the four categories of risk management, cost management, technology and regulatory management (national and international regulatory regiments as well as tax and legal factors). In recent years, the issues of risk management and cost-benefit analysis have been in the foreground. It is noticeable how much greater the influence of technologies has become in connection with security, automation and standardisation, as well as the compliance with and early anticipation of existing or expected regulations and developments (e.g. the single euro payments area/SEPA and Sarbanes-Oxley).
The dependency of treasury units on licensed or proprietary software solutions has greatly increased in recent years with the use of buzzwords, such as STP processing and process optimization, which are still justified today. To the same degree, this development spawned internal IT departments within companies and IT auditing departments, which were often newly set up. In addition, the level of automation that can be achieved today makes it possible to manage a treasury department with global responsibility with just a handful of qualified employees. Nevertheless, we are still a far cry from a payment system that is standardised at the worldwide or at least the European level. Today we still do not have a universal standard although attempts have been made, usually under the auspices of political bodies or industry-wide working groups (e.g. EDIFACT, ROSETTA and TWIST). Uultimately, however, the results were always limited in their usefulness due to diverging national and industry requirements in terms of the content and structure of the developed message types and formats.
International regulations and sanction lists and their implementation in national law are now receiving more attention from group treasury. This is no wonder when we bear in mind that the finance executives are personally liable for compliance (eg. under Sarbanes Oxley). A high degree of decentralisation of a company’s payment activities and the large number of processes and software products that usually results from it make the auditing process expensive and time-consuming. Consequently, compliance with these regulations in conjunction with progress along the path towards European harmonisation is generating strong motivation towards greater standardisation and centralisation of payment processes.
Perhaps, one cannot help wondering, if it was wrong as a first step to attempt, in endless debates lasting years, to look for a common metaformat for payment settlements. The first, simpler and more inevitable step in the payment chain, namely offering a standardised, fail-safe transfer channel independent of banks, was neglected. This is not surprising when we consider that the banks have invested large amounts in the ongoing development of better electronic banking products, and then used these projects to set themselves apart from their competitors. When we take a close look at it, electronic banking software, as an interface between credit and debit payment streams within the company and the bank’s settlement processes, is not a decisive customer link, but above all an integration gap. This insight applies today above all to co-operation with corporations that operate at the international level. However, it is reasonable to assume that in the course of the expected cost cuts and the outsourcing of payment settlement activities to external service providers, this development will also increasingly affect mid-sized enterprises in the coming years.
If we look at the core competencies and tasks of the various market participants (banks, companies and IT service providers), then it does not take long to see the answer. A bank’s core competency in payments is the quality of its advice and the efficiency and speed with which it performs processing and passes on information. The leading suppliers of financial accounting systems (SAP and others) formulate interfaces and STP standards in cooperation with national and international standards bodies (e.g. SWIFT and the EPC). In between them is the customer – the group treasurer – who discusses the right way to proceed with his ERP supplier and banks.
An important step towards a worldwide, uniform technological transfer channel was taken by SWIFT with its IP-controlled transfer service. For years now it has been possible to carry out worldwide, standardised settlements of group payments via the SWIFT network and the corresponding message types (FIN services). By means of a so-called MA-CUG (member administered closed user group), direct settlements between companies and banks are also possible. The settlement of mass payments under this process is costly and also technologically limited. For a few years now SWIFT has offered the FileAct service as an additional service. With FileAct a company can send and receive account information, including both international formats and local payment files – meeting national standards – within the framework of a MA-CUG. The charges for this service depend on the file size, and are therefore oriented toward the processing of large numbers of transactions. Participation in this service requires – in addition to the necessary licences, interfaces and SWIFT software – the partner bank to have the necessary capabilities, since the input and output interfaces generally have to be adapted not only on the company side, but also at the bank.
Source: SWIFTThrough the opportunity for worldwide standardisation of group transfers and mass payments across a single technological transmission channel, investments in proprietary payment products and solutions appear in a new light, both on the company side and on the bank side. They do not necessarily measure up to international regulations, future European harmonisation in payment settlements and the interests of system providers. Only those who have the foresight to make a commitment now to a technological transmission channel independent of banks will reap significant cost savings at the process and product level when the second step is taken, the exchange of standardised (European) message types and formats.