Since January 2007, corporates have been able to subscribe to SWIFT’s Standardized CORporate Environment (SCORE). In contrast to the member-administrated closed user group (MA-CUG), SCORE is a service administered by SWIFT in which corporates can communicate with any other financial institution also registered to the service. One drawback at the moment, however, is that exchange between corporate entities is currently not possible. SCORE does not simply provide a set of standardized messages, but also offers users message and service implementation guides that both corporates and banks can use.
For corporate treasurers, this initiative is a very good opportunity to benefit from a simplified set up, thanks to the standardization of SWIFT messages. Treasurers can now focus on business and organization projects to improve the bottomline, rather than losing sleep over technical aspects of their messaging services, such as having several proprietary connectivity channels to deal with or several interfaces to coordinate.
Today, it is not only the traditional FIN messaging service that is available – there are also complementary messaging services targeted to cover quite specific flows. These are SWIFTNet FileAct, SWIFTNet InterAct and SWIFTNet Browse.
SWIFTNet FileAct has proven very useful to the corporate user. It can replace obsolete or heterogeneous protocols currently used for interbank exchanges. This is interesting for both banks and corporates as they can now discard the expensive proprietary solutions that have dominated and restricted them for so long.
FileAct assures the exchange of files in a reliable and secure manner. The service is mainly used for file transfers, such as mass payments (e.g. supplier payments and salary payments) and reporting (e.g. account statements in local format, invoices, etc.) Within FileAct a lot of additional security features are available, including delivery notification (provides the sender with certainty that a file has been duly received by the receiver) and non-repudiation, which allows SWIFT to arbitrate in case of a dispute (for example, whether or not a specific file has been sent and/or received).
SWIFTNet InterAct and SWIFTNet Browse are raising fewer eyebrows these days and have taken a backseat somewhat. However, with the release of new XML-based standards covering new functionalities, this is likely to change.
Beyond its messaging services, SWIFT also provides several other transaction solutions. One example for corporates is SWIFTNet Accord. Accord is a matching service for treasury deal confirmations. It centralises, stores and matches the confirmations between both parties. Thanks to this, Accord offers the chance to significantly reduce risk of manual error, omissions or fraud in relation to the handling of treasury transactions. SWIFT is therefore not only capable of certifying that each party has sent its confirmation, but also that both confirmations refer to identical terms of the deal.
Another interesting solution is the SWIFTNet Trade Services Utility (TSU). The TSU has been available since April 2007. It is a collaborative, centralised matching and workflow engine for use by the banking community, providing competitive supply chain services. It has been designed to help banks meet the supply chain challenge. The notion is that banks will individually build on the core functionality of the TSU, to offer their corporate customers competitive services that complement their existing offerings.
The TSU is a centralised data matching and work flow engine. Its primary function is to compare commercial data submitted by banks and then report the results back to them. The TSU deals with transactions that correspond with underlying commercial trades between corporations. The work flow is defined by the ‘status’ or ‘states’ that a transaction can have, and the actions that are permitted in each state. A transaction may go through all the states but it is not required to do so. A transaction begins with one bank submitting a message containing a ‘baseline data set’, a term used for data elements reflecting the purchasing agreement. Later in the transaction’s life, other data sets containing invoicing and transport data elements can be submitted and then compared with the pre-defined baseline.
The financial supply chain runs in parallel with the physical supply chain; the common denominator is information. Along the way there are points at which the physical and financial supply chains intersect. These intersections are the trigger points that offer banks the opportunity to extend value-added transaction and financing services related to cash flow from the buyer’s initial order, through reconciliation and ultimately payment to the seller. The timely and accurate availability and exchange of information enables banks to deliver competitive services that will help corporate customers reduce costs and optimize liquidity. This can result in significant benefits for both buyers and sellers.
Normally, a corporate will not have a specific SWIFT project, but rather include SWIFT as a piece of a larger jigsaw or project; perhaps a treasury centralization project, a payment factory project, a liquidity management project or an e-banking factory project.
For successful SWIFT implementation, it is very important to clearly define the scope before the project starts. This is based on:
- Geography.
- Banking needs.
- Products required.
- Services that will be of most benefit.
A corporate has to have a clear picture of the different transaction flows (payments, foreign exchange, loans, interest rates, securities and reporting), its volumes, how the current solution works and how SWIFT can replace the current solution. Then the corporate has to decide which of the available SWIFT services they need to implement:
- FIN service – what kind of messages?
- FileAct file transfer?
- SWIFTNet Accord reconciliation service?
- Trade Service Utility matching service?
After defining the scope and required services, a corporate can decide which of the three options, either alone or as a combination, are best suited to its needs.
Treasury counterparty
Since 1997 corporates have been able to become a treasury counterparty (TRCO) and can now exchange any FIN message within category three (confirmations of exchange and interest rate transactions) or category 6 (precious metals), with other SWIFT users.
MA-CUG
MA-CUG was launched in 2001. In this scheme, the bank announces to SWIFT its wish to offer certain services to its corporate customers and defines FIN messages that can be exchanged and/or FileAct services that can be used. It is up to the bank what kind of services they would like to offer to their corporate customers.
SCORE
SCORE, as previously mentioned, is the latest option. It is administered by SWIFT and allows corporates to communicate with any financial institution registered to the service. Authorized exchanges within SCORE are defined by the participant bankers in the corporate access working group, in cooperation with corporate users. Only corporates listed in a Financial Action Task Force (FATF) country can subscribe to SCORE. To connect to SWIFT, corporates still have two options:
- A direct connection.
- An indirect connection through a member-concentrator model offered by some banks, or a third party service bureau.
There is no single method that is better for corporate participants. There are a number of factors that must be taken into consideration, such as the number of current messages and expected future messaging volumes. The choice is also driven by the level of end-to-end control and resilience a corporate wants to have over its financial operations.
It also depends on the availability of service providers with expertise in its core markets. Cost is also a driving factor as each approach will create different overheads and charges. The choice is ultimately a question of economics and which method it feels best fits its corporate operating model.
Direct access model
The direct model involves using a SWIFT client, a SWIFT gateway and a host adaptor to link in-house systems to SWIFTNet. This enables the corporate to send payment files in the standard message formats and obtain bank account and position reporting. This is particularly useful for corporates using multiple banks in a number of different countries to channel high payment volumes and receive data from their banks.
Some corporates may want to manage the infrastructure themselves and will have the resources to allocate to re-formatting data and anti-money laundering filtering.
Ultimately, the choice is based on a corporate philosophy and how it wants to manage its payments, cash management and treasury infrastructure. A direct access connection is an effective vehicle to connect to SWIFTNet services if the corporate’s financial complexity approaches, or is equivalent to, that of a small financial institution.
This approach also allows banks to offer corporate treasurers a full range of confirmation services, enabling corporates to automate payments processing, improve STP and reduce risk.
Service bureau approach
As an alternative to a corporate implementing and maintaining a SWIFT interface in-house, corporates can outsource this activity to a SWIFT service bureau. With this approach, a corporate buys a service from a SWIFT-approved bureau, and the bureau installs a single link to the corporate and to each bank it wants to use.
The service bureau approach removes the need to manage network and connectivity, but enables the corporate to meet its messaging needs and take advantage of SWIFTNet services. It can provide all of the functionality and connectivity corporates would enjoy with an in-house solution, but without the upfront or ongoing operation costs. Because of these advantages, corporates are increasingly choosing the service bureau approach. Even very large corporates have realized that managing SWIFT connectivity by themselves is costly and that the outsourcing of the SWIFT gateway will help them to make significant savings.
SWIFT itself expects 75% of multinational corporations that choose direct access to SWIFT will use the outsourced, service bureau option and only 25%, will continue to choose to do it themselves.