Opening Up - SWIFT Corporate Access
Corporates have long wanted to be able to use the same interface and standards with each bank they deal with rather than use individual banks’ proprietary systems. This desire by corporates to avoid proprietary technology has intensified in recent years, as many companies have spent sizeable sums updating their enterprise resource planning (ERP) or treasury management systems (TMS).
Corporates have deployed increasingly sophisticated TMS solutions, which allow them to settle positions with their subsidiaries and effectively operate an in-house bank. And, having invested large sums of money in treasury technology, corporates want to utilize and leverage their investments as much as possible. Instead, they find that they have to integrate each bank’s own systems into their software.
This integration is relatively easy to achieve from a technology perspective, however, it often comes at the expense of a corporate’s chosen interface. The look and feel of their system may need to change. And, to make matters worse, each bank may work to different standards and use different file formats, message types or reconciliation information.
Consequently, corporates may end up with multiple interfaces and processes in order to perform essentially the same type of functions with their different banking providers. To some extent, the situation negates the benefits of corporates making such substantial investments in their own ERP or TMS systems. At the very least, it is incredibly frustrating.
Finding a Solution
One of the main reasons why banks and corporates have been unable to resolve the issues surrounding common standards is that the two groups inevitably have different priorities. The focus for the past decade – among banks and corporates – has been straight through processing (STP). But for banks, STP has been about achieving a clean payment transaction. For corporates, STP is really a much broader question of streamlining payments and integrating that with supply chain and operational efficiency.
Banks should focus on payments from their clients’ perspective as much as possible. We see this added-value element not as just making the right payments at the right time and in the right way but in the amount of information that is associated with that payment. The real added value is freeing up clients’ time through automation of the daily grind of payments processing.
The role of corporate treasury has expanded in recent years from the traditional function of protecting and optimizing the current and future financial assets of a company. Now, treasurers are also required to handle strategic business issues in addition to continuing to manage the day-to-day operations of the company. Consequently, it is essential that banks create time to allow treasurers to have greater opportunities to focus on decisions around risk management, foreign exchange or any of the other important treasury functions.
To that end, banks must act as a consultancy to help clients achieve process efficiency and STP. We know that we need to talk the clients’ language – a language focused on business targets – rather than a bank language focused on technology standards such as XML. It is all very well to talk about the advances such standards bring but what is important is how they will change business processes.
Putting Corporates in Control
Almost as important in explaining the failure of establishing common standards has been the reluctance of many banks to embrace the concept. To be frank, many banks have feared that common standards and interoperability would increase the ability of their clients to leave them easily. The pervading mindset at many leading cash and treasury management banks was that by lowering the barriers to clients leaving them, competition would be increased and the bottom line would be hit.
Fortunately, a handful of banks have embraced the idea that corporates should control how they interact with their banks. If customers are only being retained because a bank is making it hard to leave through its use of software, then that bank is doing something wrong. It is far better to focus on clients’ needs and retain them by fulfilling those needs.
Over the past few years, there have been increasing efforts by banks to establish common standards with bodies such as transaction workflow innovation standards team (TWIST) to seek open architecture solutions. Since 2002, for example, Barclays has offered a member administered closed user group (MA-CUG) service using bank network provider SWIFT’s network. MA-CUGs allow corporates to connect to the SWIFT network for domestic and international payments, queries and confirmations.
The goal of these initiatives has been the development of data and processing standards to facilitate STP in the corporate. This has been driven by the real need to automate processes and improve connectivity. MA-CUGs have brought huge processing efficiencies to the companies that use them but they have been limited by the closed model they employ. Now, the latest model is hoping to widen corporate access to SWIFT.
In the fourth quarter of 2006, SWIFT piloted the standard corporate environment (SCORE) model, which offers enhanced corporate-to-bank access and has increased the number of corporates now using SWIFT. SCORE allows companies to exchange messages and files with all of their bank providers through a single connection to SWIFT rather than through multiple MA-CUGs, as was previously the case.
SCORE is certainly a more streamlined way for many corporate clients to communicate with all of their banks at once. That is a very significant development for process efficiency because of the greater scope for automation and therefore it is most welcome. But what is perhaps most exciting about SCORE, is the potential increased richness of information that the model facilitates. It has numerous potential benefits for corporates. For example, it could potentially improve liquidity management by providing a greater visibility of payment data.
New Competition, New Opportunities
In the SCORE model, SWIFT is a hub with the banks acting as spokes. Payment instructions from a company’s subsidiaries come through its ERP or TMS before being aggregated and directly fed via the gateway to SWIFTNet and SWIFTNet itself, where they are routed to the bank account of the corporates’ choice. Crucially, the corporate has no direct connection to the bank, as required with the MA-CUG model.
SCORE undoubtedly means that the ‘switchability’ of clients will be increased. But it will not mean that an intimate relationship with clients will be lost. After all, SWIFT is only one payment type: local automated clearing houses (ACHs) are important and in many emerging markets, paper payments remain the dominant form. In addition, a corporate will still require information for reporting and regulatory reasons.
SCORE and the broader use of SWIFTNet by corporates is in our clients’ interests and therefore we are encouraging corporates to use it where it makes sense. Payments are becoming a commodity and we have long recognized that in a commoditized business, it is the extras that make the difference: this business is about much more than payments – it’s about the information that goes with those payments.
Clients’ needs must ultimately be met if a bank is to remain successful. Customers have long wanted an open architecture in order to facilitate STP and greater efficiency and that open architecture has now arrived in an easily accessible form. Everyone in the industry has to realize that there is no point in pushing water uphill: if banks want to retain clients in this environment they need to embrace SWIFT corporate access and the potential change in their business relationship as a result.