SWIFT’s decision in 2006 to introduce a standardised corporate access model, SCORE, has generated considerable interest from multinational corporates – and for good reason. Corporates seeking to squeeze margins out of their cash portfolios, achieve near real-time global visibility over cash positions, simplify international bank account management, optimise foreign currency exchange for payments and receivables, and centrally manage global liquidity now have a single access pipe for most of the necessary data. SWIFT has been the most highly integrated, efficient, and secure global financial messaging network for more than 30 years.
At a glance, this seems like deja vu. In the not-so-distant technology past, the term e-commerce emerged to describe how corporates would capitalise on the Internet. Similarly, SWIFT may be the equivalent of the Internet for electronic financial messages, and the timing couldn’t be better:
- The growth of worldwide financial transactions is twice that of worldwide gross domestic product (GDP) growth.
- Use of hedging instruments, such as derivatives by corporate investment operations, is growing at over 50% a year.
- Standards and regulations are forcing better traceability for the Sarbanes-Oxley Act (SOX) and Financial Accounting Standards Board (FASB) compliance.
- SWIFT has seen a tenfold increase in the number of corporates connected in just the past four years.
- SWIFT is seeing heavy growth in corporate treasury markets, payments and securities.
- FileAct (bulk payments) are growing 500% a year in corporate usage.
- Between 2000 and 2006, SWIFT message growth averaged over 14% a year.
- Leading corporates are joining SWIFT including Toyota, General Electric, Microsoft, Merck, Shell Group, BP, Hewlett-Packard, DuPont, Samsung Group, Chevron and Bunge.
- More than 8,000 global banks are attached to SWIFTNet.
- Corporate return on investment (ROI) for joining SWIFT ranges between 125% and 600% withan average payback period of 18 months.
Cost/Benefit for Corporates
Deferring the ‘how’ discussion for a moment, calculating whether SWIFT connectivity (regardless of the model chosen), makes sense for a corporate is fairly simple maths. Most corporates maintain several bank relationships, multitudes of international bank accounts, and pay connectivity fees for proprietary infrastructure and transaction fees to see even partial views of their global financial data. In addition, consolidation of that data into a decision-support report suite, or dashboard, is severely lacking.
In general, the more bank relationships that are maintained and the more financial messages sent and received by the corporate, the more SWIFT connectivity makes sense. Several large corporates have joined SWIFT to offset bank maintenance fees, limit the number of direct partners, and reduce labor costs associated with manual processing of statements prior to loading into core financial systems. SWIFT has further bolstered the case with new services, such as SWIFTMail (for corporate actions, proxy voting, and other secured e-mail needs), exceptions and investigations and cash reporting capabilities.
Beyond Treasury: The True ROI
While treasury hard-dollar cost offsets may be the logical starting point, the true bottled-up ROI lies in the softer benefits that increase visibility and velocity of money through the organisation. Major corporates have given these initiatives catchy names, such as ‘Lifecycle of the Dollar’ (a major software company), ‘Culture of Cash’ (a major coffee company) and ‘Cash Conversion Cycle’ (a major hardware maker). These initiatives focus on re-engineering and accelerating the flow of order-to-cash, adjusting credit limits, minimising foreign exchange (FX) transaction and translation risk, and optimising liquidity to run cash lean all along the way.
Ed Barrie, group manager in treasury at Microsoft, summarises this as follows: “If you can’t see it, you can’t measure it. If you can’t measure it, you can’t manage it. This is particularly true of cash balances and transaction activity occurring in a company’s bank accounts. Effective management of bank accounts starts with having daily visibility to the account.”
For example, US$1m un-invested and not earning any sweep interest has an approximate opportunity cost of US$1m x 0.0525 (5.25% annualised), which equals US$52.250 a year in lost interest income opportunity. If the amount was US$10m, then that multiplied by 0.0525 (5.25% annualised) equals US$525,000 a year in lost interest income opportunity.
Even more significant, are losses that occur if available cash exists but cash managers are either not aware of it, or don’t have an efficient means to move it. If cash is in one bank account but needed in another account, and the corporate ends up borrowing funds from the bank to cover the shorted account, that is an unnecessary cost. Since the current US$ borrowing rate is more than 8%, it is cheaper to fund using internal cash versus borrowing cash.
Capitalising on these opportunities while simultaneously reducing risk requires back-end integration with cross-system processes that use near real-time financial data. The data must be visible, received and quickly translated it into a consumable format for use in multiple line-of-business (LOB) applications. Once in a neutral format, such as XML, other applications can consume the data and a positive chain reaction, such as the following, can take place:
- Receive/route same-day statements to portfolio management systems to accelerate key investment decisions.
- Decompose inbound payments, match to open line items in the enterprise resource planning (ERP) system, and clear incoming remittances against open invoices.
- Route status to credit systems and customer relationship management (CRM), and reduce credit balances so that more receivables can be incurred.
- Send timely high-value and low-value outbound payments for global operations, maximising FX benefit.
- Move cash from collection to concentration to investment accounts while commanding a single, standardised view for centralised decision-support reporting.
- Audit transactions flowing into and out of the enterprise and its many systems, all from a single workflow-enabled message system (enabling SOX and other audit compliance).
The end result is an increase in the central visibility and managed velocity of financial assets. The multiplier effect of this integrated approach becomes a growing investment over time. In the process, this approach places treasury operations in more of a key strategic role than ever before. When using this broader context of SWIFT benefits, what seems on the surface to be a handy bank account management pipe becomes more like a major ingredient of full lifecycle global liquidity optimisation. In further phases, these processes can include supply chain systems via integration with RosettaNet for matching physical goods directly against financial transactions in a single view.
Where are the Standards?
You may wonder, “Why do we need to do any data translation for our line-of-business systems? Aren’t we standardising all that global financial messaging stuff?” The answer: “Sort of”.
It’s true that emerging formats and standards groups, such as Financial products Markup Language (FpML), Transaction Workflow Innovation Standards Team (TWIST), NACHA, Target2, single euro payments area (SEPA) and ISO 20022 are trying to introduce standards for financial message exchange. However, some gaps still exist. First of all, the standards are still being defined. Second, once completed, they will not be adopted by banks at the same rate. Finally, even when adopted, the standards will have some interpretation issues, much as people from Mexico and Spain might need when speaking Spanish to each other. That is, despite speaking the same root language, they still need help to communicate due to dialect and localisation differences.
The same is true of global financial transactions’ communication with corporate LOB applications. Embedded bank and other financial counterparties’ processes and systems often use different formats and naming conventions for transactions. In addition, they have variations in the use of common fields (such as date and transaction codes), and often use different identifiers and numbering algorithms for data fields, and so forth. The bottom line is that some level of translation and data enrichment will always be needed.
Unfortunately, many corporate treasury departments are not among the highly supported corporate IT groups, such as customer care, point-of-sale and collections. Consequently, treasury managers are easily tempted to outsource the applications used for bank account management, cash forecasting and centralised payments. While this may accomplish short-term results, the major benefits of integration with SWIFT are still confined in all the other corporate supporting systems running on internal networks.
Software and other technology service companies have recognised that true straight-through-processing requires translation into a language or format that can be used across the internal systems that connect to the data, consume it, process it and spit out its results. Intuitively, making the changes in one place versus modifying potentially dozens of downstream business applications is the fastest, most cost-effective and most auditable solution.
The Last Mile
As corporates look to achieve returns through the visibility and velocity promise of SWIFTNet, they will need to make key decisions that lay the foundation for future financial acceleration. Progressive chief financial officers (CFOs) will realise that formerly acceptable fractures in the financial supply chain and straight-through-processing can no longer be ignored. Global agility, global currency optimisation, and traceability for regulatory compliance will continue to emerge as top corporate priorities.
Fortunately, integrators and solution providers are warming up to the challenge. Software makers, such as Microsoft and SunGard, have created SWIFT message translation packages to simplify the job. These solutions can be hosted inside the corporate network or at a partner service bureau. Key considerations for selecting the best model for your SWIFT corporate access need to include these basic principles:
- Business process integration: Most financial processes require some amount of human approval or routing to decision makers. Solutions that integrate well with common desktop tools used every day, such as web applications, e-mail, spreadsheets, reporting and so on – are important considerations to put the power of SWIFTNet in the hands of business users.
- Interoperability/flexibility: Integration with multiple LOB applications such as treasury modules, CRM, accounts receivable and payable, ERP and credit systems, and enterprise data warehouse reporting systems must be considered.
- Centralised management: Look for solutions that offer a central place to control the business process for maximum benefits. SWIFT changes its messages over time and is moving ever closer to XML standards. A solution that allows for making a single change that’s transparent to other line-of-business applications is critical.
- Scalability/security: Pick solutions that can grow with your enterprise’s global expansion, offer robust error handling, and meet internal security requirements.
- Traceability/error management: Solutions offering transaction logging and event-driven alerting when processes fail can be critical. Simultaneously, these also allow for easy access to SOX and FASB compliance data and provide the tools for error handling.
- Cost/benefit: Balance the initial cost of using a proprietary package model versus direct corporate access or service bureau against long-term objectives for financial visibility and velocity. While proprietary offerings may appear cheaper or simpler in the short term, they may cement you into a restrictive model for future growth.
Finally, picking a plan for implementation is critical. Many information technology (IT) projects have failed in the past due to big-bang implementation efforts. SWIFTNet connectivity with phased implementations are not only possible but may also prove less risky and allow a corporate to focus first on the biggest pain points (for example, bank account statements) and then, as they build confidence in using SWIFT’s vast capabilities, move into more areas, such as payments and FX.
While the world of SWIFT for corporates can seem daunting at first, a measured approach that focuses on end-to-end business processes will yield the best long-term results and put corporate financial groups more in charge of their global assets than ever before.