Today, most large corporates have multiple banking relationships and therefore multiple back-office connections with their banks – sometimes more than one with each bank – as well as multiple bank workstations and browser-based cash management products. Not only do corporates have to manage these numerous connections, they must also contend with a range of different bank products and proprietary interfaces, plus the nuances of existing bank legacy systems. The cost of supporting such a huge communication infrastructure is considerable and creates a complex management task for treasury.
Considering this cumbersome environment, corporate access to SWIFT is a valuable and welcome proposition for many corporates. The ability for corporates to install just one channel that connects them to all of their banking partners reduces technology and infrastructure costs, enhances standardisation and eliminates the difficulty of using multiple channels and formats.
The introduction of the new model for corporate access to SWIFTNet, Standardised CORporate Environment (SCORE), further enhances the proposition. The existing member-administered closed user group (MA-CUG), where corporates access SWIFTNet via bank-sponsored communication channels, was criticised for the complexity and time required to join. With SCORE, corporates need only join one closed user group to be able to communicate with all of their banking partners, which encourages further standardisation.
The benefits of corporate access to SWIFT are well understood and accepted but adoption has not been as prolific as expected. Approximately 230 corporates are now directly connected to SWIFT – about 35 under the new SCORE model and the rest through the MA-CUG model. Looking ahead, how can the industry encourage wider use among corporations?
Variation in Regional Adoption
Corporate access to SWIFT is a global proposition but there is no doubt that European corporates have adopted it at a much faster pace than their North American counterparts. For instance, less than 20% of the corporates connected to SWIFT are in North America. To a great extent, this is due to the fact that in Asia Pacific and Europe, almost all banks are members of SWIFT compared to only a small percentage of US banks. And of the US banks that are members, only 20 can currently offer SWIFT corporate connectivity as an option, therefore hindering corporate adoption.
European banks have been communicating with SWIFT via their back offices for a number of years, so more services are available through a European bank via SWIFT than a US bank. The co-operative also has a strong presence in Asia Pacific, which like Europe, has traditionally conducted a tremendous amount of cross-border business. The strong infrastructure that exists on the back-end for international transactions in both regions has made it possible for banks to support corporate access relatively quickly. For example, I have seen integration into as many as 40 countries occur in less than six months because so many back-office systems in Asia-Pacific are already compatible with SWIFT.
Within the US, however, SWIFT has a lower presence, largely because most US banks focus on domestic business. And those banks that are equipped to handle SWIFT messages have typically done so in the context of supporting foreign correspondent banks, which relatively few US banks have.
While US banks have the ability to provide strong balance supporting capabilities in the BAI format, the existence of certain legacy plumbing has prevented them from producing the same level of rich reporting capability in a SWIFT environment. For instance, some US banks have adopted FileAct to send BAI files rather than SWIFT MT940 messages. (BAI is the standard US format for sending balance and transaction reporting messages.)
It is clear that more US banks need to join the network, and existing banks need to improve their connectivity to SWIFT in order to support the US corporates who want to join.
Overcoming Barriers to Corporate Adoption
Apart from regional variations in adoption, there are other hurdles that the industry should address in order to encourage wider use of SWIFT among corporates. Here are some of the most significant barriers:
XML standards
Having a single communications pipe is a clear benefit but the real advantage for corporates is the standardisation of the payment formats that are sent through that pipe, which allow them to retain their format from start to finish. Today, messages have to be re-formatted as they move through different systems, which mean the message that goes in might not necessarily be the same as the one that comes out, hindering true straight-through processing.
Conversations surrounding the ISO 20022 XML standard have created a great deal of confusion and disappointment, particularly among corporates. For example, it is a common misperception among corporates that joining SWIFT will provide them with the opportunity to start using ISO 20022 as the standard for their payments. Unfortunately, what is getting lost in translation is that most banks aren’t yet capable of accepting the ISO messages.
While the promotion of ISO standards was high on the agenda at SIBOS 2007, the annual conference organised by SWIFT, we must face the fact that it will be some time before ISO 20022 becomes the worldwide standard for payments – realistically it could be 2015. I expect the development of ISO standards to be a priority for banks and SWIFT going forward. In the meantime, corporates should focus on leveraging FIN messages (MT101s, MT103s and MT9XXs) as a means of creating some measure of standardisation, until the ISO standard begins to be accepted industry-wide.
Real-time balance reporting
In terms of balance reporting, the traditional approach and current market practice is to provide account information via statements (MT950s or MT940s) at the end of the day, or through intraday statements (MT942) at pre-defined points during the day. Increasingly, however, corporates are seeking real-time visibility into their balances and are discovering that it’s difficult to achieve the same level of visibility via SWIFT as they currently have through their bank proprietary cash management solutions. This has created a scenario in which corporates are forced to hold onto their bank proprietary products even after they begin using the SWIFT network for general bank connectivity.
The need for real-time visibility and information will be one of the key drivers behind corporate adoption of SWIFT in the future. In order for adoption to increase, SWIFTNet needs to be able to produce a message that asks for a balance and banks need to be able to provide a response instantly. This will be a priority going forward, and the industry should be proactive in introducing service-level agreements requiring interactive, real-time balance inquiries over SWIFTNet.
Scorecard for services
Another issue hindering corporate adoption, particularly in the US, is the difficulty associated with determining what services a particular bank offers via SWIFT. It’s not uncommon to go through several rounds of discussions with banks about what types of services/SWIFT messages they can and cannot receive. In some instances, discussions end after weeks of project work when it’s discovered that the SWIFT messages in question can’t be handled by the bank counterparty as originally stated, and the only alternative for the corporate is to use the bank’s proprietary format and workstation.
This agonising discovery process for corporates is one of the biggest obstacles to SWIFT adoption today, which is why developing an ‘industry scorecard’ for services is a vital step forward. If banks don’t create scorecards themselves, and inform the industry of what they can and can’t accommodate, specifically for message types, they are likely to see corporates begin comparing notes among themselves through user groups and developing their own scorecard.
Going Forward
The advantages for corporates in joining SWIFT cannot be denied and the industry should work together to overcome the hurdles that are currently preventing greater corporate adoption. Vital action points going forward include more US banks joining SWIFT and offering connectivity to US corporates; bank development of a scorecard for their services and real-time balance reporting capabilities; and the continued promotion of ISO standards.
These developments will make it easier for large corporates – who currently struggle with multiple interfaces, formats and channels in order to communicate with their banks – to streamline their connectivity and dramatically reduce the cost of infrastructure and maintenance.