Bank-to-Corporate Connectivity: How to Make the Right Decision
The method in which a corporate connected to its bank partners previously depended on the country it was located in and where its bank accounts were held. This continues to have some impact on daily business today and it is true to say that corporate-to-bank connectivity is still dictated by business culture and practice.
In some European countries, for example, corporates might be used to one-to-one connections with their banks because they don’t utilise technology with multi-banking functionality. In other banking communities, such as Germany, there has been a lot of standardisation around electronic payments over the last 20 years so the type of solutions offered by German banks do have multi-banking capability. As a result, corporate customers located in Germany utilise both one-to-one communication and multi-banking solutions (the latter, of course, is preferred).
For most corporates, the ability to connect to multiple banks through one channel – not only nationally but also globally – is becoming increasingly attractive.
This is the point where ‘SWIFT for Corporates’ – a solution from the SWIFT financial messaging co-operative – comes into play. Formerly regarded as purely a state-of-the-art bank-to-bank community, it also has the capacity to provide benefits to corporates and make their dream of ‘one channel’ connectivity to all banking partners a reality.
And what are the main functions that corporates expect from connectivity with their banks? Today, basic information such as end-of-day and intraday account statements, as well as executing mass payments and same day treasury payments, is still the priority. “In terms of applications, real-time information is most important for us (i.e. use of the MT942 standard), which is very helpful in terms of providing information to help support and drive efficiencies from our financial supply chain overall,” says Claus Wild, project manager (introduction of SAP-BCM) at Adolf Würth GmbH & Co. KG, a company that focuses on global trade in fastening and assembly technology and a customer of Commerzbank.
Of course, corporates increasingly want to manage their treasury confirmations more effectively and some of them are also eager to use other FIN-messages via the SWIFT FIN service, such as MT5XX messages for the securities business. Generally, however, File Act messaging is still the most interesting service provided.
Each corporate must calculate its own business case based on what bank connectivity solution it wants to use (and this is often a decision that is made at the same time as plans for the centralisation of treasury). This decision-making process is particularly important because corporates need to fully understand what they have to do in terms of their internal processes in order to implement their bank connectivity model. The choice of connectivity model will also depend on what the corporate is capable of in terms of their internal systems and processes.
For Wild at Würth, for instance, it was the introduction of the single euro payments area (SEPA) that led his company to evaluate their bank connectivity model. “In Germany, some of our subsidiaries use a shared service centre for domestic payments while international payments are handled by the finance department in Switzerland,” he explains. “With the introduction of SEPA, our existing software was not able to support the SEPA formats. As a result, it became necessary to review our technology in order to provide subsidiaries with the best support.”
The company previously had web software in place, which made it difficult to manage mass payments through multiple interfaces with bank partners. “We decided to choose connectivity to SWIFT in order to manage our relationships more effectively through one interface [the SWIFT alliance gateway],” he says.
SWIFT can be the ideal solution for corporates who operate internationally and/or globally with a centralised treasury because all banks use SWIFT and already have the necessary systems installed. The only issue is activating communication between corporates and their bank partners, which requires corporates to install some SWIFT technology. Having worked closely with clients on their SWIFT implementation projects, Commerzbank has gained an understanding about their main challenges and concerns. For instance, when corporates decide to connect to SWIFT, there is an automatic calculator that dictates what steps they have to take before they reach their project target. This entails strict project management, which can be a struggle for corporates to manage on top of all of their other business priorities.
“We did find SWIFT implementation challenging because we didn’t have a lot of knowledge about the new technology or how the software and interfaces worked. In addition, we completed the implementation in a very short space of time,” says Wild at Würth. “We started implementation at the end of August 2007 and went live on 6 January 2008. We were given a roadmap from SWIFT that outlined what we needed to do and when, and this was tough to adhere to.”
A second challenge is information about how the systems work – not the information flows between the customer and the bank – but rather how corporates implement it in-house. This is particularly significant if a corporate doesn’t plan to use a service bureau because they really need to understand it themselves. For Würth, for example, their SWIFT project included implementing a new software package on the SAP side, preparation for the SAP system and understanding how it worked in communicating with SWIFTNet.
Banks should help their corporate clients to understand the implementation process better and this is improving overall. “We expect our partner banks to have a strong background in technology with the ability to transfer and manage all of our technical requirements,” affirms Wild at Würth. “In addition, it is very important that they are able to manage both formats, especially the SEPA format and the specific channel we use, i.e. SWIFTNet.”
There is no doubt that the further standardisation of formats will significantly improve bank-to-corporate connectivity. The European industry worked hard to launch the SEPA credit transfer (SCT) in January 2008 on time but, simultaneously, a range of national format variations appeared within the consumer-to-bank (C2B) market. Ideally, corporates would like to use one C2B format SEPA-wide. In order to reach this target, some international banks have elaborated on a description of a standardised C2B format within the last few months that may be approved at the EPC plenary in June 2008 for implementation in 2009.
Looking ahead, corporates also want to have a global standard – not just a SEPA standard – for every type of different payment they send, including currency payments. To achieve this, major industry hurdles must be overcome but we believe that this goal is not as far away as some might think.
In addition, SWIFT is preparing a new product for the corporate sector called Alliance Lite, which is currently being piloted with its first release scheduled for October 2008. It will enable corporates to either key in data or upload it via a SWIFT web tool, which will allow them to stipulate and identify what data goes to which bank. This tool is targeted at smaller corporates who have lower volumes and are unable to build their own infrastructure or use a service bureau. This is a further development to help improve SWIFTNet implementation for corporates, and banks will be able to promote this to their customers.
The most important role for banks is helping their clients understand the implementation needed when it comes to different bank-to-corporate connectivity models and therefore make the right investment decisions. We also have to ensure that corporates are aware of the various channels that can support them in terms of their connectivity depending on their particular requirements and business model.