STP and Standards: Out of the Back Office and Into the Spotlight
In the wake of the global financial crisis, it might seem likely that issues such as straight-through processing (STP) and standardisation would fall down the priority lists of companies battling for survival through unprecedented market difficulties. Can operational efficiency improvements really hold senior management attention in the face of disappearing credit lines and the collapse of international trade?
If our conversations with corporate treasurers during the past few months are anything to go by, the answer is, yes. It may be counter-intuitive, but despite – perhaps because of – the financial crisis, we have identified an increased focus on streamlining operational processes through automation and standardisation. One obvious driver is cost reduction, the imperative to pare down operational expenditure to the minimum.
Another is risk. The consequences of inadequate management of risk have been thrown into stark relief by recent events, and it is incumbent on all companies to take their risk controls into their own hands. Standardising and automating the exchange of vital information with counterparties is an essential underpinning of sound risk management and operational controls and, as a consequence, we are finding that levels of interest in improving STP are higher than ever.
Better controls and better risk management are the underlying themes shaping the concerns of the corporate treasurers talking to SWIFT. There is a clear requirement for better visibility on global cash. You have to know how much cash you have, and where it is. There is also a requirement to rethink your approach to risk diversification. Whereas during recent years many corporates have sought to reduce the number of banking relationships they maintain in pursuit of greater efficiencies, in the current climate that approach may no longer be acceptable. Instead, we are hearing about moves to spread risk across a large number of banks once more. Indeed, increasing the number of banking relationships you have could be essential in sustaining access to credit as individual financial institutions tighten their lending criteria.
For corporates seeking to apply strong operational controls to their essential interactions with multiple banks, the value of streamlined, standardised electronic messaging is very clear. SWIFT’s approach is to provide corporates with a single gateway via which they can access all their banking partners, for all of their information and transactional needs. Corporate treasurers trying to gain better visibility on their global cash positions need to be able to receive statements and balances from all their banks. Corporates on SWIFT can take advantage of a dedicated set of standardised message types for just that purpose. Having single gateway access to your entire universe of banks clearly helps you manage the operational implications of spreading risk across, and leveraging credit from, a broader range of financial institutions.
The increase in SWIFT adoption and activity among corporate customers is a good proof point of the strength of the focus on operational streamlining in the current climate. More than 400 corporates worldwide are now using SWIFT – with 900-plus banks in more than 100 countries. We have also seen significant growth in message traffic – in particular for statements, an indication of how vital this information is in establishing visibility over cash. Corporates’ use of FileAct, for cost-efficient exchange of bulk payment files in different formats, with all the security and reliability of SWIFT, is rising. Especially since the introduction of a new pricing scheme in 2008, as part of our commitment to ensure ongoing cost reductions for our customers.
Take-up of SWIFT among large and mid-sized corporates – including names such as Air France, Chevron, eBay, Google, Nokia, LG, Samsung, Siemens, Tesco, UPS, Alten, Belcorp and Décathlon – is progressing. The value of a community STP solution, though, grows the more members of the community are able to adopt it. In the current financial climate, access to the highest quality risk management tools is as important for smaller corporations as it is for larger firms. Providers of STP solutions need to ensure they are available in a cost-effective form to corporates of all sizes.
An important facet of SWIFT’s approach to meeting this requirement is our easy, low-cost connectivity option Alliance Lite. Launched at Sibos in Vienna in 2008, Alliance Lite complements our existing service bureau and ‘member concentrator’ offerings for smaller corporates to connect to SWIFT. Some 50% of customers that have adopted Alliance Lite to date are corporates, and we are hearing some very encouraging stories about them going live on SWIFT within a few weeks, with a price tag as little as a few hundred euros per month. If you have an urgent need to get better visibility on your cash across the globe, using Alliance Lite you could speed up and centralise the collection of crucial statement information – reaping an immediate and valuable return on a very moderate investment.
Improving automation to underpin better risk controls is also dependent upon standardised messaging. This is an opportunity for corporates to replace multiple proprietary or domestic formats with a single ISO 20022-based standard, simplifying communications with counterparts and integration with internal systems. An increasing number of corporates now use ISO 20022 (on, and outside of, the SWIFT network) for sending their payments (e.g. supplier, salary payments) to their different banks. A pilot programme aiming at validating the use of these standards for reporting purposes (e.g. collections) has recently been successfully completed. Going forward, SWIFT is focussed on assisting its corporate customers and banks in further adopting ISO 20022.
But standardisation can go beyond treasury and cash management, to encompass all information flows between corporates and their banks, and providers of STP solutions to the corporate community should enable streamlining where possible. For SWIFT, a key initiative is electronic bank account management (EBAM). Essentially, this initiative aims at dematerialising the paper flows between banks and corporates related to the opening, closing and management of bank accounts. Traditionally, this is a very paper-intensive activity, with documents flowing from department to department, so that the opening of an account can easily take a month after the initial request has been issued. The inefficiencies inherent in the process of a corporate doing this every time a new account needs to be opened are clear – as are the considerable gains that can be achieved by adopting the new EBAM solution, which will be available by end of this year.
We have also identified other areas in which we could provide community solutions to help solve shared problems for our corporate customers and further boost operational efficiency. One example is personal digital signature – effectively allowing corporate representatives to use a single, personal, electronic signing mechanism with all their banks, whether over SWIFT, or over the Internet.
This solution is still a work in progress – with the approach being refined by SWIFT in consultation with the industry – but it is a great example of the extent to which standardisation in its broadest sense can be exploited to strip out inefficient, costly and risky processes for our corporate customers in their communications with their banks.
Proponents of standards and automation believe operational efficiency is an essential goal for all companies even when times are good. It’s evident, though, that STP really comes into its own when times are hard, when every cent counts, and when exemplary risk controls are paramount. The value of community solutions that promote both standardisation and automation in difficult economic conditions is abundantly clear, as our recent and ongoing discussions and work with our corporate customers demonstrate.