Can SWIFT Offer Effective Bank Connectivity for Corporate Treasuries?
Corporate interest in SWIFT has accelerated in response to the increased importance of complete and efficient cash management resulting from the global financial crisis. SWIFT provides a secure, rapid and standardised channel for communications between corporate treasuries and their banks.
This interest focuses on treasury-to-bank communications relating core treasury information and, in some cases, extends further into the management of operational cash flow. The actual rate of uptake, in the form of integration projects, has to date been steady rather than spectacular – but it is significant. One underlying factor that is driving the process is the enhanced focus on cash visibility and usage that has emerged in reaction to the continuing liquidity crisis. SWIFT represents one way in which corporate treasuries can improve their connectivity with banks and enhance the quality of their visibility of the cash balances of their bank accounts in a timely, reliable and accurate manner. Secondly, SWIFT’s increased interest in the corporate markets has led it to take a number of steps to accommodate corporate needs.
Before SWIFT opened its doors to corporate membership, corporates were reliant on communication via bank workstations and the use of specialist third-party operators. These, of course, remain fully valid solutions because SWIFT adoption may not be appropriate for some organisations, depending on the detailed nature of their banking relationships and costs.
However, excluded from what many saw as an exclusive inter-bank club, many corporates lobbied for the opportunity to apply for membership. SWIFT has moved to lower the entry barriers to corporates and granted full corporate access in 2004. Some corporate treasurers involved in the early evaluations of SWIFT membership found a situation that was rather different from the Windows operating environment in which they were accustomed to interact with technology. In comparison, many reported that SWIFT had (unsurprisingly) something of a mainframe solution look and feel – and its operations were supported by a matching set of acronyms and other jargon with which users needed to become familiar with.
Corporate treasury language can accurately summarise core requirements with respect to SWIFT functionality as ‘statement/bank report import, confirmation process management and secure payments initiation and tracking’. Most corporates who looked at SWIFT could see the benefits that would come through very fast, secure and robust bank communications – but some found it hard to construct a reliable cost/benefit analysis that would justify the relevant expense and effort. The bridge between the corporate world and the SWIFT world is often supplied – physically or metaphorically – by third parties, as discussed below.
Ultimately, most companies will naturally base their decision to adopt SWIFT on economic considerations, and the cost/benefit details are typically established on a case-by-case basis as corporates evaluate their use of SWIFT with service bureaus, specialist consultants, their treasury management system (TMS) vendor and SWIFT itself. The general case for adoption is based around the perceived costs and risks of supporting multiple banking interfaces versus the secure, robust and standard channel provided by SWIFT. SWIFT’s exceptionally high level of technical robustness is illustrated by the organisation’s security controls, published availability performance (99.995%) and 24/7 support service. The SWIFT solution’s standard channel offers one way of greatly simplifying and standardising the whole business of bank communications, and so enables treasury to focus on its professional responsibilities of cash and risk management, rather than having to divert effort into data exchange.
SWIFT has taken a number of steps to accommodate corporate needs. Non-SWIFT messaging standards, such as BAI, can be managed through the FileAct service. Also, SWIFT has introduced Alliance Lite, which is designed for lower volume users and offers straight forward connectivity options.
In IT2’s recent experience, corporate treasury departments who have adopted SWIFT either engage the services of SWIFT bureaus, such as SMA, BankServ and Synergy, as an outsource partner to manage the SWIFT end of connectivity with the TMS, or they use a bureau as a specialist consultant to implement a direct connectivity solution hosted on in-house technology.
The key business areas in which corporate treasurers generally evaluate SWIFT-based solutions are the retrieval of bank balance and transaction information, the secure management and monitoring of payments, and deal confirmation process management, as illustrated:
These information flows alone do not offer a complete treasury management solution: balance and transaction statements need to be interpreted, reconciled and integrated with reporting; payments need to be formatted and controlled, under strict segregation of duties and authorisation limits; deal confirmations need to be formatted, and treasury processes need to be controlled based on confirmation status. The corporate treasuries who have successfully integrated SWIFT into their operations have consistently implemented or redeployed their TMS as a control hub, to ensure that SWIFT connectivity is properly and effectively managed.
Functioning as a control hub, the TMS schedules and controls all the information transfers with SWIFT. Without a TMS control hub, treasury would have to find alternative means of scheduling, formatting, translating, controlling and securing all SWIFT communications. In practice, the TMS assumes responsibility for performing a number of key functions, whose failure can lead to significant financial loss, for example as a consequence of a large payment missing the currency cut-off time. The key TMS-SWIFT control hub functions include:
The TMS’s SWIFT control hub functions are a key part of treasury’s integrated cash and risk management workflows, providing the essential control and management to accomplish the following business processes:
The full integration of TMS and SWIFT, whether direct or indirect via a service bureau, provides a secure and proven route for implementing best practice STP treasury workflows. SWIFT integration can form part of full treasury process STP, where volumes and risk levels justify this. Other systems that may additionally be integrated with the TMS include dealing portals, market rate feeds and ERP systems (for accounting and forecasting purposes).
Those treasurers who adopt the SWIFT route see it as a resilient and dependable service. When integrated effectively with a TMS, the resultant service allows them to concentrate on efficient cash and risk management operations. So SWIFT can certainly offer effective bank communications for corporate treasuries, when it is integrated with a TMS to act as the essential control hub.