Choosing a SWIFT Connection

Increasing collaboration in transaction banking has blurred corporate-to-bank boundaries, banks’ specialisation and networks’ transaction services.

A combination of improving technology, heightened corporate awareness of financial inefficiencies and global growth in trade, is helping banks and corporates collaborate more bydirectly connecting their systems and processes. In a recent HSBC survey of our worldwide corporates, two-thirds of large corporate treasuries regard this collaborative bank integration as extremely important.

One catalyst for bank-corporate integration is SWIFT Corporate Access. Uptake of SWIFT by corporates is increasing. With the increasing availability of SWIFT service bureaus, member concentrator models and SWIFT Alliance Lite, second tier corporates are also now joining SWIFT to access banking services from different banking groups in different locations.

The survey also revealed that 43% of corporates surveyed are either using SWIFT to connect to their banks or are planning to do so in the near future. This is a significant impact for a relatively new connectivity solution.

There are perhaps many reasons why such a large number of corporates are interested in SWIFT:

• The increasing importance of treasuries within corporates in controlling risk and creating efficiencies across international networks – both within a single corporation or across a supply-chain of organisations.
• Reaction to weaknesses in the banking system, increased regulation, a sharper focus on the strength of global infrastructures and a return to grass-roots transaction banking. Corporates have been focusing on obtaining global visibility of their daily liquidity to mitigate risk and maximise opportunities to self-fund their financial positions.
• Increasing pressure to improve auditing processes. Using a single electronic delivery channel for financial messaging facilitates corporate regulatory compliance.
• Global payment standards, specifically XML ISO 20022. From a corporate perspective, a consistent model based on agreed global standards will enable the automation of business processes and information flows. This should cut operational risk as it reduces human error and improve efficiency – crucial in today’s competitive marketplace.

Provides the opportunity to leverage technology investments in enterprise resource planning (ERP) and treasury management systems (TMS). The ultimate aim is to have a single technology platform. Once the decision has been made to join SWIFT, which connection method should a corporate adopt?

Direct Connectivity

When connecting directly to SWIFT, the corporate itself maintains the infrastructure for connectivity, typically SWIFT gateway software from SWIFT or a third party supplier. These gateway or middleware applications channel messages between SWIFT and a company’s in-house systems (such as ERP, TMS or payments system) where tasks such as data validation or approval take place.

Although early adopters of SWIFT tended to prefer direct connectivity (on the basis of their scale and less availability of other options), maintaining the technical infrastructure for SWIFT connectivity requires resources and specialist knowledge in the same way as any other business-critical function, so most corporates today (approximately 80%) prefer to outsource the technical hosting to an expert third party and use one of the indirect methods below. In addition, some early adopters are now migrating from direct connectivity to a service bureau.

Alliance Lite

The newest direct connectivity method for corporates is Alliance Lite, launched in November 2008. This provides easy, straightforward access to SWIFT through a web browser, and is suited to companies with a low to medium volume of messages (up to 200 items per day in and out, an item being either a financial intelligence network (FIN) message or 100 Kilobyte section of a FileAct file). Initial indications have been very encouraging, with companies live on SWIFT in as little as three to four weeks.

Indirect Connectivity

Service bureau

A service bureau hosts and maintains the technical infrastructure for SWIFT connection and may also convert the files from a company’s internal systems for transmission via SWIFT. A service bureau provides corporates with a convenient and cost-effective solution for SWIFT connectivity without the need to maintain specialist resource internally. Selected banks, including HSBC, and third party vendors provide service bureau capabilities.

Member concentrator

A member concentrator provides the same hosting and maintenance functions of a service bureau but supplements these with additional business services such as the administration of the SWIFT on-boarding agreement, invoicing and customer support. Selected banks, including HSBC, and some third-party vendors act as member concentrators.

As previously mentioned, there is a growing trend in the corporate community to access SWIFT via a service bureau. In fact, many smaller banks tend to outsource platform services to specialist providers. The drivers are often the same for both banks and corporates:

• Outsourcing: This means the day-to-day operation and disaster recovery facilities of a SWIFT connection is outsourced to a third party provider – the service bureau. Therefore the bank or corporate can focus on their core business activities.
• Lower costs: The service bureau solutions can be competitively priced when compared to a direct model, although the more complex the requirements, the greater the investment and set-up costs.
• Value-added services: These include data enrichment, data normalisation, data transformation, as well as cash management solutions.

Europe is the largest market for SWIFT, in terms of FIN messages generated. This reflected in the number of service bureaux. There are now over 70 bureaux providing a range of services from basic connectivity to deep integration, with value added services.

In the main, the service bureaux are independent organisations – the majority are local IT service providers. However, some banks own their own bureaux outright, or have partnered with a bureau to provide SWIFT services. In addition, some of the large IT service providers, such as IBM, operate a SWIFT service bureau. Other providers include payments processors.

Conclusion

The increasing number of corporates joining SWIFT underlines its importance as the only globally available and secure banking network. The benefits of using a single platform, which streamlines the process, increases global account visibility and provides future proofing is accepted by many. How to connect to SWIFT is now the leading question.