BankingCorporate to Bank RelationshipsSSBs: A Clear Message

SSBs: A Clear Message

The world of message formats and standards may seem impenetrable if you are not familiar with the SWIFT environment, but they can bring visibility to corporate cash positions and more functionally rich data, explains this messaging technology article from the 2013 gtnews SWIFT Service Bureaux (SSB) Buyer’s Guide. Using a SWIFT SSB is one way to cut through the messaging jargon and aid treasurers seeking cross-border functionality.

There are two main types of message services that corporates use on the SWIFT network – FIN and FileAct. FIN messages are typically used for treasury payments and getting bank statements. FileAct is for the bulk payment part. FIN is a standardised and secure network and service that operates as a store-and-forward operation and is the main way that corporates use SWIFT. Corporates transmit their message that is addressed to their bank in the required format. This is received by SWIFT, who then confirm the receipt and validate the message. SWIFT takes responsibility for the onward delivery of the message to the recipient, using SWIFTNet.

“A SWIFT Service Bureau (SSB) can play a key part in this process,” says Marcus Hughes, director of business development at Bottomline Technologies. “A bureau can receive data in any format from the corporate, and then ensure that it is transformed into the right data to be sent via SWIFT to the paying bank. That kind of transformation takes place in the bureau as the message is going through the system and it would validate that payment instruction. In the UK this would be the sort code and account number, or bank identifier code (BIC) and international bank account number (IBAN) if it is a SEPA payment, for example.”

While payments may be based on the standards, there are mandatory and optional fields. Banks often require something specific in the optional fields so that they can identify something special about that specific payment. This also expands to the XML ISO 20022 standard, where some organisations will take different versions. There can even be some flexibility around certain fields within the message from country-to-country. This can make it challenging for international corporations and their treasuries, which have to face this variety of different modifications for different bank requirements. A bureau that has practice of dealing with multiple banks should know in advance what that particular bank requires and assist accordingly.

“You could say that we are a multilingual translator that enables straight through processing (STP),” says Bottomline’s Hughes. “These messages and instructions could be starting in one or more enterprise resource planning (ERP) system within the corporate, or from the treasury management system (TMS), or in some cases from a payment hub. Data is taken from a variety of systems and is then normalised, formatted and validated before being sent into the SWIFT network. That is the kind of value-added solution that SSBs host for corporates.”

Business Messages v Technical Messages

There are business messages, such as the SWIFT MT standards, and technical messages, the most common of which are acknowledgement (ACK) and negative acknowledgement (NACK) messages. The latter are probably less well known by the corporate world, but they are useful for SSBs to interpret and communicate to the corporate the status and current location of their payment or business messages.

The NACK message means that the payment message cannot be processed and sent on to the intended destination. There is something wrong and remedial action must be taken. An SSB can let the corporate know this is in simple terms, letting them know that there is a problem with a particular payment, referencing the corporate’s own identity (ID) which they have used for this payment.

The next important step in this messaging journey is when the destination bank receives the instruction and then debits or credits the account. This is when SWIFT’s MT9XX message series kicks in. The MT900 is the advice of debit, while the MT910 is the advice of credit. The relevant business message is sent by the bank, via SWIFT, to the corporate. The movement of the message instruction is traceable and visible to corporates, and SSBs will generally provide intraday statements to their clients that highlight this. The information can also be uploaded into a TMS or payment factory solution.

The MT9XX series builds up a constant picture of changes in debit or credit to the account. Another useful instrument in the quest for real-time information is to ask the bank at regular intervals throughout the day to send interim updates to the treasury, and perhaps then onwards to counterparties if so required. This is done with the MT942 message. The corporate can instruct the bank to send these at specific times – every morning at 11am and every afternoon at 2pm, for example. The corporate treasurer can arrange for these whenever they want, but will be unlikely to set up too many, as the bank will charge for each MT942 that is sent.

“Our advice to corporates is that if you have a particularly active account that you want to monitor closely, get some of the interim updates that the MT942 offers,” says Bottomline’s Hughes. “Otherwise, the MT940 end-of-day statements can show all of the transactions from yesterday, and you’ll be able to see these immediately first thing in the morning instead of having to wait to download reports from various bank web portals. This saves a lot of time and is an advantage for corporates.”

Together, the MT900, MT910, MT940 and MT942 messages provide valuable real-time updates for tracking important time-critical transactions.

Cash Visibility

The mantra of cash visibility is always popular among corporate treasurers, and this is one of the key drivers for corporates on-boarding with SWIFT. “Visibility is key, as it drives the decision-making process for liquidity management,” says André Casterman, head of corporate and supply chain markets at SWIFT. “It allows the treasurer to optimise the organisation’s own liquidity before having to go elsewhere for funding. Visibility is the main value proposition of the MT9XX messages for the corporate treasurer.”

The bank charges for MT9XX messages are back office charges that appear in the bundle of charges that the corporate receives from their bank. They can vary slightly from bank to bank, but are generally in the region of £20 per month to send to a customer. One of the challenges for a number of banks is that they use legacy mainframe accounting systems. One of the curious elements of the increasing corporate uptake of SWIFT is that many banks are also turning to SSBs to translate statement transactions into the MT940 series, so that corporates can integrate these messages into their back office.

“Something that we are seeing in countries such as Brazil, Japan and Australia, for example, is that the Tier 2 regional banks are being pressured by corporates,” says Patricia Hines, director of financial services industry marketing at GXS. “Corporations are standardising on SWIFT. They are going to the banking partners and requesting these MT940 and MT942 statements. We are working with a number of Tier 2 banks that want to respond to this challenge. There is tremendous competition for corporate clients in the transaction banking space.”

For corporates, the MT9XX messages provide visibility over their cash positions. Other SWIFT message types help treasurers to build on this in other areas of their function. “I would say the MT9XX series are the starting point for corporates using SWIFT messaging formats,” says SWIFT’s Casterman. “Then they can also go on to use the MT1XX series for payments, the MT3XX series for foreign exchange (FX) confirmations, and the MT7XX series for trade.”

In Case of Failure …

From the corporate perspective, what happens when a message fails can depend on the system and set-up that the treasurer is running. “With most systems, we will send back the message and the fail acknowledgment (NACK) to the treasury and it will be sorted out within the system,” says Per Trifunovic, chief executive officer (CEO) at Fundtech BBP. “For corporates who do not have that capability, we have a manual workbench where you can correct that transaction and resend it to SWIFT.”

Corporates running a fully integrated solution will be receiving each of the different status messages from every individual step of the messaging process. This immediately allows them to see where the message actually failed, picking up issues such as:

  • Technical faults.
  • Communication error.
  • Incorrect message content.
  • A NACK on the message itself.
  • Payment incorrectly processed on the banking side.

“An integrated solution can show you exactly where you need to act,” says Marco Lauber, head of international sales at Fundtech BBP. “If the message content was wrong you need to act on an SAP [ERP] level. If the processing of the payment itself was not successful, it will be seen on the bank side so they know exactly where to intervene.”

The Next Generation of Messaging: ISO 20022

ISO 20022 is a universal financial industry messaging format, designed as the global standard that defines the international organisation for standardisation (ISO) platform for the development of financial message standards. This XML-based standard is becoming increasingly important and pervasive in the financial messaging world. It offers advantages over the MT message standards in some cases, as it is capable of containing much richer information. SWIFT is using XML ISO 20022 in a number of initiatives and it is becoming a common theme in the forward thinking conversations that corporate treasurers are having, both within their organisation and with potential partners such as SSBs.

The standard is perhaps most closely associated with the single euro payments area (SEPA) initiative. It is fundamental here, as corporates are required to submit their files to their banks in the ISO 20022 format by 1 February 2014 in eurozone countries, as well as beyond eurozone countries for direct debits. The migration end dates for these new SEPA-compliant formats are fast approaching and will encourage adoption of the mandatory standard.

“Corporates have the same challenge as banks in that their back office systems may not be able to generate these XML messages,” says GXS’s Hines. “Thinking about SEPA, they may be running multiple payable systems in many countries across Europe that are not able to generate the format. This is where SSBs can help corporates transition from domestic payment formats to the new SEPA- compliant ISO 20022.”

The Benefits of ISO 20022

Despite SEPA being top of mind for many corporates with the 1 February 2014 migration deadline rapidly approaching, some are already using the XML ISO 20022 standard for other benefits. “Some corporates are using ISO 20022 for statement reporting in cases where the MT940s are not sufficiently rich in functionality,” says SWIFT’s Casterman. “Corporates should discuss with their banking partners which format is best suited to each type of payment flow that they initiate and receive, as banks can transmit financial transactions in various formats. This is part of the commercial discussion between the corporate and the bank.”

“We have also seen some initiatives from our corporate customers,” says Fundtech BBP’s Lauber. “One of our corporate customers has streamlined their messaging on ISO 20022 on a global level. They have one exception, on the US ACH format, but otherwise they have implemented the XML standard for everything globally.”

There are other initiatives globally that have ISO 20022 at their heart. One of the main ones is the Common Global Implementation (CGI). “One initiative that is being discussed a lot right now is the CGI,” says Fundtech BBP’s Lauber. “This is an initiative where several banks are trying to harmonise the XML ISO 20022 messaging format so that it can be implemented on a much more global level.”

According to Bottomline’s Hughes, this initiative from SWIFT makes it easier for big corporates to send bulk files to their banks for local clearing in numerous countries. “We have been involved in some of the CGI working groups and a wide range of countries have been covered,” he says, “including places such as Brazil and Russia, so it has a very wide scope.

Banks can specify how they want to receive their bulk payments using ISO 20022 in a whole range of countries. It is still relatively early days, but there are some big corporates already using it. Importantly it is working; the banks are collaborating because they are being pressurised by the big corporates.”

Another initiative that uses the ISO 20022 format, found on the supply chain side, is the Bank Payment Obligation (BPO). This brings in items such as invoices and purchase orders, showing the breadth of scope of the standard.

Corporates that sign up to SWIFT have the messaging tools available to gain clear visibility over their cash flows, positions, and more. The increasing drive towards greater standardisation and the advanced XML ISO 20022 messaging standard can only enhance this. For those that are currently stretched in terms of resources or lack the technical knowledge to manage a direct connection to SWIFT, SSBs provide an option to not only run the connection but also provide value-added rich messaging services to the corporate.

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