BankingShining a Light on Alliance Lite2 v SSBs

Shining a Light on Alliance Lite2 v SSBs

The number of companies connecting to SWIFT has remained fairly static for a while now. At the end of 2012, SWIFT had 1,035 corporate users, suggesting that there is still a long way to go before SWIFT meets its target of 5,000 members by 2015; a target which seems to have been quietly dropped. One thing that threatens to get corporate uptake numbers moving again, however, and could perhaps take connectivity market share away from traditional SWIFT service bureaux (SSBs), which currently account for two-thirds of connections, is the new Alliance Lite2 (AL2) cloud-based platform. Launched last year this online connectivity platform allows corporate treasurers and others to take advantage of SWIFT’s standardised cross-border international transaction messaging without having to rely on the predecessor Alliance Lite1 (AL1) stick which wasn’t very flexible or successful in garnering users. All this could be set change with AL2.

Treasury adoption of SWIFT is driven by factors such as the desire for greater security, as well as the possibility of reducing the overall cost of payments. Corporates are also looking for the type of bank-neutral connectivity which SWIFT provides, while the single euro payments area (SEPA) is another driver because SWIFT too uses the standardised XML ISO 20022 messaging format that is mandatory under SEPA: with less than a year to go until the SEPA compliance end date on 1 February 2014, some companies are already seeing the potential integration and efficiency benefits.

The question is, however, how will corporates connect to SWIFT? Using a SEPA-compliant SSB is one option as they then take on the compliance burden from a treasury and can process the complicated legal and on-boarding procedures that new joiners to SWIFT require. Alternatively, there is now the direct AL2 SWIFT connection available online, so which one to specify?

AL2 is widely seen as a significant improvement over the original AL1 offering, and has already been adopted by around 200 corporate users since its launch last summer. Some believe that the new direct connectivity model could pose a significant threat to SSBs. Should the bureaux be worried – and what are they doing to make themselves more competitive?

Why AL2 is Attractive: No Volume Restrictions

Launched in 2008, the first iteration of Alliance Lite was intended to bring SWIFT connectivity to smaller corporations with lower volumes of payment messages. While almost 600 companies adopted AL1, it soon became apparent that the volume restrictions which came with this connectivity model made it an impractical solution for many companies, leaving a significant gap between those companies large enough to justify the costs of using an SSB to connect to SWIFT, and those small enough to use Alliance Lite.

These volume restrictions have been dropped for AL2, thereby widening the pool of potential corporate customers. After paying a one-off set-up fee, customers are charged by usage and are billed in different bands depending on their volumes. Another difference is that AL2 only charges users for outbound messages – unlike the first iteration which also included a fee for receiving bank statements.

“Lite1 was in some ways a niche product,” explains Dirk Van Achter, SWIFT’s senior product manager for Alliance Lite. “It has some limitations in terms of the types of messages and files that you can use. These limitations have been removed in Alliance Lite2, and AL2 can do all of the SWIFT message types too.”

Connectivity Requirements

In order to connect to AL2 companies need only a PC or laptop running Windows, a browser and an internet connection. SWIFT also provides a USB token which has to be inserted into the user’s PC or laptop when using Lite2, aping the AL1 format somewhat.

Using AL2, however, corporates can access MT and MX SWIFT message types, as well as other SWIFT services such as Accord, Sanctions Screening and the Trade Services Utility (TSU). As well as offering AL2 as a company’s primary SWIFT connection, SWIFT is also positioning the new model as a disaster recovery tool, thanks to an associated product called Alliance Lifeline.

Target Market and Treasury Case Studies

On its website, SWIFT says that AL2 is likely to be suitable for companies which want to connect to SWIFT with little upfront investment, as well as those wishing to outsource their current SWIFT infrastructure and those who do not want to maintain expensive SWIFT systems on-site. SWIFT’s Van Achter says that it is intended for “anybody who wants to connect to SWIFT, including financial institutions as well as corporates.”

One of the first adopters of AL2 was the Canadian National Railway Company. Paul Tawel, the company’s senior manager, treasury operations, explains that the company “decided to implement SWIFT cash reporting in our back office in order to further standardise and automate our treasury operations. After exploring various options, we selected Alliance Lite2 as the best way to start enjoying the benefits of SWIFT for our business.”

Within the technology industry, however, opinions vary about who AL2 is most likely to appeal to. Kurt Vandebroek, senior vice president of product development for SunGard’s AvantGard solution, points out that the new offering is also a bank solution and not only a corporate solution, as sometimes perceived by the market. SunGard has its own SSB of course.

Tom Durkin, global head of integrated channel solutions at Bank of America Merrill Lynch (BofA Merrill), sees the sweet spot as being US middle market companies expanding into international markets.“Lite2 is an excellent way for them to enhance their global connectivity without having to make as large a technology investment as they might otherwise,” he adds.

Patty Hines, director, financial services industry marketing at GXS, agrees that AL2 will make it easier for middle market corporates to enter the SWIFT network. “Certainly the new configuration will appeal to corporates of a larger size than the original one. I would agree that SWIFT is trying to target that next tier of middle market corporates that they are not reaching today.”

However, Marcus Hughes, director of business development at another SSB supplier, Bottomline Technologies, says he is not convinced that there is a big market for SWIFT among smaller corporations, which have traditionally been the users of the Alliance Lite programme so far. “If you are not multi-banked, you might not need to go with SWIFT,” he says. “I think SWIFT is very valuable for companies with revenues of £500m and over, and for multi-banked corporates, but not for companies with a single bank relationship for cash management.”

Aside from Alliance Lite2, two other connectivity models to SWIFT are in existence: setting up a direct connection in-house, and outsourcing the connection to a service bureau (SSB). While SWIFT no longer releases a breakdown of its connectivity numbers by model, 2012 figures showed that 8% of companies were using a direct connection, but this model is being sidelined and not encouraged or supported anymore. Two-thirds (69%) used a bureau and 23% used AL1.

Bottomline’s business development head, Marcus Hughes, says that the number of companies connecting directly is continuing to fall as more companies opt for the SSB model. “We no longer get requests from corporates to install SWIFT interfaces locally,” he says. “The last one we did was in 2009.” He adds that some companies which had originally connected to SWIFT directly are now choosing to migrate to a service bureau model, including Vodafone and BP. With the direct connection route falling out of favour, most companies looking to connect to SWIFT today will be choosing between a SSB or AL2.


Alliance Lite2 is likely to appeal to a wider range of corporate customers than the previous version of the connectivity model, but how does it compare to the services offered by a SWIFT service bureau (SSB)?

SWIFT’s Van Achter naturally argues that AL2 offers a number of benefits over the SSB model. For one thing no third party is involved in the model, which simplifies the process, and also means that customers can benefit from greater levels of security and reliability. In addition, he says that SWIFT offers neutrality – unlike the service bureaux, which “tend to propose their own offerings one way or another”.

AL2 is also marketed by SWIFT as a ‘cost-effective’ way to connect to SWIFT, but is it really a cheaper option than a SSB? “It can be the case, depending on what options the customer chooses,” says Van Achter. “Aside from the standard offering, customers can also choose additional service options like our peace of mind package, which allows them to work in close contact with SWIFT. They can also ask for integration services.” This has traditionally been the unique selling point of bureaux which have offered to help lead corporates through the complicated technical and legal on-boarding process.

Organisations wishing to adopt AL2 should therefore consider how much consultancy they will need from SWIFT at the outset and take this into account when selecting a connectivity model. If a corporate user requires more input from SWIFT than is included in the standard package, they may find that the up-front costs of connecting via AL2 are higher than initially expected.

Problems with AL2

One of the objections to AL2 that has been voiced is the lack of connectivity with treasury management systems (TMS) and enterprise resource planning (ERP) systems. Critics argue that AL2 does not offer the capability to transform data from those systems into the right format needed for Lite2 and thereby support treasury and financial supply chain straight through processing (STP). With some TMS vendors already owning a SSB, there is also little incentive for them to support AL2.

Nevertheless, this may change in time, and SunGard’s Vandebroek says that SWIFT has been approaching TMS vendors to see if they can package AL2. “Multiple vendors are looking at the possibility, and there are opportunities there. The market is mainly looking for integrated solutions,” he comments.

A further objection to AL2 relates to its requirement for users to still login with a USB token. For companies which wish to automate file uploads and downloads, there is a need to put the USB token into the server, which is not permitted by many companies’ security policies. Markus Hautala, director at Tieto, argues that treasury and cash management solutions are moving to the cloud and will have bank connectivity embedded, and this doesn’t go the whole way. He points out that “the current Lite2 solution is not yet suitable for this type of a multi-tenant environment as the service provider would need to have a USB token for each and every customer.”  However, Hautala’s understanding is that this will be addressed by SWIFT fairly soon and this hangover from AL1 is in fact being phased out.

Competitive Threat and SSB Strengths

With some describing AL2 as a service bureau run by SWIFT, should SSBs be concerned about the arrival of the new model? “We didn’t bring out Lite2 to compete with SSBs,” insists SWIFT’s Van Achter. “We brought it out to make it easy for people to connect with SWIFT, to have a one stop shop way of connecting to SWIFT without a third party in the middle – and to increase adoption levels of SWIFT by providing a cloud-based alternative.”

Nevertheless, there is inevitably concern among some bureaux about the impact of the new model on their own businesses. The larger SSBs argue that they will not be affected by AL2 because the services that they offer go way beyond just SWIFT connectivity and incorporate a range of other value add services, such as data transformation, reconciliation and anti-money laundering (AML) services. Per Trifunovic, chief executive officer (CEO) of the Fundtech BBP SSB, says that corporate clients are increasingly demanding more than just SWIFT. “We are not focusing purely on SWIFT; we see ourselves as an outsourcing provider offering a range of services, such as SWIFT and other messaging solutions, the whole integration conversion space, treasury management functionality, and transaction filtering against sanction lists,” he explains. “We also provide a payment outsourcing solution, so our scope is broader than just SWIFT.”

For bureaux able to offer a fuller range of services, AL2 is less of a competitor, but for those players with a more limited offering, the new model may be more of a threat and could lead to a consolidation in the SSB marketplace. Indeed, there is a perception in the market that SWIFT would like to reduce the number of bureaux in existence in order to mitigate the business continuity and other risks associated with smaller bureaux.

AL2 is one of the initiatives which may make it harder for the smallest bureaux to exist in the future, but it is not the only one. Another obstacle is SWIFT’s introduction of more stringent requirements for bureaux this year (see the interview feature on page 6 for more). For some bureaux, complying with the new rules under SWIFT’s updated Shared Infrastructure Programme (SIP) could be problematic.  Consequently, many are predicting that there will be more consolidation in the SSB marketplace in the coming years.

Nevertheless, stronger bureaux are confident that they can meet the new SIP requirements – and some believe that rather than making bureaux less attractive, the arrival of AL2 has actually strengthened the appeal of SWIFT across the market. For one thing, the increased competition can only benefit corporate treasury users. As BofA Merrill’s Durkin observes: “The service bureaux space is crowded with players from a technology standpoint, but companies need choices and this will enable competition as the providers focus on client delivery.”

AL2 may act as the catalyst for a surge in interest in SWIFT as globalisation continues apace and cross-border international messaging becomes more and more important to treasuries. Many of the companies connecting to SWIFT may still decide to do so using a SSB but at least there is some real viable competition now in the shape of AL2.

• This feature is taken from the 2013 gtnews SWIFT Service Bureaux (SSB) Buyer’s Guide. To see the other features and the entire 40-page pdf document please click HERE.


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