Back in 2010,
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launched a buyer’s guide to SWIFT service bureaux (SSBs). Among the reasons for doing so was the sheer number of SSBs that had come onto the market to offer corporates and non-bank financial institutions (NBFIs) an outsourced connection to the SWIFT network. The market at this time was emerging and relatively immature.
Fast-forward four years and much has changed. As is normal with most new markets, consolidation has occurred. The number of SSBs has reduced, while those that have led the acquisition trend and won new customers by doing so have grown significantly. SSBs that belong to the larger software providers are also now offering a broader range of solutions, helping to differentiate themselves as super bureaux.
It is also noticeable that SWIFT’s approach towards SSBs is changing. “There are now only 65 SSBs on the SWIFT directory, whereas there were as many as 140 as recently as 2011,” says Marcus Hughes, director of business development at Bottomline Technologies.
“One reason for this – aside from market consolidation – is that the SWIFT criteria for SSBs have become more stringent. They now have the shared infrastructure programme (SIP), which progressively gets more demanding as higher levels of accreditation are introduced by SWIFT. As a result, a number of bureaux have simply not applied or not qualified.”
SSB Users Evolving
The type of organisations that are using SSBs has also recently evolved. Larger corporates that initially installed SWIFT interfaces within their business are now outsourcing that functionality to the larger SSBs.
“Customers of ours that have made the switch include Vodafone and the London Stock Exchange [LSE],” says Hughes. “While the users have become more sophisticated, the larger SSBs have developed a stack of applications in the cloud that can satisfy their needs beyond connectivity to SWIFT. These include enhanced security; improved flexibility; rich functionality; a wide range of business process solutions; mobile access; predictive data analysis; disaster recovery; and business continuity.”
“Larger organisations are going the SSB route because of ease and cost control,” adds colleague Frédéric Viard, Bottomline’s marketing director for financial messaging. “In addition, they want to optimise the total cost of ownership [TCO] of their connectivity to SWIFT.
“They prefer their teams to focus upon core value propositions and revenue generation, instead of allocating them to manage their connectivity that brings only limited value. If you move this to the cloud, users can see the benefits of additional services relatively quickly.”
“The SSB model for connectivity is beneficial for corporations that are not able to dedicate resources to manage their SWIFT relationship,” says Jerome Albus, senior vice president (SVP) of messaging at SunGard.
“From ongoing administration and support to adhering to compliance and security guidelines, it can be daunting for a corporate to establish the skill set and processes necessary to maintain this connection. While we have customers who use direct connectivity, most of them prefer to rely on a single partner to manage their entire treasury solution – including the connectivity to SWIFT.”
Beyond Connectivity
Having sprung up to provide an alternative option to connect to SWIFT, many SSBs are now also providing a variety of other value-added hosted services as a way to differentiate themselves from the competition and win new business.
Take reconciliation as an example. It is increasingly important for corporates to reconcile transactions to match data, to mitigate risk and to comply with regulations. A topical example of that would be the European Market Infrastructure Regulation (EMIR), where corporates are trading foreign exchange (FX) and over-the-counter (OTC) transactions. These need to be reconciled daily and reported on a regular basis to the trade repositories.
Super bureaux are helping organisations with this process as it can be outsourced to the cloud. In this case, the SSB would submit the files in the correct format to the trade repositories over the SWIFTNet platform’s FileAct solution. The benefits to corporates is that it is secure, provides a perfect audit trail and the reconciliation is achieved on a real-time basis as those SWIFT messages come into the bureau.
Data transformation is another fundamental area to the added value of a bureau. This involves taking legacy formats and converting them into the correct format – to go to the counterparty as a straight-through process (STP) payment instruction using FIN or FileAct, eliminating the requirement for organisations to make changes to their back-office applications. A good example of this is the way that organisations have met the requirements for single euro payments area (SEPA) compliance.
“Enabling STP by using data transformation is how SEPA has been achieved,” says Bottomline’s Hughes. “The idea that everyone was going to change their systems in their entirety never happened. This will last for a long time rather than be a tactical solution – as it is proved to work, corporates won’t want to pay the additional cost of changing their systems. They will be happy to carry on with legacy outputs and legacy inputs, but what the SSBs send to the banks will be in the correct format thanks to conversion services.”
As well as dealing with SEPA data, many SSBs have been helping corporates distribute SEPA direct debit (SDD) mandates in order to have these signed by their debtors. When these signed mandates are returned, the SSB can scan them as a service and convert that into data. This becomes part of the SDD database and then effectively becomes part of the next SDD file that goes out through the normal clearing system. This is particularly important for the business-to-business (B2B) SDDs, where a new physical document is required before they can be used.
By offering cloud services, super bureaux also provide support to the critical corporate function of cash management. Many allow corporates to view all of their bank accounts; make it possible to move money from one account to another to balance accounts; and to have cash forecasting, pooling and sweeping functionality. Some offer a payment factory-style operation that is operated within the SSB, which is beneficial for the release of payments. Without joining SWIFT, payment release is either done in the e-banking portal or in the proprietary banking solution that the corporate is using. This means that the corporate uploads the payment file to the solution and then releases the payment from there. When moving to SWIFT, this single channel replaces any proprietary banking solutions, which means that the corporate loses the payment release functionality.
“A workaround for this problem is to use a payment factory solution with your SSB, as all of the payment messages already flow to the SSB through SWIFT,” says Christoph Stiefel, SVP, corporate market – Europe, the Middle East and Africa (EMEA) at Fundtech.
“The payment can easily be stopped in the SSB and uploaded to the payment factory solution for payment release, according to the relevant responsibilities and authorisation profile. Global corporates can easily add on this centralised payment release functionality and achieve full transparency over payment processing.” By centralising the flow of data, organisations also eliminate the requirement to pull intra-day and end-of-day balance information from multiple sources and consolidate the information for treasury, a process that is both time consuming and subject to error
Sanctions filtering is an interesting active service offered by a number of SSBs, as this requirement for banks and insurance companies to undertake filtering on their payments looks to be moving into the corporate world. “We have been successful with recent bids whereby corporates are looking for sanctions filtering to protect against ever changing rules and associated fines,” says Hughes. “Corporates are taking more responsibility for themselves.”
Importance of Network Neutrality
Super bureaux are network-agnostic, which is important on a couple of levels. Firstly, it means their offerings are bank-neutral. An unintended consequence of the Basel III capital adequacy regime is that corporates face higher costs of borrowing and lower remuneration on deposits that are shorter than 30 days. This means many will be looking to increase the number of banking partners that they have, which marks a break from the recent narrative of reducing banking relationships.
“Corporates are looking for banking connectivity concentrators,” says Fundtech’s Stiefel. “This means providing connectivity not only to SWIFT, but also to channels such as local clearing systems or host-to-host [H2H] connectivity. For example, not every bank in the world is on SWIFT.”
As well as being bank-neutral, many of the super bureaux provide connectivity to a wide range of networks and protocols around the world in addition to SWIFT. Taking a multi-network approach allows intelligent best cost routing. For example, it could be better to connect to with Euroclear’s CREST system using UK telecom operator BT rather than SWIFT, as that may be cheaper.
In the UK, accessing Bacs (formerly Bankers’ Automated Clearing Services) and the Faster Payments system via direct corporate access will be more efficient and lower cost. A German or a French company might not want to use SWIFT in those countries as the local internet protocol EBICS (Electronic Banking Internet Communication Standard) is more cost-effective and flexible, but it may very well want to use SWIFT in its Asian operations. A platform that really is multifaceted does need to have access to those different networks and protocols. A large, network-agnostic SSB will offer access to whichever network or protocol is most suitable, in terms of cost and efficiency, depending on the organisation’s footprint.
“We have examples where a corporate is using SWIFT for a number of their banks, but they may also set up a host-to-host connection via a bureau with one or two key banks where there is a big flow,” says Hughes.
“We have a hybrid model for this, which is part SWIFT and part non-SWIFT. For the corporate, the connection is not over SWIFT – we connect the corporate to us via their virtual private network [VPN] or some other secure connection of their choice, and we host the bank identifier code [BIC] of the bank in question. We send the files to the bank ourselves via SWIFT, but the corporate doesn’t incur SWIFT charges. There are quite a few large cash management banks that have caught on to the hybrid approach, as we host BICs for a number of them.”
Security of connection is, of course, also important. Super Bureaux have flexible connectivity options that can comply with the IT requirements of the corporate. This is an attractive proposition for corporates weighing up whether to connect to SWIFT directly, through initiatives such as Alliance Lite2, or to go for the SSB route.
“With Lite2, corporates can only use the internet or the recently launched Alliance Connect VPN to connect,” says Hughes. “While corporates have been connecting to Lite2 via the internet, there are very few that would purely use the internet to connect to an SSB as there are more secure options such as using a leased line, a secure file transfer protocol [SFTP], or a VPN. The connection method is the choice of the customer.”
Conclusion
By repositioning themselves as broader cloud offerings, the new style of super bureaux offers corporates and financial institutions (FIs) much more than an outsourced connection to SWIFT. They support various applications that add value to corporate business processes, while the network-agnostic approach allows organisations to access best cost routing options globally