The payments landscape for corporates hasn’t gotten much clearer over the last decade, but global multi-banking continues to grow. Twenty-three per cent of corporates surveyed in Strategic Treasurer’s 2017 B2B Payments & Working Capital Management Survey reported that they originate payments with 11 or more banks, and more than 24% operate within each of the major world regions.
Treasury professionals are busy. Doing business faster within more countries is challenging. Establishing global connectivity can be complicated. Corporate treasurers need products and services to help them make multi-banking effective, efficient, and affordable – but with a lack of communication and format standardization, this can still be an uphill battle. Simply understanding all the nuances of all the available services takes more time than many treasurers have.
While new fintech-driven global payment exchanges such as RippleNet are making waves, and API connections are rapidly enabling new technological innovations in the banking world, there are still three primary methods of connection that most corporates consider when determining the best way to manage multi-banking connectivity – and counterparty risk – worldwide.
SWIFT for Corporates
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment. SWIFT is a widely recognized messaging standard. SWIFT for Corporates is designed to simplify multi-banking for corporate treasurers. The Standardised Corporate Environment (SCORE) is based on a closed user group, administered by SWIFT, where corporates can interact with financial institutions. Corporates are given unique SWIFT Business Identifier Code (BIC) accounts to directly connect with the banks where the funds are held and payments are executed.
Electronic Banking Internet Communication Standard (EBICS) is an Internet-based communication and security standard. Primarily used for remote data transfer, such as corporate payment transactions, between an organization and a bank, EBICS is an alternative to SWIFT. Released in 2017, EBICS 3.0 allows banks to provide standardized access for multiple countries on the basis of one standardized and fully harmonized infrastructure and can also be used for clearing access for Single Euro Payments Area (SEPA) payments. While EBICS is currently only mandatory in Germany, other countries including France and Switzerland have adopted the protocol and it has the potential to become a European standard.
A host-to-host connection requires a direct connection with each bank and is based on that particular bank’s standard. These connections enable the automated transfer and processing of payments with the bank. There is a central interface for each bank, potentially making it easier to connect or transfer data between the corporate TMS or ERP system on the back end.
Examining the pros and cons
Which is the right choice? There is no single correct answer for every organization. It’s important that you look at the way your treasury and accounting departments do business today and factor in any plans for future growth (or consolidation). Here are a few things to consider:
While direct SWIFT connections provide the necessary multi-banking connectivity, they also require a significant investment – not just financially, but also time- and resource-wise. SWIFT’s bank readiness programme helps corporates identify banks that offer SWIFT knowledge and capabilities, but it can take significant time and effort to drill-down into the specific level-of-readiness information. A bank may be on the SWIFT network, yet still require connectivity via the lead bank model.
Corporations have the choice to connect to SWIFT either via a SWIFT Community Cloud connection, also commonly known as SWIFT Alliance Lite2 access. Fees are charged based on volume bands. This can be a good solution for organizations that do not anticipate significant fluctuations or scalability requirements, but that automatically rules out any companies who are experiencing or wish to experience market growth or use alternative networks. The SWIFT service bureau model is another option. Corporates may choose to retain a third party (vetted by SWIFT) to maintain and manage their SWIFT BIC – which may be easiest for businesses on a growth trajectory who do not want to maintain an extensive IT team to manage treasury operations. The SWIFT service bureau option allows large enterprise groups to have the most flexible setup, with additional services tailor-made to their diversified ERP and/or TMS setup within the company group.
While EBICS is not yet a global or even an European standard, adoption is growing – and the price is hard to beat. For banking in Germany, France, and Switzerland, EBICS provides a secure communication channel that can simplify the connectivity process. Using EBICS also offers a higher level of flexibility, as it would be easier for corporates to transfer business from one bank to another.
Host-to-host connections are available from most banks but may be time consuming and complex to implement: host-to-host on-boarding can be slow due to having no standardized data standards, formats, and validations. Internal resources are required to manage and maintain the channels. But while it may require some extra work, host-to-host connections can be a good choice if you are working with a small number of banks with high-volume transactions.
A multi-channel approach
As companies expand, particularly into emerging markets, a multi-channel approach may become a necessity. The lack of consistency in formats and communication protocols, different languages and customs, and often no underlying common infrastructure often lead to increased time-consuming manual processes. While this may seem like an argument against multi-channel connectivity, it is in fact the opposite. Using more than one bank connectivity channel is a smart choice for multiple reasons:
Risk management: From a risk management perspective, it is better to be diversified in the event of security breaches or unpredicted network outages or downtimes
Worldwide coverage: Not all services are available in every country, but some may be the best choice for a specific region or payment type.
Scalability: A single host-to-host connection may be all you need as a small organization making payments through a single bank in a single country, but will not be scalable as your business grows.
Flexibility: Having multiple connectivity options makes a business more adaptable, allowing you to more quickly expand the scope and reach of your business into new areas.
Service availability: Availability of network services varies from bank to bank. It’s worth checking with banks what network they support to make the best choice in regard to channel, costs and implementation efforts.
Format availability: Not every payment, statement or bank confirmation format is available via each channel with your banks. Where sophisticated channels like SWIFT FileAct allow you to exchange local formats used for many years, newer channels such as EBICS may only support certain types of ISO20022 (XML standards).
Engaging a solution provider, such as a treasury aggregator that can help both with communication channels and formats can help you embrace multi-channel bank connectivity – and become more effective and efficient across all channels. Outsourcing to a third party can save time and costs for your internal resources while providing the added benefits of a proven market approach and industry knowledge.
Partnering for extended reach and increased efficiency
The best way to achieve multi-channel multi-bank connectivity is to partner with the right solution provider. Sending messages and payments of any format at any time, to any financial institution anywhere in the world doesn’t have to be so difficult. An independent connectivity provider can help you determine the best mix of channels for your organization and help you manage both the setup and communications – as much or as little as you need. The end result is streamlined processes to help your business grow faster and reach further.
Fides provides the world’s largest global bank connectivity network. With connectivity to more than 10,000 banks across 170+ countries, Fides enables communication via any channel – including SWIFT, EBICS, and H2H – and supports any format (All SWIFT MT formats, ISO20022, ACH, EDI, AFB, DTA, ABA and many more). As a SWIFT Service Bureau organization, Fides can support and manage eligible organizations wishing to become SWIFT for Corporates members. As an independently operated subsidiary of Credit Suisse, Fides can also extend connectivity beyond the SWIFT SCORE network through the use of the SWIFT lead bank model.
Further Reading: How Santander will use Ripple to execute cross-border payments