BankingCorporate to Bank RelationshipsWhy did SWIFT Release 2018 cause banks headaches (and why is this bad news for treasurers)?

Why did SWIFT Release 2018 cause banks headaches (and why is this bad news for treasurers)?

We discuss why struggles banks had implementing new SWIFT standards is bad news for treasurers as it is holding back cost and service improvements for treasurers.

Annual updates from SWIFT to its standards are nothing unusual – and the updates don’t normally cause too many headaches for the banking sector. Yet, the 2018 annual release caused a healthy proportion of the world’s big banks some headaches.

Struggles with updates were commonplace as technical teams grappled with the required updates, leading to problems of implementation by the November 2018 deadline. Indeed, due to the challenges faced by a number of banks, SWIFT has postponed the planned changes to Guarantees and Standby Letters of Credit to 2020, rather than incorporating these changes as part of the planned SWIFT 2019 Release.

Given the regular nature of SWIFT’s updates, what was the main problem? And did this impact the service delivered to corporate customers?

To begin with, SWIFT did accept that changes for Standards MT Release 2018 had a bigger implementation impact than most MT standards releases – a view shared by Rolf Hauge, founder and CEO of Commercial Banking Applications (CBA), the banking software firm. “The scale of the changes required to SWIFT’s MT7XX message series for Documentary Credits in November 2018 was the most significant in over a decade,” he explained.

Hauge went on to point out that while the standards were wider-reaching than normal and required more changes, banks had plenty of time to plan and implement them. “The release was announced in 2015/16, so while you could argue it was the most major change to happen in trade finance for over a decade, the banks knew about it. It also wasn’t a restructure of SWIFT messages, not something completely new, so shouldn’t have caused the problems it did.

“In reality though, the update highlighted just how disparate banking systems across the globe are. So many banks have trade finance systems that are built around bespoke, legacy IT that when it comes to making even small updates, they’re relying on vendors to customise systems. That’s a major problem. Even when banks have systems based around standard packages, they’ve made so many individual changes to source code that it has become bespoke. That makes even small changes difficult as changes to source code are required. That creates a lot of business for vendors!”

Decreasing procurement knowledge

Hauge suggests that another problem – which he’s seen develop over the 40 years he’s been working in financial technology – is the decreasing procurement knowledge within banks.

“Knowledge within banks of IT systems has gone down and down and down,” he says. “Banks have been cutting costs for the last few decades and the people who really understood banking have moved to consulting companies or vendors. The banks today are therefore quick to use consultants, who often have the interests of their own businesses at heart, not the banks. I would say as little as 10% of banks have true knowledge of what they want.”

Another problem Hauge alluded to was that too many banks started work on the developments too late – perhaps as a result of working with consultants, as well as needing bespoke coding work on their systems – and were therefore always against the clock. In contrast, CBA, given the scale of the mandatory changes to SWIFT’s MT7XX series for Documentary Credits, worked closely with users of its IBAS Global Banking Factory solution to implement the changes in advance of the switchover. This cooperation was critical in helping to ensure a smooth transition for all participants, including the bank’s corporate customers.

Service to treasury

When asked about the impact this has on treasury departments and the service delivered by banks, Hauge has some forthright views. “Too many banks relay on old systems to cover back office functions. Yes, the front end has been updated to do a good job, but if the back-office system isn’t able to utilise the latest automation and robotics technology, how can you reduce the cost to customers?

“This can also lead to problems of data management. A bank has to have its master data management under control if it is to deliver the best service to its customers and correspondent banks.”

Hauge concludes by saying that he thinks SWIFT is trying its hardest to manage the changing banking world. “It’s doing a tremendous job when it comes to standardization – but this is only effective if the banks can deal with updates quickly. The pace of change is accelerating so the problem will only get worse for those banks who can’t modernise.”

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