Increasing corporate access to Swift was a key theme at Sibos 2006, where a new model for connectivity was announced, but it was clear that challenges remain. Dan Barnes reports.
The announcement of a new Swift access model for corporates will prove helpful to larger companies but smaller players will need to look for alternatives. Technology providers are on hand to assist but the challenges of cost, standardisation and awareness are still proving a challenge.
For the past 20 years, the issue of corporate access to Swift has been hotly debated. Banks have feared – quite reasonably, it could be argued – that if their customers had access to the international payments system then banks themselves could become disintermediated in the payments business.
At the same time, banks have had to concede more and more to the corporate sector as payment margins have shrunk, leaving range and quality of service provision as a key differentiator. This has left banks with little choice and at a meeting in June this year, stakeholders approved the SCORE (Standardised Corporate Environment) model for Swift connectivity, which was announced by Swift chairman Yawah Shah in the opening plenary speech at Sibos 2006, held in Sydney last month.
“Years ago, the Swift board with shareholder input voted 24-to-one (roughly 96%) against allowing corporates to use the Swift network. In June this year, shareholders approved the same concept with 98% voting in favour,” he said.
Corporate connectivity
At Sibos, Swift announced that several corporates had signed up to SCORE. This compliment to the existing methods of corporate connectivity that are Treasury Counterparty (TRCO) and Member Assisted Closed User Group (MA-CUG) means two things: if nothing else, that Swift has improved its acronym development; and that its members are now unifying on the subject of corporate access. The essential differences between the three are that TRCO only connects the corporate treasury to Swift but allows connections to all banks; the MA-CUG allows a connection to one bank; and now SCORE allows corporates listed in a country that is a member of the Financial Action Task Force to connect to many banks, although corporate-to corporate connectivity is not allowed.
The corporations that have joined the SCORE pilot, which is due to begin in January 2007, are notably on the large side: General Electric, Microsoft, steel company Arcelor Mittal and food provider Danone are in the list along with banks ABN AMRO, Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, HSBC, ING, JPMorgan Chase, Nordea, Société Générale and UBS.
Shift in business reach
The new model may prove successful in attracting similarly sized companies but Thomas Balgheim, senior vice-president, financial services at systems provider SAP, says that a shift in business reach has meant that large conglomerates are no longer the only international players. “Small and medium-sized businesses have become global and naturally require connecting to the global payments – namely Swift. The problems arise because connectivity must be delivered at a lower fixed cost than is currently provided. We believe the best solution is to utilise systems such as enterprise resource planning [ERP] tools that already exist within a company to reduce that cost.” And expense is not the only challenge.
At the Sibos panel session ‘Corporates on Swift – the opportunity starts here’, Johan Kestens, a Swift executive committee member, moderated a discussion between Michèle Fitzpatrick, managing director for account management, Wall Street Systems; Mark Hodgkinson, general manager, Shell Treasury Centre East; John Murphy, managing director, trade and transaction services, ANZ Banking Group; and Gianfranco Tabasso, chairman, payments commission, European Association of Corporate Treasurers. The audience were asked the question: “What would assist corporates in joining Swift?” There was not a heavily dominant answer. Increased standardisation was given as key by 39% compared with 28% citing cost reduction and 20% citing increased awareness. But only 13% believed improved services would be the greatest help.
Mr Hodgkinson noted that, although the issue of cost was certainly one of the greatest at his own organisation, that would not be reflected across companies because Shell’s scale allowed it to have a greater bargaining position. “The size of certain corporates allows the creation of standards. We drive banks to use our standards,” he said.
Mr Murphy concurred, suggesting that for the smaller players standards and also technology were more important issues because they could not impose their own. “In Asia-Pacific, corporates also push banks to build them bespoke solutions,” he said.
Ms Fitzpatrick noted this was akin to the network operators trying to manage and support every mobile phone handset. “It makes more sense to leave handsets to the software industry,” she said. This seems reasonable given that the loop that prevents smaller corporations joining is essentially maintained at the behest of the larger corporates.
Call for more awareness
According to Matthew Croxford, senior product manager at Eiger Systems, if corporates are to realise the potential value, participants in the process must make certain that the issue of awareness is addressed. “There are two challenges facing corporates when looking for Swift connectivity. The first is a lack of awareness about what Swift connectivity allows a corporate to do and the second is the cost and disruption of changing established systems,” he says.
“Although awareness of Swift is slowly growing, most corporates either believe that Swift is still a bank-only service or are not aware of what Swift, and in particular the new SCORE model, can do for them. As a solution supplier to a large number of multi-national corporates, we see that, along with the banks, we have a key role to play in educating corporates,” says Mr Croxford.
Joe Mazzetti, executive vice-president, corporate development at technology company Fundtech, agrees that the larger corporations will face less of an issue in realising the value of connectivity. “From our experience, the early adopters of Swift Corporate Access are the largest corporations. They have the more significant banking relationships in terms of numbers and complexity and the need and pay-off will be greatest for them,” he says.
He believes that there will most probably be a scale of adoption according to the size of the organisation. “We expect that, as more large corporations participate and ‘lead the way’, the mid-size corporates will understand the value proposition and will begin to participate. They will require ease of entry and low operational costs for Swift access to make that value proposition viable. We don’t envisage that the small corporations will participate in Swift other than through some concentrator or consolidator approach,” he says.
Software provision
The role of software providers as stated by Ms Fitzpatrick and the potential for utilisation of existing systems is also supported by Mr Croxford. “A corporate wishing to change its connectivity and centralise payment processing is faced with the daunting task of upgrading or replacing existing business critical systems. In addition to the cost, the risks associated with the upheaval of changing systems that have in some case worked effectively for decades can be prohibitive. Our platform is designed to allow corporates to take advantage of Swift without the need for costly changes to their existing systems by providing a ‘bridge’ between their existing ERP and payment systems and standard Swift connectivity,” he says.
Mr Mazzetti also emphasises that his company’s solution simplifies the possible cost and complexity that corporates may face. “The Fundtech Service Bureau offers a simple and fast Swift connection to corporates without the need for them to build-up and maintain Swift know-how to run the solution,” he says.
The potential for corporate connectivity appears to be strong across the technology providers. What is needed at Sibos next year is proof that corporates know of, and see value in, joining Swift. Closing the Sibos plenary session, Mr Hodgkinson noted that although many claimed to be representing corporates at the conference, few were from the sector. Perhaps at Sibos 2007, due to take place in Boston, there will be progress in this field, too.
