Traditionally, Swift’s involvement with non-financial institutions has been limited but now serious in-roads are being made to provide an easier way for corporates to benefit from the secure network.Frances Maguire reports.

Back in 1996, the board of Swift rejected the suggestion that corporates might use the bank-owned co-operative’s network to communicate with their banks, instead of the banks’ proprietary systems. Until relatively recently only a select number of multinational corporates were able to access Swift, and even then only to confirm foreign exchange transactions with their bank counterparties.

However, at Swift’s June 2001 AGM, shareholders voted to open the door to corporates. A bank’s corporate customers could access Swift through a member-administered closed user group (MA-CUG) operated by a Swift member bank or a financial institution.

Today, some 95 banks have set up MA-CUGs and more than 80 multi-nationals and large companies have registered to use them – many using more than one MA-CUG for different banking relationships. The admission of corporates into Swift represents a significant shift in attitude. It is a recognition that sophisticated corporates have many of the same payment, settlement, and information needs as banks, and if banks are open to correspondent banking business via Swift they should at least be willing to offer the same services to corporates.

Back to the drawing board

With Swift being a co-operative owned by and run for the benefit of its member banks, it was unsurprising that MA-CUGs were designed from the perspective of a bank offering services to its corporate customers rather than of a corporate wanting to use Swift to interact with the many banks it has relationships with.

By using the closed user group model, the financial institution remains responsible for all corporate interaction with Swift, with little or no direct interaction between the corporate and Swift. But what if one corporate wants to communicate with multiple banks through one MA-CUG?

Leonard Schrank, CEO of Swift, says: “At Sibos 2004, global corporate treasurers asked: ‘Why can’t you do for corporates what you did for the banks, in terms of standardising the way that corporates work with you in cash management and treasury?’ So we formed a Corporate Access Group with a dozen of the top corporate banks. They have already met and really want to do more than just the member-administered closed user groups, but it’s still early days.”

According to Mr Schrank, corporates don’t care whether they are members or not, so long as they can connect directly to Swift. He says: “Right now it is an administration burden so they are working to make it simpler and more efficient. I don’t think this is a governance issue. Currently, many corporates can connect to one bank in a closed user group, but one corporate wants to connect to many banks, so they have got to think this through.”

Current capabilities

Swift MA-CUGs are currently able to support multi-banking in two ways. First, the bank administering the user group can act as a relay for messages between its corporate customers and other banks – ie, forwarding messages from the corporate to a second bank and returning responses from the second bank back to the corporate.

Clearly, this model is not suited to types of business where the corporate wishes to deal in private with the second bank. The alternative is that the corporate becomes a member of many MA-CUGs, one for each of its banks. Given that MA-CUGs are set up and administered by the bank and not the corporate, in practice this can mean having to persuade each of the banks in turn to offer this service. Where a corporate has many banking relationships or those banks have not yet fully embraced the idea of corporate access to Swift, this process can prove cumbersome.

When a corporate is a member of numerous MA-CUGs, the same interface can be used for each. Therefore, with a single interface to the SwiftNet network, the corporate is effectively able to streamline its communications with its various banking services providers.

Increased efficiency

For corporates, the opportunity to replace multiple front-end systems and networks with a single Swift interface and network delivers the benefits of streamlined connectivity and standardised communication across the spectrum of banking relationships. The associated standardisation of data formats, record layouts, report formats as well as the availability of standard interfaces also greatly eases the integration with back-end Enterprise Resource Planning (ERP) systems, leading to improvements in straight-through processing and cost reduction at the corporate end.

Once a SwiftNet interface is installed, the corporate can use the network to perform a wide range of transactions – including payment initiation, confirmations and securities trading – and to send balance and transaction information securely. As such, corporates are already abandoning a host of different security protocols to communicate with their banks instead of using SwiftNet, which will ultimately lower their system implementation, support and maintenance costs while dramatically enhancing back-office efficiencies.

Benefits to banks

For banks, there are also benefits to be gained from offering a MA-CUG. In many cases, communications with their corporate customers can be achieved over their existing SwiftNet infrastructure, removing the need to maintain dedicated networks and interface systems for this. The standardisation of communication and data formats can also bring straight-through processing gains and cost reduction for the banks.

Until now, take-up of MA-CUGs has been slow, mostly because banks have been too busy migrating to SwiftNet. A number of announcements at this year’s Sibos conference in Copenhagen implied that corporate connectivity to Swift is finally taking off.

One reason for the delay in getting a reasonable number of companies onto Swift – besides the cumbersome model – is that banks may be dragging their heels a little in offering it to them. This could be because the banks have, in many cases, only recently invested in proprietary internet-based delivery channels for their corporate services. Understandably, they are keen to see some return on this investment and still draw comfort from the fact that the corporates using these services are to some extent tied in to a technological investment in terms of their systems, network and data formats. Consequently, these departments are not always in a hurry to promote a move to a more standard and open Swift-based communication channel, which may be viewed as levelling the playing field and potentially making it easier for corporates to switch service providers to the competition.

Refining required

JPMorgan Treasury Services has become very involved in shaping future corporate use of Swift, both as a representative on the Swift Corporate Advisory Group and in its own investigations of the existing capabilities for corporates in order to identify new opportunities for automating daily traffic with the bank.

Bob Blair, vice-president of industry issues for JPMorgan Treasury Services, says: “Swift is naturally placed to play a role in improving communication in the corporate community, with its legacy in bank-to-bank networks, its work in establishing standards and payment market efficiencies. But it needs to evolve if it is to fulfil the needs of the corporate market. There needs to be further refinement and build-out by Swift and the ERP providers, as well as by the banks.”

Mr Blair also believes a greater co-ordination of services between the banking world and the ERP providers, such as Oracle and SAP, is needed before a replicable solution for data exchange, connectivity and messaging formats is available.

He agrees that the current model, where a company has to join a separate user group for every bank it wants to communicate with across Swift, is cumbersome. “Additionally, some aspects, such as the costs of connectivity, deserve attention,” he says. “At the moment, it is only the larger companies that have joined MA-CUGs. The value proposition needs to have broader appeal for it to be a viable product offering.”

To achieve this, Mr Blair believes the exact relationship between bank and corporate and corporate and Swift needs to be redefined. “Corporates do not necessarily need to be direct members of Swift, easier connectivity to SwiftNet is the issue,” he says. Among JPMorgan Treasury Services’ customers, Mr Blair says, there is a growing demand for connections to Swift, driven by FileAct and SwiftNet FIN services.

Corporate clients

EADS, a global leader in aerospace, defence and related services, has now gone live with a JPMorgan MA-CUG. By using Swift FIN, a financial message language, EADS is making treasury payments worldwide over SwiftNet. EADS will benefit from message standardisation for both domestic and cross-border payments resulting in simplified communication, straight forward connectivity and reduced costs for file transmissions.

Andreas Drabert, vice-president, treasury control at EADS, says: “We look forward to the cost savings and increase in efficiency that this new service will provide by further leveraging the potential of the existing EADS Swift platform. In addition, we hope to extend use of the service to trade and commercial payments in the future. This project gives EADS the opportunity to realise the cost benefits that were reserved to banks only a couple of years ago.”

At Sibos in Copenhagen, Microsoft announced that its corporate treasury division will connect to its banking partners over SwiftNet. The implementation will provide Microsoft with a centralised view of its 1200 bank accounts by enabling the company to receive daily bank account balance and transaction data electronically from all its banking partners, via its Swift connections, directly into its SAP Corporate Finance Management system. Microsoft will now be able to do something that it had previously found impossible – obtain daily cash balances from around the world and eliminate manual general ledger processing on a standardised ERP platform.

This centralised resource is designed to reduce the number of systems and data silos currently in operation, creating a standardised and efficient approach to Microsoft’s financial processes. It will allow end-to-end straight-through processing from Microsoft’s treasury systems to SwiftNet connectivity, and significantly reduce the time and cost associated with Microsoft’s banking transactions.

George Zinn, vice-president, treasury, at Microsoft, says: “Like all corporate treasury departments, Microsoft is looking for richer and more timely information, error reduction, and better reconciliation of its financial position.”

Belgian financial messaging systems provider, Trax, similarly announced at Sibos, last month, that it will become a Swift corporate member and communicate with its banks via SwiftNet.

Hans Cobben, managing director of Trax, says the SwiftNet linkage will be a particular boost in reducing the number of proprietary systems needed as it opens additional offices in Europe, Asia and the US over the next 12 months. Mr Cobben says: “The biggest barrier is the legal and pricing requirements to setting up an MA-CUG. But once the first one is set up, it is much easier for a corporate to join more closed user groups.” In fact, he adds, some Trax customers have a dozen or more MA-CUGs; with one company setting up an additional MA-CUG in little more than 24 hours.

Flexible approach

Although corporate use of SwiftNet has the potential to remove proprietary bank software from the treasurer’s desktop, establishing a MA-CUG is not a cost or technology-free task. What corporates ideally need is a flexible way to communicate with all of their bank relationships across the Swift network.

Until such time as MA-CUGs are more widely available from the major banks around the world, perhaps what is needed is a more flexible many-to-many form of MA-CUG where rather than each bank being responsible for individually setting up and administering its own MA-CUG, banks and other financial institutions can share jointly in the setting up of a common MA-CUG, or joining an existing one, to provide a more flexible means of communication between a closed user group of corporates and their various banking service providers.

Mr Cobben says: “The best way forward would be for a corporate to be able to go to Swift directly and gain connection to a number of banks, but it is the banks – rather than Swift – that have the relationships with customers. New solutions and standards put forward by Swift are enabling better use of the network. SwiftNet opens up new possibilities and new standards, such as real-time cash reporting and investigations.”

Testing times

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Elie Lasker: ‘Banks are taking this very seriously because they know there is a high demand from corporates to use the Swift network’

According to Elie Lasker, senior business manager at Swift, the Corporate Access Group met at the Sibos conference, for the third time, and discussed all aspects of corporate connectivity, including other models. The group will continue to meet and test new approaches, and expects to make some announcements as to how the model could be tweaked or changed to make it easier for corporates to connect, in mid-2006.

Mr Lasker says: “This issue is high on the agenda. Banks are taking this very seriously because they know there is a high demand from corporates to use the Swift network. They know that what the corporate wants is a single secure window of access for all its banking relationships, and that the model we use needs to evolve and needs to be improved. But for now, there are many happy users of MA-CUGs.”

The implication is that the final version will behave similarly to the current model, but that the initial multi-bank connectivity requirements could be eased. While it means that banks will have to let go a little of control, and accept that corporates need multi-bank capability, the ultimate benefits to the banks will be greater than simply being a gateway to Swift.

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