01 July 2006 Features

 

Let’s work together

The recently-piloted SwiftNet Exceptions & Investigations service promises to increase STP rates dramatically. It also shows how Swift might work with vendors in the future, says Heather McKenzie .

While Swift’s foray into solutions has not pleased all of its membership, the Brussels-based executive must be taking great heart from the results of its SwiftNet Exceptions and Investigations pilot, which formally ended in May. The pilot could be a portent of Swift as a solutions provider — working more closely with third party vendors and providing more direction on the use of the standards it generates.

SwiftNet E&I combines XML standards, the SwiftNet messaging service and a rule book. The initial five pilot banks — ABN Amro, Bank Austria Creditanstalt, Banque Nationale du Canada and JP Morgan Chase — tested 16 message types in 23 scenarios. More than 3,000 messages were sent in live scenarios.

Seven “early adopters” — Bank of New York, KBC, Caisse Centrale Desjardins, Mellon Bank, Wachovia and corporates General Electric and DuPont — have since joined these five. All these institutions have formed a steering group that will have input into the final solution and any further developments.

Catherine Banneux, senior product manager, Swift, says the steering committee members represent around 23% of Swift’s payments related traffic volumes, “which is a good critical mass”. One of the steering group’s missions for next year, she says, will be to look at extending the solution into more of the payments area, or into other areas, such as securities. At present, SwiftNet E&I covers 80% of payments-related enquiries.

“The outcome of the pilot has convinced Swift and those banks involved that this is a good solution and it will go live from September,” she says. “There was a great deal of consultation before the pilot because we felt it was key to get this right from the very beginning.”

Not all of the steering group members will use the solution from the go-live date, she says, but all will be live by the first quarter of 2007.

Bud Wolfe, vice-president, treasury services at JP Morgan Chase, says SwiftNet E&I is not just a new standard, it also includes a rule book for best practice, which outlines the appropriate messages to use in a particular scenario. “This is new territory for Swift, but necessary in order to allow the industry to gain maximum benefit from the solution,” he says.

The benefit of the solution will be not only reduced costs, but also improved customer service. Swift estimates that at present, only 5% of enquiries and investigations in the payments area are automated.

“On average, the industry has automated only about 5% of its enquiries,” says Banneux. “We believe that SwiftNet E&I will increase that to 60%, which will bring huge benefits in terms of cost savings and customer service.”

In research conducted at last year’s Swift operations conference, Sibos, SunGard found that 3-5% of all transactions result in exceptions, the resolution of which account for nearly 80% of back office costs. The use of free format messages and multiple communication channels don’t support automated solutions and the lack of agreed industry practices is creating “significant inefficiencies”, says SunGard.

Wolfe says the real benefits of SwiftNet E&I will come only when there is a critical mass of banks using it. “If one of the banks in the chain of an enquiry is not automated, the efficiency of the overall system is lessened,” he says.

Building up user number may well come through a Swift mandate. Says Banneux: “One of the findings of our consultation with the industry on the solution was that many banks felt this is a solution that should be mandated by Swift at a certain point in time.”

In the absence of this mandate, Wolfe believes the pilot banks have a role to play in persuading their correspondents to implement the solution. “User institutions will help their correspondent banks to see the benefit of automation. I have already been out talking to our correspondents about this because I think the industry needs to start planning for it now.”

Banneux agrees with Wolfe that the early adopter banks will put pressure on their correspondents to implement the solution.

Banks should not underestimate how significant a project it is, adds Wolfe. Getting the systems and environments ready to send messages took the pilot banks some time. “There is an opportunity for the vendor community to step in and lower the barriers to entry for many banks. The modifications to back end systems required is expensive and vendors could come up with more options that are not as costly.”

The SwiftNet E&I project is proof of Swift’s changing relationship with vendors. Once considered something of a nuisance, Swift now sees third party vendors as an important element in improving efficiency among its members.

Swift asked its members what investigations and exception management software they used and found that Pegasystems and SunGard were the two most common providers. The two vendors were subsequently asked to become involved in the project.

Colin Day, vice-president, business development at SunGard, says: “From SunGard’s point of view, this is a very privileged position. It is the first time Swift has become so involved with vendors.”

The two companies provided statistical data that was used to build the business case for SwiftNet E&I and also provided input based on their experience in the industry. “Having two software vendors at the same table, talking the same talk, is unique,” says Day.

Andy Elliot, senior director professional services at Pegasystems, agrees the pilot was a first for vendors. “Swift has been reticent to invite third parties into the standards definition process. But our input was based on our having developed and implemented software for investigations and exception management for many years. This experience would help to mitigate the back end changes that institutions would have to make to implement the new solution.”

Two of the pilot banks — JP Morgan and Bank Austria — are Pegasystems users. JP Morgan implemented the solution on PegaRules and Process Commander together with Smart Investigate, which has the rules to support SwiftNet E&I already embedded. Bank Austria took a different route, says Elliot, using previous generation Pegasystems technology. Both have committed to go live in September, he says.

ABN Amro is using SunGard’s Intellitracs exception management solution. The bank had already standardised its cash and payments investigations globally. It implemented E&I as the next step, allowing it to not only standardise Swift messaging, but also the management of investigations by Swift members.

Daniel Cotti, head of global transaction products, at ABN Amro says E&I will help the entire banking community to reduce operational risk and costs and will significantly improve overall client satisfaction.

SunGard’s Day says that in building the E&I solution, Swift is not removing a competitive edge from its members. “Swift is looking to automate around the message flow, which is not proprietary. Where banks can gain a competitive advantage is in how the messages are handled once they come within the institution.”

Wolfe says SwiftNet E&I has the potential to deliver greater levels of STP in an area where the industry has reached already STP levels of 85-97%. “We have squeezed as much efficiency as we can out of the Swift payments standards and messages. Exceptions and investigations are costly and we have the opportunity with these standards to provide a better level of service to our customers,” he says.