From tiny acorns …
Back in 2004 at Sibos in Atlanta an ‘offsite’ session was held by Gresham Computing and Cable & Wireless, which were promoting the Real Time Nostro infrastructure. The meeting was attended by a handful of corporate representatives, outnumbered by bankers and senior Swift representatives. One of the latter complained that corporations were too diverse in their requirements and business models.
It was a fairly fractious meeting. Many banks feared that direct corporate membership would lead to their disintermediation. For their part, corporate treasurers felt banks were making money out of the inefficiencies in corporate to bank transactions. Banks were not offering greater efficiencies because it would eat into their margins, corporations complained.
By the end of 2014, corporate participation on the Swift network had grown by 10 per cent on the previous year with 55 new corporate groups participating. Swift had 43 per cent of Global Fortune 500 companies on the network at the end of 2014. More than 1700 banks are offering the Standardised Corporate Environment (Score, introduced in 2006) for Swift connectivity and 53 banking groups are certified in 120 countries.
Researching for a recent corporate treasury report, I found that the vast majority of corporate treasurers or chief financial officers with whom I spoke use Swift for bank connectivity. Swift is becoming a standard method for corporations, most of which have multiple banking relationships, to communicate with their banks.
The early days of corporate participation (around 2001) in Swift involved the member administered corporate user group (Macug), a restricted approach in which each bank set up its own CUG environment and corporations were often required to join several Macugs. By 2007 Swift had developed Score, a Swift-administered user group from which corporates accessed all of the banks that participated in it.
A growing number of corporations are using Swift; 12 per cent of the cooperative’s membership is now corporations, or 1450 companies globally representing 28,000 underlying legal entities. Swift is going beyond messaging into areas such as cloud-based business applications that can be integrated into the Alliance Lite2 solution. In addition, the ISO 20022 standard framework is enabling banks to deliver innovative solutions to their corporate clients.
In June, Swift announced that 26 new companies in Asia Pacific had joined the cooperative between October 2014 and April 2015. The newcomers are from a wide range of countries in the region: Australia, China, Hong Kong, Japan, Malaysia, Philippines, India and Singapore. Among them are Australia’s energy giant BHP Coal Holdings, Japan’s Sony Corp, India’s Gujarat State Petroleum Corp, and China Shipping Finance Co.
When the announcement was made, Stella Lim, head of corporate sales, Asia Pacific at Swift, said: “As corporates expand their business and global footprint, they are increasingly searching for a scalable solution, which Swift is able to provide.” A spokesperson for China’s Sany Group, which is one of the newcomers said: “We are consistently working with global customers, expanding our reach to the rest of the world. However, it becomes increasingly challenging to manage the company’s cash flow under multiple accounts as our client network expands. Partnering with Swift has enabled our business to monitor and process our global cash reserve more efficiently by consolidating all our transactions on to one common, secure, standardised platform. We would highly encourage more Chinese corporates to join the Swift community when going global.”
The Chinese Government is encouraging domestic companies to expand internationally. In December 2014 it announced plans to increase financing support for companies to invest and operate outside China. The aim is to raise the international competitiveness of Chinese products, especially equipment products, boost structural upgrading of foreign trade and push manufacturing and financial sectors to a medium-high level. If the moves are successful and Swift is able to tap into this, Swift corporate membership will receive a big boost.
André Casterman, global head, corporate and supply chain markets at Swift, says the cooperative’s corporate offering is based on more than just secure financial messaging. During the past five years, Swift has built up a portfolio of products and services for the corporate market.
These products include SwiftRef, a reference data service that offers a single source for all reference data needed for payments processes and regulatory reports. The service is used by financial institutions, corporates, data and service providers. It provides identification and validation of bank identifier codes, international bank account numbers, national bank codes, standing settlement instructions, single euro payments area routing information and other reference data. “SwiftRef enables corporates to improve the payments instructions they send to their banks,” says Casterman. “This ensures straight through processing and they can avoid rejects, for which they have to pay a fee.”
Another product corporates can tap into is the Web-based MyStandards, which became available in June 2012. It is designed to facilitate the management of global standards and related market practices across the financial industry. MyStandards helps corporations, financial institutions, market practice groups and market infrastructures to reduce the time, resources and risks involved in the implementation of standards.
Neither of these products requires the corporation to be connected to the Swift network, says Casterman. For example, 300 of the corporate SwiftRef users are not connected to the Swift network (although another 300 users are).
The 3Skey solution is another that does not require Swift connectivity. It was developed in response to demands from clients and is a multi-bank personal digital identity solution. The solution is usable on SwiftNet and proprietary networks or the internet. Corporates can sign financial messages and files sent to their banks, using a single signing device. It also offers banks a cost-effective way to implement secure authentication on electronic banking services by using a shared, reliable and trusted public key infrastructure (PKI).
Finally, the Bank Payment Obligation (BPO) offers the benefits of a letter of credit (LC) in an automated environment. It is an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date after a specified event (such as delivery of goods) has taken place. The specified event is evidenced by a match report that is generated by Swift’s Trade Services Utility or any equivalent transaction matching application.
“These products and services enable corporates to benefit from Swift, without connectivity being a requirement. There are certain mid-cap companies that use the BPO and 3SKey that are not using Swift for messaging, for example,” says Casterman.
Swift’s Corporate Advisory Group (CAG) plays an important role in validating products and services at the idea stage, says Casterman. It is one of the Swift business committees that guide the Swift board in its strategic decision making.
This year, Markus Wohlgeschaffen, global head of trade products at Unicredit, joined the Group. In an interview with Swift, he said the CAG gives input to Swift with respect to the expectations of corporate clients and banks’ strategies to meet those expectations. “The role requires solid banking know-how, a deep understanding of the trade environment globally and of course close contacts with trade clients,” he said. He is also a member of the Global Trade Industry Council of the Bankers Association for Finance and Trade and the International Chamber of Commerce Banking Commission Advisory Board. He added that “translating all the information into tangible solutions that provide value for corporates and banks will be the main challenge of this new mandate”.
Tom Durkin, managing director, global head of integrated channels at Bank of America Merrill Lynch, is also a member of CAG. He says it plays an important role in providing insight into the market landscape for corporates. There has been a big change in mindset towards corporate connectivity among banks and also among corporations, he says. “I used to be asked whether bankers were afraid of what would happen as corporates joined the Swift network. But today it is a mainstream offering, viewed by banks as one of the channels they offer to their corporate clients.” Durkin says he has seen “explosive” growth in the use of FIN messages by companies using treasury management systems (TMS) and also in the use of the FileAct service by companies leveraging their ERP systems.
One of the drivers of Swift adoption by corporations is security, he says. “Swift is one of the most secure networks out there. Increasingly, corporations are concerned about security and there is no better way of controlling payments traffic flows in a secure environment than Swift.”
Swift was often perceived as an option only for the large multinational corporations. However, Casterman says this is changing and that large and small companies have similar goals. Both groups want access to critical information on their cash positions. Swift is able to pool data from multiple banks and deliver it to treasurers, showing them their cash positions, per account and per bank.
Around five years ago the corporations joining Swift were typically centralising their treasury operations. These were very big projects that took time to come to fruition, says Casterman. Now the picture has changed and since 2014, more than 40 per cent of the companies that have come on to the Swift network have turnover of less than $1 billion. Many of these companies are taking advantage of cloud technology offerings from TMS vendors, which make the implementation of connectivity to Swift very rapid. “The multibank capabilities that have been enjoyed for the past 15 years by the large corporations are now accessible to mid-cap companies as well,” he says. “This is in a large part due to the fact that Swift has reduced the cost and complexity of joining Swift by introducing Alliance Lite2. We are also working to interface into cloud TMS offerings.”
Adoption of Swift is not as straightforward as some would like. Parth Desai, chief executive of Ace Software, says while Swift is a great way for corporations to communicate with banks, it would be “ideal” if corporations could communicate via Swift with all banks for all payment types, in all formats and in all countries. “The Swift network in principle is designed to support these requirements; however the corporate banking eco-system around Swift is not yet ready to support this. That is the fundamental problem with easy adoption of Swift.”
For payments, he says, a corporate treasurer would like to simply ensure that the specified amount is deposited in the beneficiary’s account on a certain date and in a certain currency. Secondly, they would like to know the cost for doing so. “Corporates globally have a few options to send a payment domestically based on the urgency of the payment: real time gross settlement (same day), automated clearing house (one to three days) and in some countries such as the UK instant (same day up to £100,000). They have one option for international payments, which is Swift.”
Corporates typically use all the payment methods at some stage. They choose the payment method based on the cost and urgency of the payment. However, when they try to practically send a payment via Swift, there are obstacles. These include the fact that not all banks communicate with corporates via Swift, some banks will communicate via Swift only for some payment types, different formats have to be supported across different payment types, banks and channels and in addition to Swift, corporates have to support several other channels of communication, depending upon the bank and payment method. “If they have to implement Swift along with other channels, is the Swift cost justified?” asks Desai.
One way to control Swift costs is to use a service bureau. Andreas Guenther, head of continental Europe at Broadridge (which operates a Swift service bureau), says corporates’ current level of knowledge about Swift is “still somewhat limited”. Compared to banks, he says, corporations are a relatively new type of client for Swift and therefore there is not yet an existing knowledge base or true infrastructure in place. “There is a need amongst corporates to use service providers who can help them structure their potential Swift usage, understand Swift’s capabilities and gain knowledge and experience in the Swift space.”
Guenther says the messaging function is the starting point and primary impetus for corporates to join Swift and is still the biggest share of the revenue stream for Swift. He believes corporates are increasingly focused on additional services such as sanctions screening, the KYC Registry and SwiftRef. “Typically, corporates start by using account statements and payment transactions and after a short time they tend to add additional business processes, such as FX trading, to the Swift messaging service,” he says. “Plus, there are a number of additional customised functions that are offered through service bureaux and are based on individual requirements of corporates: treasury functions, routing possibilities, audit functions, payment factories etc.”
The corporate world is “really just at the beginning of adoption of Swift” he says. “When corporates begin using Swift, they recognise the advantages of the service right away, and there is a clear trend to extend the usage of Swift after the initial go-live.”