Managing Cash and Treasury the SWIFT Way

What is FIN? What is FileAct? What is SWIFTNet? What, for that matter, is SWIFT?

 
CFOs and treasurers have been grappling with these unfamiliar terms as SWIFT – that’s the Society for Worldwide Interbank Financial Telecommunications – intensifies its push for companies in Asia to use its SWIFTNet product. This is the secure and standardised global communications platform that banks have long relied on to send and receive messages about cash transfers, payment instructions, letters of credit and other ultra-confidential transactions.
 
The financial messages are categorised into three types: 1) FIN, suitable for treasury and risk management communications; 2) FileAct, for cash management; and 3) InterAct, for exceptions and investigations. All three types of messages can be sent through any of three products: direct connection, indirect connection and the Internet-based Alliance Lite. Each one has a different cost structure.
 
The idea behind corporate usage of SWIFTNet is for companies to communicate directly with banks, both in terms of sending them messages and receiving real-time reports on corporate accounts and financial transactions. Caroline Lacocque, Head, Corporate Connectivity APAC, sent written answers to e-mailed questions from CFO Innovation about the benefits and challenges of SWIFTNet for corporates in Asia.
 
What is the picture like in Asia currently about corporate take-up of SWIFT connectivity? 
Corporates on SWIFT come in all sizes – from mid-sized companies with simple cash management structures dealing with a few banks locally to large corporations deploying sophisticated payments and collections factories. 
 
Today, over 565 corporates are using SWIFT worldwide. Eleven percent of those are based in Asia, which we see as an important growth market. Samsung, LG, Panasonic, the Noble Group, and Petronas are among those corporates on SWIFT in Asia. We also recently signed our first Indian corporate.
 
The rest of the breakdown for corporates on SWIFT is 69% EMEA [Europe, Middle East and Africa] and 20% Americas.
 
There has been a substantial increase in the uptake of SWIFTNet in Asia over the last two years. Corporates are now realising the advantages that SWIFT can bring in terms of rationalising their bank connectivity and getting better views on their cash, and the technical component is also now better understood.
 
Furthermore, the 2008 credit crisis has had a big impact on the industry as a whole since there is much greater scrutiny of spending and all new projects have to go to procurement in a more detailed way than before.
 
Part of the increase in adoption is due to the fact that it is now easier to connect to SWIFT. This can be attributed to greater connectivity options.
 
Globally there’s an increasing number of smaller size (<1 bn EUR annual turnover) and corporates with fewer banking relationship (sometimes even just one) using SWIFT for domestic transactions.
  
How do you differentiate among the three connectivity products currently on offer?
From a technical point of view, connecting to the SWIFT network requires the availability of specific software. This software can either be purchased from SWIFT, or alternatively from a SWIFT Interface vendor. This software can either be installed at the corporate’s premises (“direct connectivity”), or the corporate can rely on the services of a certified provider, called a SWIFT Service Bureau (“indirect connectivity”). In that case, the Service Bureau will operate the connection to SWIFTNet and the SWIFT interface on the corporate’s behalf.
 
Alliance Lite, SWIFT’s Internet-based connectivity product that provides direct, low-cost access to its network, was launched recently. Alliance Lite is designed for firms exchanging fewer than 200 messages per day. The Internet-based connectivity option provides direct,  secure and low cost access to SWIFT, using a standard Internet browser and a SWIFT-issued hardware security token.
 
The choice of the connectivity model is a crucial question that should be answered in the earliest stage of the project. Deciding whether to build SWIFT capabilities in-house, outsource them to a service bureau or connect via the internet depends in varying degrees on financial capacity, on strategic plans, and on cultural preferences.
 
What are the benefits that actual companies in Asia have experienced after signing up with SWIFT? What are the challenges they encountered in implementation and how were these solved?
 
Using SWIFT, corporates can enjoy these benefits:
 
  • Global visibility of cash and optimisation of cash and liquidity management. The ability to receive end-of-day or intra-day reporting directly from all your banks increases funds visibility and gives you the ability to invest better.
     
  • Lower cost of financial transactions. SWIFT allows for channel rationalisation, a single channel versus a multitude of different channels. The more banking relationships, the higher the savings. Additionally, standards used over SWIFT allow increased straight-through-processing (STP) (content rationalisation) and therefore staff productivity gains, for example by eliminating the need to re-key payments.
     
  • Improved security/reliability. Ability to control payment initiations and increased security, while more difficult to quantify, are also recognised as a key benefit. In some cases, our 99.999% network availability is important because some corporates suffer from regular break-downs of their e-banking systems.
     
  • Compliance. For corporates under stringent regulation, such as Sarbanes Oxley, using one single interface significantly reduces the administration work required to document – and keep up-to-date – banking communication processes.
 
A lot of corporates in Asia use double-byte characters. Is this a problem with Swift connectivity? What about preponderance of paper transactions, lack of infrastructure, and local banks not being members of SWIFT?
Double-byte is a problem for FIN yes, but not for XML messages [in InterAct]. For example, TSU (Trade Services Utility) already supports populating information in Chinese characters.
 
For infrastructure questions, we have introduced [Alliance] Lite, which is supposed to serve the rural areas with just a lightweight internet connection. We are approaching the local banks as we speak, when there is a demand from their customer to offer Swift connectivity.
 
How much does Swift charge for connectivity services? How much typically would a corporate need to spend to implement the system and integrate into its ERP and other systems? What would be the ROI for this spending?
Migrating to SWIFT naturally requires a business case. The return on investment can be very high (the more banking relationships, the higher the savings). We have seen ROI of 326% at Microsoft, 120% at Novartis, 414% at Petronas, 203% at DuPont. A list of these can be found at www.swift.com/corporates.
 
The cost depends on size of corporate, type of connectivity, and volume of transactions.
 
  • For direct or indirect connectivity (service bureau), prices range between €15,000-€22,000 in one-time fee and an annual fee of €12,000. For traffic, message price is 6-20 eurocents (FIN) and 0.1-0.03 eurocent (FileAct).
     
  • For Alliance Lite, the cost is €10,000 a year, including registration. Connectivity is up to 200 items in/out per day.
 
What can you tell us about SWIFT's electronic bank account management EBAM) product, which was launched this year in Asia?
Managing bank accounts involves physical transfer of documents and person to person communication. Moreover, corporates working with different banks have to adapt to each bank process/set of documents. Very little harmonisation exists between banks.
 
The EBAM (Electronic Bank Account Management) process steps cover: 
  • Opening accounts
  • Account maintenance
  • Account closing

This SWIFT solution, which will allow corporates to manage their bank accounts electronically, was launched in January. The working groups consisted of 10 banks and 4 corporates. We are currently introducing this globally, including Asia. Once corporates are interested we will reach out to their banking partners and back office application vendors and help them to get ready to offer these standards to their respective clients.

 

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