When SWIFT (Society for Worldwide Interbank Financial Telecommunication) allowed access to corporates, more than a decade ago, SWIFT-enabled banks were exclusively using the service for inter-bank messaging. In the early years around 2002/2003 there was a big drive from large corporations to join the SWIFT network, in order to easily integrate with their Banks in a simplified, consolidated way.
From the Corporate’s perspective, high volumes and new SWIFT messaging technology were the key hurdles to achieving a meaningful business case for joining the financial messaging network. From the Bank’s perspective, the deployment and operation of a Corporate-side SWIFT architecture with skilled Transaction Banking technical and business teams was an exponentially bigger challenge.
Today, SWIFT counts more than 1,000 corporate users, which includes about 40,000 underlying entities, 73% of which are based in the EMEA region. Technical access to the network is available via a wide range of models: in-house SWIFT architecture, web browser-based packages, Service Bureaux and B2B integration partners.
The initial use case of SWIFT for corporates was most successful for Liquidity Management (Payments and Reporting), which is now well adopted and for Cash Management and Risk Management (Foreign Exchange treasury deal confirmation). The current areas of volume increase are Trade and Supply Chain (documentary credits, demand guarantees, collections and bank payment obligations) and EBAM (Electronic Bank Account Management).
In Europe, SWIFT is now competing with a growing Financial Messaging standard called EBICS, allowing multi-bank corporates to replicate some functionality from the SWIFT network at a lower cost.
So what does this history teach us, from the Bank’s Transaction Banking perspective? Surely the Corporate Treasurers have learned some lessons we could apply within the Bank’s Channels organisations.
- Direct costs of using SWIFT drove Corporates to consider outsourced models. But, on the other hand, Banks have been less eager to maximise the business case of their own SWIFT infrastructure. Some Tier-1 Banks are successfully leveraging a SWIFT Service Bureau to accept SWIFT-enabled corporates, however the long history, culture and politics of in-house SWIFT for inter-bank is still a barrier today to enable an agile and efficient SWIFT corporate channel.
- SWIFT is still run by Bank members for Bank members, putting responsibility on each Bank to innovate for value-added services around SWIFT for Corporates. An article from Forbes highlights the current innovation work streams within the SWIFT organisation; creativity is mainly focused on supporting new and future inter-bank business processes, with the exception of the CGI for ISO20022 or multi-bank Trade Finance flows. The latter was enabled two years ago and highly highly advertised. Banks are individually responsible for delivering new value-added services around SWIFT, purely based on their commercial mandate.
- Disruptive Pan-European alternatives to SWIFT are entering the market, cannibalising some of the volumes from the SWIFT for corporates channel. In the last few decades, Corporate Treasurers have learned to deal with diverse Corporate-to-Bank protocols and file formats at the same time. A typical example could be: one Host-to-host protocol for Bank A, another one for Bank B, SWIFT for Bank C, D and E.
Now, a Corporate Treasurer would directly integrate once with an integration broker (such as B2B cloud integration broker or Service Bureau), who would manage all the physical connections and file formats with the Banks. This model is also available to Banks, allowing them to augment their range of corporate channels and integration options. Again, Corporate Treasurers have learned the lessons and have deployed solutions to a similar problem to that experienced by Bank’s Channels organisations.
To conclude, the key learning from Corporates is to look at new ways to access SWIFT and other banking channels, changing a few old habits along the way, and looking at how to partner with technology companies. This culture is now starting to grow within the Bank’s Transaction Banking and Channels organisation.
GXS today runs the SWIFT, EBICS and other Host-to-host Channels of global Tier-1 Banks and Tier-2 regional institutions, making us one of the largest service bureaux in the world. I would like to leave you with this question (and answer!).
Q. What does a technology partner like GXS bring to the Bank, in terms of corporate client reach, client enablement capabilities and time-to-market?
A. We enable 550.000 Corporates to exchange Business-to-Business and Corporate-to-Bank transactions, with 40.000 direct GXS clients and 250 Financial Institutions. We run more than 38.000 file transformation maps in our production environments, processing 14 Billion transactions per year.