This is the first of a two part post in which I will attempt to cover the most important things you need to know about SWIFT connectivity. Please note this is specifically with reference to SWIFT connectivity for corporates. In this post I will outline the key benefits of SWIFT, and in the coming days the drawbacks of SWIFT connectivity. There are plenty of articles out there telling you all the benefits of SWIFT. In this post I don’t want to reiterate those same points, but to share with you some of the good things I have seen and experienced.
What is SWIFT Connectivity?
Ok, so we have all seen the picture of a corporate connecting with their banks via one or more of the following:
- A host to host channel, which may consist of various connectivity solutions including:
- SFTP – Secure File Transfer Protocol
- FTP – File Transfer Protocol
- A dedicated bank workstation
- A customised bank or third party connectivity solution
- Internet banking platform through which files are uploaded and / or downloaded to the corporate environment
And then there is SWIFT. SWIFT replaces all of the above with essentially 1 global pipe going from your corporate environment to multiple banks
Put simply, that is the SWIFT connectivity solution.
What are the Benefits of SWIFT for Corporates?
In no particular order…
1. A single global bank connectivity solution:
The ability to reduce multiple bank specific (or bank proprietary) connectivity solutions with just one – SWIFT
The theory goes with fewer bank interfaces, fewer resources are required to maintain and support bank connectivity. The overall bank architecture is simplified and standardised across the different banking partners
2. Process efficiencies:
SWIFT is often a way of centralising and standardising bank connectivity, which in turn offers other opportunities such as outsourcing. Corporates are also able to implement a payment factory solution which leverages SWIFT’s single and centralised bank connectivity architecture.
3. Improve controls:
By reducing your bank connectivity options, you can implement better controls and safeguards within the SWIFT solution. For example, the opportunity to replace manual interfaces – where users upload payment files into internet banking applications – with an automated SWIFT solution is a very real prospect.
4. Reduce costs:
Fewer bank connectivity solutions enables both reduced internal costs (costs of maintaining and supporting multiple solutions) and reduced external costs (the costs of various bank solutions). Cost reduction does however depends on a couple of things:
- Number of banks with whom you have a bank interface
- Number of bank interfaces
- Volume of traffic
- Number of countries that you’re operating in
5. Paramount Security:
Better security – a corporate to bank connectivity environment that has fewer connections with your banks means that you can focus and better secure the interfaces that you do have. SWIFT is one of THE most secure channels through which you can connect to your banks, this security can be further enhanced by adding encryption with your target banks. Implemented in the right way, you can ensure that messages are encrypted at source and only then readable by their intended recipients (i.e your bank’s back office systems).
With many corporates paying special attention to security and particularly data security, SWIFT offers corporates a trusted global solution
6. Unrivalled Reliability:
Incredible reliability! You don’t need to worry about the SWIFT network being down, SWIFT boast 99.999% network availability. In addition to this network availability, SWIFT have never ‘lost’ a FIN message. That reliability and record speaks for itself really.
Anybody in the payments space will have experienced pain with multiple bank connectivity solutions. Whether it is the banks internet banking application or their proprietary host to host solution, they are more prone to network and connectivity issues. Especially in a shared service environment, for example sometimes you configure a workstation with one bank portal and for one reason or another the configuration break access or functionality to banks internet portal. Arrghh!! We have all been there and got that t-shirt, eh?
A single solution that ensures compliance with both internal and external (for example Sarbanes Oxley) controls. Whether it is internal audit, security, process and risk controls or external regulatory compliance SWIFT is the answer. There isn’t a need to implement (and support) multiple and complex compliance controls for different systems and banks – SWIFT simplifies and enables compliance.
8. A Global Solution:
Most banks around the world connect and exchange messages with each other over the SWIFT network. Corporates can take advantage of this network and connect with their banks and bank branches around the world too. Also where SWIFT connectivity with a particular bank or bank branch is not available, there is often the opportunity to connect with these typically local banks through SWIFT via a multi-banking arrangement. As a result, almost everyone is connected.
9. Straight Through Processing – STP:
SWIFT advocates the use of standard global data formats for payments (for example MT101 and ISO20022 XML PAIN.001) and bank statements (MT940 / MT942 formats) enabling banks and corporates to exchange these messages in a common and consistent manner. SWIFT are the recording authority for BIC and IBAN codes, as well as the already stated ISO20022 XML standards.
By ensuring that your ERP systems can generate and accept these SWIFT standard formats you start to build process efficiencies into your global daily processes, which enable your payment messages to straight through process at the bank. This in turn reduces time spent or wasted on manually entering bank statements and / or fixing payment errors. This is something we have become all too familiar with during the SEPA implementation…. What’s more, these messages and payment files are typically delivered or received to and from your banks in real time! This visibility and almost instant automated processing is crucial in todays environment.
SEPA has significantly standardised the payment format for euro payments in Europe. With an almost standard payment format in Europe, many corporates are looking for opportunities to now simplify how that format is delivered to the bank. If you are dealing with multiple banks in the Eurozone, there is no reason why you cannot send ALL of your SEPA payments to one or fewer banks.
There are other SWIFT messages available too – for example trade finance and settlement, securities and FX confirmation messages. As such, the SWIFT solution meets most of the needs of the corporate treasury function.
10. SWIFT, Tick!
SWIFT enables you to implement a bank agnostic and global connectivity solution that enables efficiencies in 2 ways:
- Firstly, SWIFT greatly improves the connectivity between you and your banks by providing a global, reliable and secure network solution that enhances the end to end process, controls and security
- Secondly, through its message standardisation efforts SWIFT is encouraging the use of ISO 20022 formats globally, with a few tweaks here and there! As a result the data that you’re pumping through the SWIFT channel is of a much better quality and is therefore more likely to be processed without any errors by the receiving bank
There you go, these are the benefits of SWIFT connectivity. It sounds too good to be true, doesn’t it?! Watch out for my post in the coming days balancing the benefits of SWIFT by highlighting some reasons why SWIFT is not always the answer….
In the meantime, I would love to hear your thoughts on this post in the comments section below….
- SWIFT – SWIFT for Corporates
- SWIFT – Value Proposition
- SWIFT – Business Case
- JP Morgan – Understanding SWIFT for Corporates
- SWIFT for Corporates – Vade Mecum 2012