Achieving Treasury Visibility by Leveraging SWIFT
Scott Montigelli, Kyriba - 25 Nov 2008
This article examines how treasurers can further capitalise on SWIFT to increase visibility
over funds and support treasury's role at a time when effective cash management has never
been as important.
Companies of all sizes and across a multitude of industries are increasingly focusing their attention
and evaluating SWIFT, the Society for Worldwide Interbank Financial Telecommunication, the memberowned co-operative through which the financial world conducts its operations. Headquartered in
Belgium and founded in 1973, the organisation provides a proprietary communications platform and
services allowing its customers to connect and exchange financial information. SWIFT is solely a
'carrier of messages' and transports messages between two financial institutions; it does not hold
funds or manage accounts.
SWIFT was originally established to facilitate a standardised communication mechanism between
banks. Over the past 30 plus years, the community has expanded to over 8,300 participants and has
grown to include broker/dealers, central depositories, investment managers, treasury counterparties
and, most recently, corporations. The ability for corporates to utilise the SWIFT network is noteworthy
in that it helps overcome one of the paramount challenges for effective cash management: a single
mechanism promoting the efficient information flow from and to a company"s banking and financial
partners.
What Does SWIFT Enable?
Just as individuals look to the Internet for information critical to their daily personal and professional
lives, the SWIFT network facilitates consolidated access to vital information that treasury and finance
professionals need to be successful in the daily course of their respective businesses. The end result
is simplifying the operational hurdles to enable more strategic decisions faster; thus, the right
information is available to the right people at the right time.
Efficient consolidation of key information and enterprise-wide visibility has typically been recognised as
leading practice - something that companies aspire to achieve. Corporate access to SWIFT now helps
to make this a reality for those companies with multiple banking and financial partners. SWIFT
facilitates message format 'standards' (known as FIN) and communicates various message 'types'
including customer payments, checks, financial institution transfers, foreign exchange, money markets,
derivatives, securities and cash management (i.e. account balances and transactions, etc.) and
several other categories. In addition, SWIFT provides the FileAct service that allows files in nonproprietary formats to be transmitted across the network (i.e. ACH and BAI, etc.). Thus companies
utilising pre-existing file formats are not required to re-engineer their processes or expend more
money.
The combination of FIN and FileAct communication protocols allow corporates to leverage a
comprehensive global mechanism to link and consolidate information that is determined to be 'mission
critical' and central to strategic decision making for their organisation. All of the data is passed through
one connection point to the SWIFT network and can be imported to or exported from most third-party
applications, such as treasury management system/workstation, ERP system, accounts payable (A/P),
accounts receivable (A/R) or reconciliation, etc. In this way, true straight-through processing (STP) can
be realised for trades and transactions resulting in significantly cleaner and efficient processes. For
example, payments from an A/P system can be exported in a SWIFT format (FIN) or other format,
perhaps NACHA (to leverage FileAct), and communicated directly to the bank.
Figure 1 below illustrates the simplification and efficiency SWIFT connectivity makes possible. The
case for achieving visibility into bank accounts and balances, investment and debt positions, and
trading and transactional details via SWIFT cannot be more aptly expressed than by taking into
account today"s global markets and the conditions of financial systems around the world.
Figure 1: SWIFT Connectivity
Relevance Today
With elevated risks of credit market contractions continuing, the increasing pressures on working
capital can be enormous, as the costs of funds skyrocket if at all available. Understanding where the
company"s cash is (and perhaps isn"t) in real-time or near real-time helps to alleviate the dependency
on the credit markets through intercompany funding. Thus, the transparency accomplished supports
the strategic funding decisions and can significantly lower the associated costs, expedite and
centralise investment decisions to promote increased investment income through cash pooling, and
facilitate more precise and timely views of foreign currency positions to manage FX risks.
By its nature, achieving visibility into specific accounts simultaneously increases controls throughout
the organisation, as transactions and details are readily available to central treasury that perhaps had
not previously received them on a timely basis, if at all. A more structured workflow is established as
current/pending transactions (i.e. payments, trades, etc.) can be confirmed/approved, and automated
reconciliation protocols implemented to validate the data on an ongoing basis.
As the broad categories of information that can be transmitted over SWIFT include sensitive and
confidential information, one may question the stability and security of the network. Being that SWIFT
is the primary means by which banks communicate with each other, the resiliency of the network is
second to none and has a 99.995% availability history. If a bank experiences a technical issue or
perhaps an unexpected event causing a disruption, the first system to be repaired and 'resurrected' is
connectivity to SWIFT. If a company is connected to several banks directly by other means, perhaps by
file transfer protocol (FTP), and one of the connections is lost, the bank may have other pressing
priorities or as mentioned previously, first divert its attention to repairing the SWIFT connection. This
can result in the company waiting on the sidelines for the bank"s attention.
SWIFT employs a round-the-clock 'follow the sun' support model given the global nature of the network
and the criticality of the business of its member organisations (i.e. banks). The network utilises public
key infrastructure (PKI), which is an arrangement that binds public keys with respective user identities
by means of a certificate authority (CA). The user identity must be unique for each CA and the binding
is established through a registration and issuance process so that identity and other attributes cannot
be forged.
There are over 900 banks globally that currently participate in the latest corporate connectivity offered
by SWIFT - the Standardised Corporate Environment model (SCORE). The use of standardised
messages and protocols allows the corporations to communicate directly and immediately with this
growing community of banks once connected to SWIFT, and there are options in gaining access to
SCORE. A corporation can manage its own private infrastructure whereby the connectivity
infrastructure is owned and operated by the company, or it can engage a service bureau, which owns
and operates the connectivity infrastructure. In both scenarios, the corporation is responsible for its
own applications (ERP, treasury workstations) and is best served facilitating integration and straightthrough processing to each whenever possible. A service bureau may serve as member concentrator,
which also manages the administration (applications, onboarding and invoicing, etc.) of the SWIFT
membership on behalf of its corporate client, thereby increasing the level of service the corporate can
enjoy.
Conclusion
As treasury professionals consider the implications of standardising communication formats, managing
one connectivity 'hub' regardless of the number of banking/financial partners, the speed by which the
data can be provided, the completeness of the data, increased accuracy, and the substantial
advantages of implementing/increasing straight-through processing, each benefit of leveraging SWIFT
represents a cornerstone of achieving visibility across the enterprise.
To further capitalise on SWIFT and the power of technology, companies that can incorporate STP in
their ERP systems, treasury workstations, and trading portals (FX and money market) will realise the
added benefits of lowering costs, reducing operational risks and eliminating inefficiencies from their
operations. These strategic initiatives and the faster, more educated decisions that result from
increased visibility further substantiate the significant and value-added nature of treasury"s role within
the corporate organisation. In today"s global environment with the impending financial crisis, this is
more critical than ever before.
