9 July 2007

There is a steady acceleration in the number of organisations connecting to SWIFT. A few years ago, the bank owned network peaked at around 7,000 connected users, with the number of new users each year just higher than those decommissioning due to mergers and acquisitions. But in the last two years, new users such as corporates and investment managers have been pushing the numbers of end points on SWIFT past the 8,000 mark, even with the continuing drive among existing users to consolidate their links. A few of these new players, as well as new banks coming onto the network, are opting for the classical direct connection and interface managed in-house, but over the last two years, around 80 per cent of new SWIFT users connect over shared connections, typically a SWIFT Service Bureau or Member Concentrator.

We have experienced this general trend towards an outsourced service first hand at SMA with a fast ramp-up of customers on our SWIFT Bureau. However, the demands of our client base are constantly increasing, and many new SWIFT users are now looking far beyond simple connectivity. Integration with back- or front-office systems, which we have provided for over ten years, is also taking on an altered meaning with the advent of new SWIFT services over SWIFTNet FileAct and InterAct, as well as the traditional SWIFTNet FIN messages. A toolbox of value-add services is essential to win new business, and is becoming an important way to retain (that is, develop) existing clients. As bureaux are becoming more prevalent, and more people are buying into the outsource model once more, the bureau is becoming more ingrained into the customer's business. It starts with a simple re-format question, or a requirement to enrich a message with some static data to achieve straight-through processing (STP). This is quite straightforward even with a simple script or command. With more sophisticated tools, one can look at more complex enrichment, or even message repair, which is where the value-add becomes very valuable. We have several clients for whom we re-format and enrich data using Microsoft BizTalk on the bureau, converting data from proprietary format into XML, classical SWIFT FIN message types and bank specific formats. The message is: "Don't worry too much about standards or formats; if you've got the data, send it to the bureau and we'll get it through to your correspondent for you, in the format that they require." The Single Euro Payments Area (SEPA) is a big talking point among corporate treasurers at the moment, and research is showing that the cost to the banks of dealing with failed transactions could be over €1billion in January 2008. As a corporate customer, keeping bank charges low is clearly going to be a challenge, and improving STP at the bank has to help keep these costs down. Banks that charge from £10 (€14.6) per message repair do not do so for profit, in fact they do not even cover costs. It is not the bank's core competency to repair messages, but it is in their interest. XML payment initiation and inclusion of valid IBAN, BIC, and account information is key to SEPA compliance. If a corporate's TMS or enterprise resource planning systems do not produce or validate this information, then a service bureau can add considerable value, at a fraction of the cost. By providing the correct information, in the correct format, over a secure, trusted channel we help to ensure that bank charges do not increase. Other drivers for new SWIFT connections are the new solutions offered over SWIFTNet FileAct and InterAct, such as Bulk Payments, Cash Reporting and Funds. There is continual pressure for automation across the financial markets, but adoption of these new services will nearly always require an aspect of manual testing to launch the project, which can often be a sticking point. Rather than investing vast amounts of time and resource in proofs of concept or test cases, customers are using bureaux that already have all the necessary infrastructure in place to kick-start these initiatives. Experience and project management skills also go a long way to help the customer, particularly when new to SWIFT, or to a particular solution. For example, we have already facilitated SWIFTNet funds testing and now have a customer sending live XML funds messages through the Bureau. While there is a migration path available to any customer who subsequently wants to in-source, we find most want to continue using the bureau, with a request to use more services.

Some of the standard business offerings that are provided on the bureau have long been used by customers who are connected directly to the SWIFT network. Duplicate checking, MI reporting, and sanction filtering are all products with a wide user base. However, we are seeing some new bureau prospects with a lead interest in sanction filtering, rather than SWIFT. The sanction list filtering software running on the bureau can be used to check a name, a file of names or payments against various sanction lists, such as Bank of England, EU, and OFAC, with reports generated of possible violations against each list. Solving a single problem can be the initial lure for a customer, who then goes on to investigate the possibilities of scaling up to a full bureau solution including SWIFT for payments or securities transaction processing. There will always be a small proportion of new users who want to in-source, connect directly to SWIFT, and build and retain systems and knowledge in- house, who will undoubtedly need experienced consultancy services. The acceleration of institutions connecting to SWIFT will continue, as will the shift to outsourcing. But the business drivers for choosing to use bureaux have already evolved from basic connectivity to offering increased control and choice. Guy Griffiths is a director at SMA Software & Consulting and a member of the SWIFT Business Partner Advisory Group.