Pioneers like GE, IBM and Microsoft built and maintained their own communications infrastructure for connecting directly to SWIFT. But now most companies that join SWIFT outsource the complex noncore activity of running an electronic post office and are choosing a service bureau to do it for them.
Roughly 70% of corporate SWIFT joiners choose a service bureau to avoid the high upfront investment and ongoing operations costs of maintaining their own SWIFT connectivity infrastructure, claims Mary Ellen Putnam, vice president of the international business unit at one prominent service bureau, Las Vegas-based BankServ. "About 80% of the SWIFT costs are associated with having to dedicate resources to implementation, disaster recovery and upgrading the system," Putnam says. "A service bureau can help eliminate 50% to 60% of this cost."
Brian Wedge, executive director and global SWIFT product manager for J.P.Morgan Treasury Services, agrees that most companies joining SWIFT today are choosing to use service bureaus and notes that so do the majority of banks. Many treasury staffs don't realize that many of their banks have been depending on service bureaus for SWIFT connectivity for years, Wedge says.
Undaunted by cost and complexity, service bureaus have proliferated since SWIFT allowed companies to become members. Treasuries looking for a service bureau confront dozens of choices, all with the same core proposition: "Rent our infrastructure and we'll plug you into SWIFT so you can use all those messages." How can a treasury manager sort through the options and make the best choice for his or her company?
At first glance, the differences among service bureaus may seem slight. Basic connectivity is pretty much a commodity service available from any service bureau. Differences in pricing usually are small; most charge a set-up fee and an annual subscription fee, and pass along the transaction-based charges they pay to SWIFT, explains Tom Nelson, cash management specialist at Wall Street Systems. Some service bureaus mark up the SWIFT fees and others do not.
To find a compatible service bureau, start with SWIFT's list of the 140 or so that it certifies, Putnam advises, then look for one that is strong in the services you expect to need. Consider their SWIFT expertise, compliance and disaster recovery support, she adds.
When it certifies service bureaus SWIFT requires annual validation of technical and functional capabilities, says Bryan Kirkpatrick, Bank of New York Mellon's vice president, senior product manager and SWIFT expert. "With a good service bureau, you get expertise, reliability 24 by 7 and data back-up," he says. "There's a lot you don't have to do yourself."
Treasury managers should be careful if they consider bureaus that aren't on SWIFT's certified list. "Those certified have been carefully examined for their organization, their knowledge, expertise, and approach to the market," explains Eileen Dignen, SWIFT's managing director of banking accounts and initiatives for the Americas. "We can't control the small outfits that are out there scanning the market for individual projects." SWIFT now offers a consulting service that helps companies select a service bureau.
While SWIFT is global, geography still plays a part in some selections. Latin American companies, for example, seem to favor Latin American service bureaus, Dignen notes.
While connectivity is the prime reason for opting to use a service bureau, the bureaus don't provide a high-tech switchboard that companies can simply plug into. Treasury staffs may expect that once they connect to SWIFT, they can move their bank communication into that single channel using standardized messages that work instantly with all banks, cautions C.J. Wimley, executive vice president for corporate solutions at SunGard AvantGard, but the fact is that there is great disparity in what banks can do over SWIFT. It takes work, much of it bank by bank, to truly automate the communication. That's why it's important to pick a service bureau that can manage the bank interfaces if the company chooses to outsource that task, Wimley says. SunGard owns a certified SWIFT service bureau.
The focus for most treasury shoppers will be finding a service bureau that offers the value-added services they want. Expect standard connectivity from any SWIFT-certified service bureau and shop for value-added services and maybe price, advises J.P. Morgan's Wedge. Value-added services include consulting, format translation and some degree of business functionality such as reconcilement, he notes. Service bureaus may also offer translation to get data into and out of XML, he says.
Many service bureaus are independent, but others are adjuncts to a core business like consulting or treasury software. SunGard, for example, packages its service bureau with its treasury workstations. Most of its service bureau clients also use SunGard software, Wimley reports, although SunGard can and does sell the service to a few companies that use other treasury workstations.
For some, being a SWIFT service bureau is their primary business. For others, it's a small piece that complements their primary business, Dignen explains. "There are pros and cons for each."
Wall Street Systems does not own a service bureau, but that doesn't mean that its clients are out of luck. For Wallstreet Treasury clients, primarily mainstream treasuries, the company partners with Fides, a SWIFT service bureau owned by Credit Suisse, which already has a heavy-duty SWIFT infrastructure as a global bank. The combination of Wallstreet Treasury and Fides is offered as a software-as-a-service package that most clients that want a SWIFT service bureau take, says Glen Solimine, head of sales for Wallstreet Treasury. But companies can buy Wallstreet Treasury and use a different service bureau, he says.
Clients of Wall Street Systems' high-end Wallstreet Suite product generally prefer direct SWIFT connections to service bureaus, but that doesn't mean they can't outsource some of the heavy IT lifting. The common perception that joining SWIFT directly requires a big investment in building and maintaining communication infrastructure is not entirely true, Wall Street Systems' Nelson points out. "Several of our direct clients use us to host the SWIFT gateway and infrastructure," Nelson explains. "We don't have a service bureau as a commercial offering. Our direct clients have their own SWIFT addresses, but we can still host the hardware and manage the software for them." So there is a semi-direct option, a middle ground between direct and service bureau, at least with Wall Street Systems.
Companies that choose a direct connection today are usually driven by senior management that sees counterparty risk in relying on a service bureau. "Many of the service bureaus are small," notes Elaine Filus, a principal at Treasury Strategies in Chicago, "and some people just don't want their sensitive data to be touched by any third party."
While many service bureaus are small and thinly capitalized, they have attracted large clients, which gives comfort to other companies that they have staying power. And if a company picks a service bureau that doesn't deliver as promised or goes out of business, it's not that hard to change, Solimine says. "It's a plug-and-play application. Changing service bureaus is pretty simple, like changing an address. You just pull the plug and plug into a new provider."
SunGard's Wimley disagrees, calling corporate/service bureau arrangements "pretty sticky.
"It's your lifeblood for banking information and payments processing," he says. "You use it every day. Once you get it working, it's not something you want to mess with."
Some consultancies have opened service bureaus and many service bureaus employ or contract with consultancies, Nelson notes, a strong indication that SWIFT joiners are shopping for both infrastructure and advice. To choose a service bureau, get the list of those certified from SWIFT and then use peer recommendations, consultants or your own staff legwork to investigate the most promising candidates, he says.