Standards are a good thing for treasury departments bent on automation and efficiency, but a cascade of new standards and drawn-out migrations by various players has left treasuries in a Tower of Babel. A bank transmission to or from an ERP system or treasury workstation may no longer make sense. The more banks and internal systems involved, the worse the cacophony gets, requiring one emergency translation patch after another. Now the treasury at Toyota Financial Services (TFS) in Torrance, Calif., has solved this problem by building a solution around SWIFT Alliance Integrator for version 7 of SWIFT.
“We were constantly wrestling with managing multiple banking relationships, connections and messaging formats,” says Mario Delfin, national manager of enterprise cash management and treasury systems at TFS. “Our core business lines could not take advantage of the greater reliability, security and convenience of new banking products if the formats didn’t match.”
Once the SWIFT Alliance Integrator was fully integrated in February 2011, “we removed the need for legacy systems to be reconfigured to meet changing standards, since the middleware handles the transformation of existing and new bank interface files,” Delfin says. “It will lower our cost for systems configurations and maintenance and it will allow us to quickly take advantage of new banking products and solutions.”
The Integrator is part of the SWIFT suite and wasn’t built to be a universal data format bridge, explains Eileen Dignen, managing director of sales and market development for SWIFT Americas. But it lets SWIFT users “tie together all the SWIFT communication tools to back-office corporate systems.” For TFS, the Integrator 7 was “the right product at the right time to solve a problem,” Dignen notes, explaining that the Integrator is installed on corporate servers.
Companies that use SWIFT need some kind of middleware to sit between SWIFT and the ERP or treasury system from which files will be exported to banks or imported from banks, explains Anita Prasad, head of treasury capital management at Microsoft. Microsoft uses its own BizTalk product to intermediate between SWIFT and its SAP iDoc format. SWIFT has the Integrator.
TFS, an automotive finance company with $91 billion in managed assets, is transaction-intensive and needs to be highly efficient in its bank communication. To that end, it joined SWIFT in 2006, hosting its own SWIFT Alliance infrastructure, and began using SWIFT messages, SWIFT standards and a FileAct interface extensively. TFS currently uses SWIFT with 13 banks in the U.S., Canada and Europe. A SWIFT data transformation tool was a good fit for what was already a SWIFT shop.
Here’s how it works. On average, TFS processes more than 10,000 wire transfers a year, which come out of Wallstreet Suite, its treasury management system, and go into the Integrator system for format validation of MT101 and MT103 messages, ensuring the wire transfers are ready for processing at its banks.
TFS also processes roughly 12,000 check payments a year from Toyota’s commercial finance group via SWIFT FileAct. TFS uses the Integrator to convert the SAP payment format into ISO 20022 XML and then sends the payments to Bank of America for check printing and distribution. Once this new check-printing outsourcing process is fully deployed, it will allow TFS to generate printing instructions for 700,000 checks a year, covering all of its retail, lease and dealer finance payments, while saving $2 million a year, Delfin estimates.
By centralizing all the bank interface communication in one treasury-managed solution, the company has reduced the time it takes to bring up new or existing banking products and can remain flexible as bank messaging standards continue to migrate to ISO XML standards. It also reduced demand for internal IT resources, Delfin says, and allowed individual business units to be bank-agnostic. Because of the Integrator solution, file message formats and standards don’t need to be updated frequently at the point of emission, but can be formatted and validated in one place, removing the burden of maintaining several interfaces and proprietary solutions.
With the ability to use 40 different plug-and-play adapters from the Integrator in its ERP systems, TFS is now able to take unconverted transactional data files from any of those systems and convert them to any bank proprietary format or the latest ISO 20022 standard automatically, Delfin explains.
The Integrator enabled TFS to replace legacy proprietary formats with Bank of America with the new ISO 20022 payment initiation 001 XML payment message standard. That opened the door to quick migration from modem and FTP transmission technology to the more secure SWIFT FileAct interface for exchanging non-payment data with banks, according to Delfin.
While the core product, the Integrator, is packaged by SWIFT, TFS didn’t just plug in a solution. It started by forming a permanent treasury systems and projects group that includes treasury, cash management and IT experts. That team put together an integrated solution and chose the Alliance Integrator as a key software component.
“We essentially created a new ‘product’ for our internal customers called Cash Management Integration Services (CMIS) that centralized the data transformation of bank messages in treasury and shielded the rest of the company from the burden of updating legacy host systems to keep up with the evolving bank messaging landscape,” Delfin says.
Moving from multiple proprietary standards to a universal standard is great, but “standard” is still a relative term, Prasad cautions. Message types and data fields may be standardized, but each bank can still put its own little twist on how it uses a standardized field, and that can require customization of data transformers. “You don’t want to modify translation mapping for every bank,” she notes. “That defeats the purpose.” The solution is for treasuries to persuade banks to “agree to a single implementation,” something Microsoft has been able to accomplish with seven of its primary banks, Prasad reports.
In a major standards shift, translating data is a critical but tactical step, says Craig Jeffery, managing partner of consultancy Strategic Treasurer in Atlanta. He suggests that if companies simply take limited data from a legacy standard and place it in a new format, they’ve wasted an opportunity to leverage enriched data.
“How you construct your technology stack has everything to do with how successful you will be,” he says. You need the brick, but Jeffery advises concentrating on the architecture.