For Paul Tawel, senior manager of treasury operations at Canadian National Railway (CN), the solution was SWIFT but the obstacle was scale. The Montreal-based freight carrier, which was privatized in the 1990s and had C$10 billion (U.S. $9.8 billion) in 2011 revenue, needed to escape the inefficiency of using 12 separate online banking platforms to get reports and send payments. But Tawel couldn’t justify the cost of joining SWIFT, the cooperative that provides financial messaging for banks, to get a common communications platform for the company’s 12 banks.
Building a SWIFT infrastructure in-house was out of the question, and even using a service bureau was too expensive for CN’s modest but real needs. “When we heard that SWIFT would be open to corporate members several years ago, we were interested,” Tawel says. “But the solutions then were built for companies that used more banks and had more message traffic than we did.”
Is SWIFT using AL2 to start replacing the service bureaus it historically encouraged? “We have a delicate situation,” McCulley says. For example, “the SWIFT-certified service bureaus are still listed on the SWIFT Web site, but they’re harder to find now,” she says. “It’s hard not to conclude that SWIFT is seeking business they directed to service bureaus until recently.”
Graham Warner, client access product manager for global transaction banking at Deutsche Bank, agrees that AL2 is a serious contender for corporate customers since it has no limits on message volume, supports multiple message standards (MT and MX) and is cloud-based. “It is more robust, which will attract some corporates, but it does not yet offer everything that some service bureaus do,” Warner says, noting that service bureaus provide continuous access to expertise. If a company has that expertise in-house, it may like AL2. If not, it may choose to stick with a service bureau, he explains.
SWIFT offers a communications network and message standards, but “you need to connect the data with the applications that use it, which would be your ERP and treasury management systems,” Barrie explains. “That requires intelligence and human expertise built on experience with SWIFT messaging, line of business applications and the banks you are establishing connectivity with. Service bureaus have that experience.”
Barrie thinks AL2 eventually could become a formidable competitor to service bureaus but says it’s not clear how soon SWIFT will be able to match the mapping and integration services provided by service bureaus.
There’s also some evidence that banks are deliberately cutting the cost benefit to middle-market companies moving from proprietary bank platforms to SWIFT. Historically, many banks resisted opening their SWIFT club to corporate members. And now, “something strange is going on,” SunGard’s Vandebroek reports. “Some banks say they support SWIFT, but they have adjusted their fees so that it costs their clients more to use SWIFT than it does to use their proprietary network. The big Tier 1 corporations have the negotiating clout to make SWIFT economical, but Tier 2 corporations—those between $500 million and $3 billion in annual revenue—find themselves in a trap. They can cut their connectivity cost by joining SWIFT, but other banking fees go up more than the connectivity cost comes down. Free connectivity is useless if it ends up costing you more.”
Don’t expect to see mass adoption of SWIFT by Tier 2 companies unless participants rethink the business model or banks change their pricing strategy, Vandebroek says.