SCORING IN ASIA
More banks are sharing their access to the Swift cooperative network, arming treasurers with one more weapon in the corporate wars.
By S.L. Mintz

Large corporate treasury departments are nothing if not cautious. Replacing tried and true methods with spanking new innovations often offends their nature, especially in matters affecting financial data. That would make Score, short for Standardized Corporate Environment, as hot as new cash management concepts get. Since its launch in January 2007, this automated data communications gateway has enlisted IBM, Pfizer, Pirelli, Siemens, UPS, and nearly 100 other companies of similar stature.

Companies based in Asia may soon match the pace of counterparts in Europe and North America. Samsung has joined Score already and other leading companies have expressed interest, including PetroChina and Malaysia’s state oil company, Petronas. Score’s parent organization, the cooperative bank network known as Swift (Society for Worldwide Interbank Financial Telecommunications) is gearing for steep growth. The Asia-Pacific hub and its head, Ian Johnston, recently relocated from Australia to Hong Kong. “The potential for growth in the capital markets, in trade and supply chain, and in payments and cash management is tremendous,” says Patrick deCourcy, Swift’s head of markets and solutions in Asia-Pacific.

The apparent success of Score also signals a sea change by banks rushing to enroll eligible companies. They now welcome the corporate participation after warming slowly to the idea. It has not been entirely of their volition. Swift connectivity has become a regular feature in requests for cash management proposals. “That wasn’t the case a year ago,” says Stephan Levieux, head of product management, global payments and cash management for HSBC’s Asia-Pacific region. “It’s definitely a trend.” Surrendering qualms that corporate access to their bank network might threaten data integrity and—perhaps more alarming—jeopardize lucrative client relationships, nearly 400 banks have joined Score to promote wider participation or to protect their turf.

Cracking the Door

Score caters to companies with lots of payment traffic among far-flung financial operations, banks, and vendors. With challenges everywhere from hard-charging rivals, a streamlined, efficient treasury arms companies with a competitive edge. Automation fine-tunes efficiency, reduces cost, fosters better control, and facilitates timely communication with stakeholders. Data reliability fends off fraud and eases conformity with regulatory frameworks. A sturdy handle on global cash flow frees the finance function’s attention and resources for core strategies that directly boost revenues and profits.

Score helps deliver these benefits by supplying corporations with a gateway to Swift, the network that international bankers formed in 1973. The goal: a global interbank telecommunications network without telex machines, human operators, cumbersome processes, excessive costs, and high error rates. True to its acronym, Swift soon changed the way thousands of banks conducted global business. But corporations that generate huge volumes of financial data could enjoy Swift’s benefits only if funneled through a primary bank.

Fierce corporate lobbying by customers persuaded reluctant bankers to crack open the door in 2001. Member-administered, closed user groups, better known by the unwieldy acronym MA-CUGs, connected corporate members to banks in the Swift network but not directly to their own operations, vendors, or other banks. Corporations with multiple bank relationships could form MA-CUGs with any number of banks, but every connection required its own cumbersome interface. It marked a step forward but a frustrating one. “MA-CUG was a nightmare that would have required us to sign separate documentation with every bank that we wanted to connect to. Score, however, provides simple access for corporates to all banks without any need for separate documentation each time,” says Jaya Machet, general manager at Nokia Treasury Asia.

Corporations continued to press bankers for more robust access, and Score emerged as a friendlier way to tap into Swift. A less restrictive closed user group, Score permits users to interact with all registered financial institutions. Member companies that depend on many registered banks need only a single connection.

Resistance is Futile

Some financial institutions worry that Score will promote bank hopping, which cuts their profit margins. “That’s nonsense,” says David Blair, a former group treasurer of Nokia who has formed his own consultancy. “There is a lot more to a relationship than a data pipe.” Bankers who still equate proprietary systems with locks on client relationships misjudge the climate, says the consultant. They are more apt to impose needless cost, and thus be seen as a competitive stumbling block.

Choosing a bank is more complex than establishing connectivity and securing bank access channels. Issues such as credit relationships, footprint, and service capabilities are far more persuasive reasons for hiring a bank to handle cash management assignments. Ease of Swift access counts, of course, but it’s not a primary reason for changing banks.

Major banks have ramped up their Score capabilities, but Simon Jones, regional executive for Asia-Pacific treasury services at JPMorgan Chase, sees no cause for alarm. “A really effective analogy to overcome fears would be Swift itself and what it has done in the bank space,” he says. “Even with a backbone of standards in place, there is plenty of opportunity [for a bank] to differentiate itself and compete effectively.” In the corporate space, Jones insists, Swift won’t dislodge existing relationships. But it will refocus them.

Access to Swift alters the dialogue between banks and corporate customers. It means less emphasis on proprietary technology and more on topics germane to strategic cash management. “We don’t believe that connectivity is the place where we want to develop proprietary solutions,” says HSBC’s Levieux. “We believe we have an opportunity to differentiate ourselves through our levels of service using the quality of the underlying products with connectivity through the Swift channel.”

Instead of hinging a relationship on how companies connect, service differentiation means tailoring solutions that streamline treasury operations with an eye to centralization or implementing ERP programs and payment factories. Global companies put Swift via Score or MA-CUGs to work daily. “We use it several times every day,” says Nokia’s Machet, “for vendor payments, employee expense claims, and treasury payments. It’s a lot of activity.”

Ditto at Microsoft, where Swift channels handle 1,700 capital markets trades a month while managing communication with 40 trading counterparties, 18 external investment managers, 1,000 bank accounts worldwide, 100 banking partners worldwide, and 5,000 treasury wire payments per month with a notional value of US$70 billion.

What’s the Downside?

For all its virtues, though, experts warn that Swift is only a tool. “A corporate treasurer doesn’t wake up and say, ‘aha, I’ve got a problem that Swift can solve,’” says Colin Day whose company, SunGard, provides a suite of integrated Swift solutions. “Swift becomes part of a larger project. It’s not a be-all and an end-all in itself.” Swift is the communication layer, the network, a set of message standards, and a community. It isn’t the generator or consumer of a message.

Some companies balk at costs, which vary widely depending on how they join. Installing the hardware and software, and hiring staff can set a company back US$50,000 to US$150,000 per year, depending on scope. For a fraction of that cost, companies can outsource their Swift expertise to a “service bureau” provider like SunGard or a commercial bank that hosts the technical infrastructure on its servers. Swift, meantime, has pledged to reduce costs.

Deciding whether to build Swift capabilities in-house or outsource them to a service bureau depends in varying degrees on financial capacity, on strategic plans, and on cultural preferences. Folded in with a treasury-reengineering project, the tab may not look as daunting. Some companies, by nature, are married to proprietary software or just won’t cede control of critical data to a third party.

Results may be hard to measure. Midway through a Swift installation in April, pharmaceutical giant Pfizer anticipates a six-to-nine month wait for a verdict on results. And Swift isn’t for everyone. Software giant Symantec still builds bulk payment files internationally using local ACH/clearing systems. Direct access to Swift via Score or MA-CUGs is just one weapon in the treasurer’s burgeoning armory.

S. L. Mintz is a freelance writer based in New York.