Making a SWIFT Decision: Alliance Lite or Service Bureau?
August 2013
5 min read
Author:
Rudy Claassen
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Corporate treasurers often look to SWIFT to standardise cross-border messaging, to facilitate payments and other financial transactions, and to avoid being bound to one bank’s proprietary system. With SWIFT’s launch of the cloud-based new Alliance Lite2 (AL2) last year and the recent introductions of new requirements and certification of SWIFT service bureau (SSB), the question is how can corporate treasurers choose the best way to connect to SWIFTNet?
With the introduction of AllianceLite (AL1) in 2008, SWIFT originally targeted smaller corporations with a lower volume of payment messages and a limited number of message types, with the option of connecting through the internet. The volume restrictions of AL1 proved to be a limiting factor and was among the reasons why many companies did not consider to offer a practical solution.
One of the major improvements in its successor AL2 is that volume restrictions through pricing are no longer imposed on a corporation, enlarging AL2’s potential target market to include companies with a high volume of payment messages. It is now also possible to access all message types (MTs) and all MX SWIFT message types and other services offered over SWIFTNet. These include:
Accord for Treasury: A matching and exception handling solution for foreign exchange (FX), money market, over-the-counter (OTC) derivatives, and commodity trade confirmations.
Sanctions Screening over SWIFT: An easy, cost effective compliance with sanctions laws.
The Trade Services Utility: A centralised matching and workflow engine that can be used to support the timely and accurate matching of trade-related transaction data.
Browse: A messaging service that enables secure access from a standard web browser to a service provider’s web server and SWIFTNet server application over the SWIFTsecure internet protocol (IP) network and SWIFTNet. thus removing any previous limitations of message types or services.
SWIFT has further increased the choice of connecting to SWIFTNet by adding the option of connecting over a SWIFT-managed virtual private network (VPN) or using an internet browser.
Both manual entry of payments into AL2 and automated file transfers via AutoClient are supported by AL2. Using AutoClient to transfer files is possible, but straight-through processing (STP) for payments, using AL2 together with a treasury management system (TMS) remains an issue because a hard token is needed to approve payments. SWIFT has indicated that it is working on a solution to overcome this shortcoming, by developing a ‘soft certificate’ for use with AutoClient using a VPN connection.
SWIFT Service Bureaux Services
With the introduction of SWIFT’s new qualifying criteria, it is generally expected that the SWIFT service bureau (SSB) market will enter a consolidation phase, where smaller SSBs might disappear and the distinguishing services of bigger SSBs will prove to be an important factor in retaining and attracting clients.
Services offered by SSBs range from providing a connecting service to SWIFTNet, to value-added services such as on-boarding assistance to sign-up to SWIFT, data transformation, data enrichment, integration and format translation, electronic bank account management (eBAM), compliance and anti-money laundering services and cash/balance reporting. These additional services will be unique selling points for SSBs in future, instead of only offering connectivity to SWIFTNet.
Important Considerations for Selection
The service provided by AL2 can be compared to an SSB, except that AL2 only offers a connection service to SWIFTNet and has the distinct advantage of eliminating a third party and simplifying the process. By dealing directly with SWIFT, it could be argued that it removes any security and performance questions around the capability of SSBs to deliver services that would need to be addressed during the selection process.
Among the main driving forces of the decision to choose between AL2 and an SSB solution is still the pricing, but other factors that can be a determining factor in the choice between AL2 and an SSB are IT policy and security, integration with an enterprise resource planning (ERP) or existing TMSs and additional services or support.
Pricing
Alliance Lite2 is priced using bands to determine the base licence fee and monthly subscription. Pricing is scalable, meaning the amount you pay is based on how much you actually use the service. Messages and files are charged as per standard SWIFT prices. There is an automatic band upgrade or downgrade every six months, based on the 12-month average network-based invoice (NBI).
The estimated cost of using AL2 is compared below with the estimated cost of choosing an SSB based on a low volume example of 50 FIN messages per day and 1,000 FileAct messages per day.
Comparing the cost of AL2 vs. SSB.
Once off
Yearly
5 years
AllianceLite2
€ 10,000
€ 15,000
€ 85,000
SSB average
€ 30,000
€ 40,000
€ 230,000
The initial costs include only the basic implementation costs, but should any further assistance from SWIFT be required, this could lead to additional consulting costs of around € 1,500 per day. As an alternative, SWIFT offers a peace of mind support pact at an additional cost.
The range of the initial once-off cost for AL2 could vary from as little as € 10,000 (based on band 4 pricing) to an estimated €40,000 (based on a band 1 pricing), depending upon the expected volume of transactions, with the cost of connecting via an SSB ranging from around €25,000 to € 40,000, depending on the SSB.
Comparing the monthly costs of joining an SSB with AL2 shows a big difference. This is not surprising, as AL2 is based on the standard SWIFT message prices, while SSB pricing includes a margin. Over a five-year period this difference could lead to significant savings.
Although the pricing difference is a major consideration, it shouldn’t be seen in isolation. The compliance with IT policy and security standards can be a major deciding-factor in choosing between AL2 and an SSB.
IT Policy and Security
Ensuring that the SWIFT connection is secure is a basic requirement and one of the main concerns of IT departments. The current requirement of AL2 to make use of a hard token will not comply with the IT and security policies of many corporations and could be a deal breaker, leading to an early decision to select an SSB.
Furthermore, the use of AutoClient as a part of a requirement to automate the payment process is raising concerns in some IT departments as it is currently not possible to move an encrypted file from a TMS via AutoClient.
Integration and SSB Services Required
Another determining factor that will influence the decision between AL2 and SSBs is the availability of in-house skills with ability to implement SWIFT and also assist with other related projects. The implementation of SWIFT is seldom a standalone project, but is most likely part of a bigger project to consolidate the banking landscape, implement an in-house bank (IHB)/payment factory or improve TMS integration and straight-through processing (STP).
Having the required skills in-house would enable a corporation to conduct their own formatting and mapping of information to the required SWIFT formats using their TMS or ERP system, providing future independence from a third party. Should these skills not be available, then choosing an SSB could be an attractive option as this is one of the areas where an SSB can provide a value-added service in using the existing TMS or ERP output and translating it into the required SWIFT formats.
Choosing between AL2 and an SSB could thus imply a choice between outsourcing a part of the solution and keeping it in-house.
The Future
With AL2’s entry into the market, there is now greater choice when it comes to selecting connectivity to the SWIFT network. One can simplify the task by considering how you would use the AL2 option and then consider reasons why that would not be possible or desirable.
Currently, the recurring issue mentioned as a major reason for not selecting AL2 remains the use of hard tokens. This affects more than one of the major decision-making areas including IT security, integration and STP, and is probably the main disadvantage standing in the way of AL2 becoming an even more serious contender in the current SSB market.
With SWIFT indicating that it is working on resolving this issue in the near future, SAP’s development of its financial services network and the consolidation expected between the SSBs could set the scene for increased competition among the major players in this market. This in turn should enable treasurers to benefit from better service, performance and a more secure connection solution.
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