In Part I and Part II of our Managing Corporate-to-bank connectivity blog series, we discussed how there is no ‘one size fits all’ when it comes to bank connectivity and how monitoring is key to effective corporate-to-bank connectivity. In part III, I will discuss formats. The connection between corporates and their banking system(s) or SWIFT is often described as a communication ‘pipe’. This is really a misnomer. A ‘pipe’ suggests that data (in this case) will simply flow through it unimpeded, so long as there are no blockages or breaks in the pipe. However, in the case of corporate-to-bank communications, not only does the flow of data need to be unimpeded (e.g. by error or omission) but the format of data from the originator needs to be recognized by the recipient. In this respect, a better analogy may be that of a jigsaw puzzle. It doesn’t matter how efficiently data is sent from a corporate to a bank, or vice versa, if it doesn’t fit correctly into the other’s systems.
This is the challenge with file and message formats, e.g. for payments and account statements. In the early days of electronic banking, when a company may only use one banking system, and this was not typically integrated with the company’s treasury management system or payment systems (such as they were at that time) banks were free to define formats as they wished. Corporate customers typically had little knowledge of what formats were being used, and even less interest: it simply wasn’t relevant.
As companies increasingly became multi-banked, and sought to integrate bank connectivity with their internal systems, the lack of consistency across banks’ electronic banking systems became a more significant issue. Various efforts were made to try and standardize formats across the banks, but most of these initiatives were relatively unsuccessful as electronic banking was still considered as a competitive differentiator by many banks.
This is changing slowly, and there is now greater recognition of the value of standardized formats, leading to the development of XML-based ISO 20022. This is the format used for SEPA payment instruments, but adoption is becoming global. The reality, however, is that there are various ‘flavours’ or permutations of ISO 20022 between banks and countries, not least due to differences in underlying systems, payment instruments and market infrastructure. Consequently, while ISO 20022 is an important step forward in simplifying and standardizing financial messaging formats, it is not a magic formula.
Supporting multiple formats is a major overhead for corporate treasurers and finance managers, not simply as a ‘one time’ activity during implementation and integration of a new banking system or SWIFT, but on an ongoing basis. Banking systems evolve, new systems are introduced, and formats themselves also evolve over time. Introducing new currencies or countries can also necessitate new formats.
To enable this resourcing to be redirected to more value-added activities, treasurers and finance managers are increasingly turning to a managed connectivity and SWIFT messaging solution, which is integrated with a treasury management system or a payment solution like a payment factory. By connecting to all of a company’s banks via a single platform, the format of files is structured automatically according to the needs of each bank, and vice versa to enable files to be integrated seamlessly into companies’ own system environment. A managed bank connectivity solution enables new formats to be integrated seamlessly into the treasury and payments solution without the need for additional implementation effort.