The Microsoft stand at Sibos, the SWIFT international banking conference in Sydney, attracted a standing room only crowd to listen to Ed Barrie of Microsoft treasury and Susan Feinberg, a senior analyst at the TowerGroup, discuss Microsoft’s advances in linking its treasury operations to SWIFTNet.

For David Vander, the managing director for worldwide banking at Microsoft, this interest in linking corporates to banks is part of a larger industry trend.

Microsoft Treasury’s presentation on corporate-to-bank payments over SWIFTNet drew a standing room only crowd at the Sibos conference in Sydney in October.

There is a level of interest in the financial supply chain that hasn’t been seen before,” said Vander. “Banks are seeing an opportunity in providing easier ways to integrate SWIFT to corporate banking activities to provide integrated payments and messaging platforms. Companies want to connect all the dots across trade documents, invoicing, reconciliation, matching, payments and dispute resolution.”

Microsoft, which has been a leader in helping banks and corporates connect the dots through its BizTalk Accelerator for SWIFT and its own connectivity to SWIFTNet through its banking relationship with Citicorp and the bank’s closed user group (MA-CUG in SWIFT terminology), is speaking out. Microsoft is sharing its lessons learned and the benefits it found from connectivity and links between payments and invoices. Right after Sibos, Barrie and Feinberg planned to attend the Association of Finance Professionals conference in Las Vegas to again present a longer discussion of their findings and observations on the benefits of using SWIFT for corporate treasury operations.

What’s good for corporate treasuries, though, will most likely prompt banks to change their approach to payments, because it will put competitive pressure on them.

“There is increased pressure to commoditize payments, improve transparency and reduce the associated fees,” Vander said. This may require banks to move away from their reliance on outmoded payment processes and existing revenue sources, but they won’t have any choice.

“To make up for the decrease in revenues, banks will want to identify ways to introduce new and innovative payments-based products and services,” he added. “And the work we are doing with our products and technologies can help banks put in place a payments platform that will support these new realities.”

For example, real-time cash management and reporting, faster clearing, and lower latency payment systems are among the key interests of corporations, which will probably be willing to pay a premium for services that improve their financial controls.

“Banks will provide new and innovative services faster than they had anticipated,” added Vander, “but for many, other than the leaders and early adopters of new technology, perhaps not fast enough. If payments become highly commoditized, then banks need to provide other products and services that will prove attractive for their customers. They need to improve the stickiness of their customer relationships.”

The payments business is under increasing cost pressures; some speculate that SWIFT will have to cut its costs in half over the next few years if it wants to stave off competition from alternative payment systems and remain competitive. (SWIFT itself has alluded to this possibility.) Whether the industry is ready for the change or not, the changes eventually will be seen as good for the financial services industry, Vander added.

“Payments is a commodity service and banks need to focus on real value-add through relationship management, pricing of risk, and the value of their total services, not just transactions. Banks have a large amount of technological legacy, cultural legacy, and in some cases business model legacy. They need to analyze all of those to see where to make changes to take advantage of the new opportunities,” Vander said.

He expects the change to be led by business clients who will challenge existing banking practices and ask why they can’t be done another way.

“Microsoft as a corporation, for example, is asking its banks to adopt SWIFT standards to get real-time reporting, and banks are asking us as a technology provider to help them deliver the services,” Vander said.

Microsoft, which has one of the largest corporate treasuries in the world, deals with about 100 banks globally. All of the top 30 are SWIFT members, but only a limited number of them support XML for cash management.

Barrie said that ISO 20022 standards for cash reporting, which will be an improvement over existing SWIFT standards, only becomes valuable when banks on both sides of a transaction can handle a combination of payment and invoice information.

“You don’t really benefit until you can go all the way from the invoice through the payment and reconciliation and back to the original invoice. Currently the ERP vendors don’t support the data, so it doesn’t really do you any good,” Barrie said.

He envisions a system where the invoice and remittance instructions move with the payment and link to the ERP system to show which invoices are connected to which payments. That would allow a provider of goods and services such as Microsoft to credit customers and partners faster and improve their credit position so it could ship them more product. Now the company has dozens of people sifting through payments and trying to decipher limited text information to determine the limits related to orders vs. accounts receivable.

In large part because of its leadership role in using its own technology to connect to SWIFTNet, Microsoft is attracting a lot of interest from banks, said Vander.

“They are interested in how Microsoft goes about solving complex technical problems and how they can take advantage of Microsoft technology to improve their business strategy. In particular, with payments, they want a simple, cost-effective payment backbone that can handle the volume and scale, but in an economic model that works under today’s pressure,” Vander said.

Microsoft can point to the recent implementation at Grupo Banco Popular, one of Spain’s largest retail and investment banks, of Microsoft BizTalk Accelerator for SWIFT and BizTalk Server to significantly reduce the time and risk associated with settling securities transactions. The bank can now handle increased volumes of securities processing more effectively. Employee productivity has also been improved as a result of the implementation.

The bank has used Microsoft technology to transform its stock transfer messaging to help meet the message format changes implemented by IBERCLEAR, the Spanish securities clearinghouse. The system is now able to convert SWIFT messages to host messages and back again when information is received or sent from or to IBERCLEAR.

Grupo Banco Popular has used Microsoft BizTalk Server, Microsoft SQL Server and Microsoft BizTalk Accelerator for SWIFT to add functionality including accounting associated with Banco Nacional de Credit’s payments, IBERCLEAR exchanges, cash-reporting, Senaf and, in the near future, SWIFTNet Funds. Last year Microsoft announced that Banco de Espana, the central bank of Spain, was using the BizTalk Accelerator for SWIFT for TARGET2 integration for settlements or large value euro payments.

“Banks at Sibos have also been interested in learning more about our partners, like NetEconomy for anti-money laundering and fraud detection, Message Automation for derivatives processing, and how our partner WealthCraft in Hong Kong has built a solution using FpML and the SWIFTNet fund standards for ING Asia Pacific,” said Vander.

Bankers have also asked about Microsoft’s initiatives in core banking solutions. Temenos T24 now offers a full front-to-back system running on Microsoft and its SQL Server database. Microsoft is also working with SAP, Tata’s BANCS application, and SlaterLabs on core banking systems.

www.swift.com

Grupo Banco Popular, one of Spain’s largest retail and investment banks, has implemented Microsoft BizTalk Accelerator for SWIFT and BizTalk Server 2004 to reduce the time and risk associated with settling securities transactions. The bank can now handle increased transactions more efficiently. By combining Windows SharePoint Services with BizTalk, the bank has created an integrated environment for settlement of securities transactions in a standardized way by different departments.
 
The project has led to significant productivity improvements in securities transactions processing, cash reporting, payments, marketing and sales, said Daniel Sanz, international treasury and securities projects director at Grupo Banco Popular.

Johan Kestens SWIFT’s head of new business development.

“It was important to have a system that could help us comply with new messaging standards as well as offer faster settlements of securities transactions while reducing errors,” he said. “Microsoft not only understands our business, they also have the technical knowledge to help us achieve our business objectives using their technology.”

At Sibos, Microsoft announced that it has added adapters for SWIFTNet FileAct and InterAct to its BizTalk Accelerator for SWIFT, which has awarded the solution its SWIFTReady Gold Financial EAI (enterprise application integration) label for the third year running. The new BizTalk support for FileAct and InterAct can help financial firms achieve substantial cost savings when exchanging bulk payment files.
 
“SWIFT’s relationship with Microsoft is an important strategic alliance,” said Johan Kestens, head of marketing at SWIFT. “The solutions Microsoft and its partners are developing for SWIFTNet demonstrate real benefits for our customers as they simplify support for SWIFT messaging services.”

Robert Wahbe, corporate vice president Connected System Division at Microsoft, said that the adapters for FileAct and InterAct respond to customer requests.

“When using SWIFTNet messaging services such as FileAct and InterAct, customers have indicated a clear need for technology that improves connectivity to SWIFT to help enable substantial cost savings,” said Wahbe. “Microsoft has extended BizTalk Accelerator for SWIFT with FileAct and InterAct adapters as it provides customers with a platform through which to connect SWIFT and existing line-of-business applications, and achieve these goals.”