SWIFT Supply Chain Strategy at Work

Swift Supply Chain strategy at work Jackie Keogh, head of supply chain management at Swift, talks to Frances Maguire about the first six months of TSU and beyond.

Swift's Trade Services Utility became commercially available on 2nd April 2007, with JPMorgan and BNP Paribas being the first two banks to process a transaction across the system. The majority of usage over the first six months has been single bank – where a bank is acting on behalf of both the buyer and the seller. Jackie Keogh, head of supply chain management at Swift, says: "There have been few dual bank transactions in the early months, but that is not surprising as banks are still developing correspondent banking relationships around the TSU."

To date, transactions have included the use of data from the purchase order, data from the invoices and data from the transport documents. There have been multiple invoices to a single purchase order and multiple purchase orders to a single invoice. Says Keogh: "We have had short-lived transactions – a single month between opening and completing the transactions – and transactions in which there is an ongoing order process where the transaction is re-utilised on a monthly basis. These transactions reflect the industries involved and how quickly goods turn over; the fast moving retail or electronics industry tend to have a high turnover of goods with shorter transactions or regular repeat transactions, whereas the manufacturing industry tends to operate longer-term transactions."

Swift's TSU, alongside many other initiatives, has been designed specifically to help corporates and banks automate the supply chain and increase transparency to all participants. According to Keogh: “The TSU focuses on the collaboration and co-operation between banks - where there is a need for a common understanding - a common communication, a high level of security and a high level of visibility around the same information. It leaves the existing business processes within the corporate environment and the way a corporate interacts with its bank to the competitive space, and avoids forcing the industry to re-engineer or change the way it does business today.”

Many of the initiatives in the industry are all-encompassing and go well beyond the banks. This requires the corporates to change in order to work. As Keogh points out: “What Swift has attempted to do with the TSU is focus on the smallest possible environment bringing the highest level of value. If we keep it simple, there is a high probability it will be used.”

Where the corporate will certainly see the impact of the TSU is in the increased number of banks involved in the open account space, where greater opportunities to get more services from a growing number of banks will be increasingly visible. They will also be able to have more of their counterparties served in the same way, whereas in the current environment, a difficulty exists whereby banks attempt to do everything alone, serving only their own customers. If their corporate customer has a counterparty banking with another bank, they cannot serve them. In total contrast, the TSU creates a correspondent banking community and allows the bank to serve its customers, far outside of its own remit.

Keogh says: “From a corporate perspective, the TSU is invisible, but corporates will benefit by getting more services from more banks because the TSU is enabling banks to engage as it overcomes many of the barriers to entry, certainly in terms of ease, cost and simplicity."

The service being developed by most of the 42 TSU registered banks is supplier financing, or ‘reverse-factoring’. The reality in an open account environment is that the only sort of finance available to some buyers is a working capital facility from a local bank. This is not always very price-competitive, nor is it specific to the underlying trade transaction. So most banks are looking at how they can provide better finance capabilities to companies by using the visibility and standardisation provided by the TSU.

The TSU will thus enable the banks to: standardise transactions, and reduce costs; match the transactions, to reduce risk and errors; track the transactions so enable them to lend at different stages in the transactions; and allow banks to increase their level of comfort around their counterparty. “It helps to increase the amount of finance provided to a supplier by relying upon the comfort of a highly credible buyer,” says Keogh.

A lot of banks are also developing secondary services to corporates around information, so they can track how often their suppliers pay on time, present clean documents, ship correctly etc: In essence, to give them better negotiating power.

According to Keogh: “The roll-out of the TSU is progressing according to plan. Adoption is very high, and we expect a significant increase in transactions in the future as each bank is starting with one or two corporate customers before rolling it out to all.”

Once banks have served their corporate customers and all of the counterparties they bank with, they will begin to develop correspondent bank relationships in order to serve all their corporate customers’ counterparties.

“Supply chain services will be the future of correspondent banking,” says Keogh. “Where some believe that correspondent banking has been dying for many years in the payments environment, serving the supply chain is revitalising it for banks. Banks on either side of a transaction can gain from a partner relationship.”

There may be a financing situation where the buyer’s bank is providing information to the seller’s bank, and the seller’s bank is lending to the seller but does not have the balance sheet capacity to lend the total sum required. The two banks, in partnership, jointly lend to the corporate because they can rely upon the buyer. Keogh believes that as usage of the TSU evolves there will be an increase in this type of shared financing and shared reward between banks.

White-labelling deals will enable banks to offer the technology, similar to IT vendor offerings to smaller banks. However, the larger banks may also offer more than just the TSU enabling technology – possibly offering to insource the processing of supply chain transactions. The development of TSU is still evolving. In November 2008, Swift will unveil further functionality with Release 2. This will include the use of data from additional documents, such as certificates and insurance, as well as increased functionality in other areas. Subsequent releases are expected to follow every 12-18 months over the next 3 to 4 years. As more banks get involved and are better able to define the additional services they can offer their corporate customers, Swift will respond to provide the functionality they need.  

The TSU community – banks and vendors get on board

TSU banks

Labelled vendors - SWIFTReady Trade Services Utility

• Misys Trade Portal – release 3 from Misys
• International Banking Systems
• Eximbills Enterprise – version 1.6 from China
• Systems Corporation