Companies use multiple banks for many reasons — to spread risk; to suit decentralised organisational structures; to get access to best of breed products or expertise; for historical reasons; and to ensure geographic coverage, particularly in emerging markets.
Dealing with multiple banks can be a real headache, particularly for companies with large numbers of transactions to manage and a correspondingly large number of letters of credit and other documents to exchange. In the old days this meant the mailing of paper documents; more recently faxes and emails, and now the use of online front-end portals and integrations with enterprise resource planning (ERP) systems.
Even the best and most streamlined online bank portal, could be insufficient if you have a dozen banks to manage — each system will operate differently, with different security, processes and report formats. Dealing with multiple portals creates inconsistency and risk, and also takes staff time and money.
A single platform for document interchange
The ideal solution would be to adopt a single platform that handles electronic interchange of standardised documents with multiple bank systems. Such a platform would provide a single point of access for documents, enable data integration and process harmonisation, and support process automation to reduce manual effort.
With all data flowing through one platform, corporates benefit from real-time control and traceability of individual transactions, validities and total outstanding volumes. They can more effectively coordinate the utilisation of banks used for trade finance products. And by reducing the lead time for presenting correct documents to banks, they can ultimately improve operational performance and deliver better service to customers and suppliers.
A standards-based approach is best
Integration between multiple banking systems can be achieved in many different ways.
For example, a company can “hard-wire” a series of different proprietary banking systems into its own systems and workflows, which is costly and inflexible to change.
Alternatively they can use a proprietary messaging platform to exchange messages with their banks — of course, the risk is getting locked in to a particular IT vendor’s data formats, which some of their banks might not support.
In our view the best approach is a “loose coupling” of systems based on a common messaging format, such as SWIFT’s MT 798 “trade envelope”, which multiple banks can support. A standard such as MT 798 allows a single, secure, standardised communication type between all banks, with easy access to consistent database reports through an online gateway.
MT 798 has been going since 2008 and is a very versatile message type, able to support not just trade finance messages. It is an authenticated message type, so it is secure.
Currently Nordea supports SWIFT MT 798 for trade finance messages, using it to carry notifications, requests, queries and advice notes at all stages of the transaction.
Nordea is one of about 30 banks that today can handle the SWIFT MT 798 messages and since they are one of our core banks it felt natural to ask them to be our pilot bank during the start-up phase.
Jörgen Holmgren, Director of Corporate Finance AB Volvo
Volvo: proving the value of MT 798
Volvo is one Nordea customer that has been using MT 798 for its trade finance documentary messaging since the start of 2014, to great effect. Because they have operations in almost 20 countries, sales in nearly 200 markets and many different business units, Volvo was keenly experiencing the challenges of dealing with multiple banks for trade finance, and it was committed to finding an electronic interchange solution.
In 2013, Volvo contacted Nordea to help it choose a new trade finance business management system, with specific focus on MT 798. “Nordea is one of about 30 banks that today can handle the SWIFT MT 798 messages and since they are one of our core banks it felt natural to ask them to be our pilot bank during the start-up phase,” says Jörgen Holmgren, Director of Corporate Finance AB Volvo.
Following the implementation of MT 798 at the end of 2013, Volvo can now make both the finance check and issue documents based on the letters of credit received. Holmgren described moving to SWIFT for the company’s export letters of credit as “a key milestone in our operations”, which he hopes will dramatically reduce the number of errors in its documentation. He is also confident that among the other resulting benefits, Volvo is poised to gain more business with more competitive financing, while making its operations and processes more efficient with a resulting improvement in cash flow.
The news of Volvo’s adoption of MT 798 sparked considerable interest from other corporates and financial institutions, with a number of European banks contacting Nordea to gain insights into the selection process. We expect more banks and corporations to adopt the MT 798 standard and embrace harmonised data exchange in the coming year — as trade flows continue to globalise, it’s in everyone’s interests to find more efficient ways to communicate.
To find out more about Volvo’s experiences, read the case study.
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