10 July 2015

The power of SWIFT

Using SWIFT can hugely improve the efficiency and strategic flexibility of a corporation’s treasury function, but the ease and quality of a direct SWIFT corporate implementation is hugely dependent upon the expertise of individual banks.

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Gulf Polymers Distribution Company (GPDC) is a free zone company founded in 2009 and incorporated in the Dubai Airport Freezone. As the distributing arm of Saudi Polymers Company, GPDC is responsible for the sales and finance activities of a number of Chevron Phillips chemical joint ventures in Saudi Arabia and the UAE.

Following a highly successful SWIFT implementation with HSBC, GPDC not only benefits from reduced costs and improved process efficiency, but now also has a channel that it can leverage in the future in other areas, such as trade finance and liquidity management.

Indeed, when Saudi Polymers reaches full operation, GPDC will be processing annual sales volume of 1.7 million tonnes of polymer products, with average annual sales collections of USD2 billion.

GPDC deals with 600+ customers in Europe, the Middle East and Asia, with 70 per cent of sales originating in Asia and the remaining 30 per cent in Europe and the Middle East.

Business challenges

Originally, each of the Chevron Phillips joint ventures handled their own payments activity on an individual basis, each using their own technology and bank relationships. This proliferation of bank technology platforms meant that GPDC's treasury had no holistic control or visibility of payment activity.

Obtaining an overall bank balance position across all the ventures necessitated asking each joint venture for its bank statement data – a laborious and inefficient process. This also limited GPDC's strategic flexibility as regards switching banking partners and impeded any form of meaningful liquidity management.

GPDC's treasury was keen to remedy this situation by instituting a payment factory with technology that would provide a single interface. This interface could then be used by GPDC's treasury to process all payments for all the Chevron Phillips chemical joint ventures in Saudi Arabia and the UAE, as well as making standardised reporting possible.

One possible solution was to use SWIFT, but GPDC's treasury found that there was limited expertise available among local banks regarding SWIFT implementation by corporates.

Therefore, GPDC treasury personnel attended a SWIFT workshop in Dubai hosted by HSBC, which dealt in detail with the adoption of SWIFT in the Middle East. GPDC had extensive discussions with HSBC personnel about the possibility of using SWIFT as a neutral banking and payments communication channel.

It quickly became apparent that SWIFT corporate connectivity could definitely provide the desired solution, but this still left the question of whether to access SWIFT directly or via a service bureau.

GPDC had been considering accessing SWIFT via the service bureau available within an alternate solution. However, GPDC's treasury was also aware of the SWIFT Alliance Lite solution and so raised the possibility of using this (instead of the service bureau offering) with HSBC in early summer 2012. At the time, HSBC was aware that the second version of Alliance Lite was due to be launched shortly and that this would be a good match for GPDC's needs.

The additional fees associated with using a service bureau also influenced HSBC's suggestion that GPDC use Alliance Integrator and Alliance Lite2 for its SWIFT implementation.

An additional factor was that GPDC had sufficient in-house technical resources available to assist with any integration work required. Finally, because GPDC uses two different ERP systems (SAP and Microsoft Dynamics), the SWIFT Alliance Integrator middleware tool that sits on top of Alliance Lite2 would help in minimising connectivity issues.

The solution

On the basis of HSBC's expertise and the suitability of the available SWIFT technology, GPDC decided to migrate the connectivity of its existing accounts with HSBC from HSBCnet to SWIFT using a combination of Alliance Integrator and Alliance Lite2. (GPDC also opted for the same approach with its other bank relationships.)

GPDC decided to use SWIFTNet FileAct for most of their payments by simply tweaking the existing file format already being used via HSBCnet file upload. SWIFTNet FIN was chosen to cater for ad hoc high value payments via MT101, as well as for a full suite of value-added reporting services (MT940 for end of day bank statements, MT942s for intra-day bank statements, MT900 for debit advices, and MT910 for credit advices).

After further discussions with HSBC during autumn 2012, it was decided that the project should be conducted in two phases. GPDC bank accounts held with HSBC in the UK would be migrated first, followed by those held with HSBC in the UAE.

The implementation teams from GPDC and HSBC held a successful project meeting at which GPDC personnel outlined their requirements and expectations and HSBC presented a detailed implementation roadmap.

This roadmap provided a complete timeline, together with a clear statement of delivery items and deadlines for all those involved on both the HSBC and GPDC sides. HSBC subject matter experts relevant to each aspect of the implementation were also in attendance and were introduced, together with an explanation of their specific role and expertise.

The project went according to plan, with the GPDC accounts with HSBC in the UK going live in January 2013, while those held with HSBC in the UAE went live in March 2013.

A GPDC spokesperson said: "A key highlight of the project was the manner in which HSBC's UK and UAE teams worked in unison to deliver GPDC's implementation requirements on SWIFT FIN and FileAct (which used the industry standard XML v2 file format, as opposed to a legacy or proprietary format). This was particularly valuable because of each team's expertise on local payment types and internal system configurations."

This level of support is also being maintained post implementation. Day-to-day after-sales support for GPDC is now provided by HSBC's Middle East Service Centre and includes access to a dedicated client services manager who handles any queries for the company.

Post implementation benefits

The combination of the SWIFT Alliance Integrator and Alliance Lite2 has delivered important benefits to GPDC. The Alliance Integrator provides the necessary data connectivity and translation, while Alliance Lite2 processes the transactions. This centralised payment processing provides a single homogenous source of data for both incoming/outgoing transactions and bank statements.

GPDC is taking advantage of this single consistent data source via a Microsoft SharePoint project that enables it to mine the data as required. So, for example, it can easily search and trace transactions by vendor or transaction code.

This enhanced transparency has enabled GPDC treasury to apply payment netting among the various entities in order to minimise unnecessary intercompany transactions. This, plus the use of SWIFT FileAct for batch processing, has delivered significant savings on bank charges.

The various Chevron Phillips joint ventures also benefit from streamlined and simplified workflows. For example, if an entity controls its own accounts payable module, it simply initiates a standard payment run (such as an F110 program payment in SAP).

The necessary Data Medium Exchange (DME) files are then automatically generated and processed via SWIFT.

Where an entity does not control its own accounts payable module, the process is essentially the same, except that GPDC treasury initiates the payment runs on the entity's behalf. A further benefit is that GPDC now enjoys far greater strategic flexibility in terms of bank relationships.

The use of SWIFT and its common standards means the connection and disconnection of banks is not hampered by proprietary bank technology into which the company is locked. GPDC can now select partner banks purely on the basis of their service and solution quality.

The experience of working with HSBC on a successful SWIFT implementation has also given GPDC valuable experience that it can now use when implementing SWIFT with other banks.

The company has used this understanding of what is involved in a SWIFT corporate connectivity project to assist its local banks with technical expertise and project management when implementing SWIFT with them.

GPDC's SWIFT implementation was the first ever SWIFT direct corporate connection made in the Middle East, as well as being one of the first Alliance Lite2 implementations globally.

Having successfully established a single channel to its banks and benefited from the learning process of this implementation, the company is keen to maximise the channel's use.

It has therefore had preliminary discussions about trade finance (a major portion of GPDC's Asia and Middle East sales are made via letters of credit) and how much of its activity in this area could be routed via SWIFT.

However, progress here is to some extent limited by the capabilities of certain of its banks. For example, the company would like to take advantage of new trade instruments (such as bank payment obligations, which are obviously, ideally suited to routing via SWIFT), but some of its banks are as yet unable to offer these.

The centralisation of GPDC's payment flows and associated data means that further innovation may be possible in the area of liquidity management.

At present, the company has confined its activities here to netting intra-company payments in order to minimise unnecessary transactions, but the excellent transaction visibility that GPDC's treasury now enjoys means that pooling or other forms of cash concentration may be feasible.

Conclusion

By opting not to use a service bureau, GPDC became the first corporate in the Middle East to make a direct SWIFT connection.

Apart from the immediate cost saving on service bureau fees, the company has also gained valuable expertise through this strategy, which it can leverage via its SWIFT connection to obtain further cost savings and efficiencies.

A key part of the project's success was the performance of the HSBC implementation team. GPDC's treasury was impressed not only by the team's project performance but also its willingness to provide considerable support.

HSBC's ability to connect its personnel in various locations efficiently in order to optimise project delivery was also seen as an important success factor. GPDC has now achieved neutral, state-of-the-art bank connectivity that has significantly reduced its costs and radically improved transaction transparency.

Moreover, it has also acquired considerable future strategic flexibility in terms of enhancing both its workflows (such as in trade finance) and its bank relationship management.

1A joint stock company incorporated in the Kingdom of Saudi Arabia
2A wholly-owned subsidiary of Chevron Phillips Chemical Company LLC.

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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