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Best Practices in Treasury Connectivity

  • By Andrew Deichler
  • Published: 11/27/2018

Connectivity is the glue that holds all of the key functions in modern corporate treasury together. Without it, there’s very little that a treasury department can accomplish.

In the latest Treasury in Practice Guide, underwritten by Kyriba, AFP examines best practices in treasury connectivity. We go through the systems that treasury connects to; the different connectivity protocols; external connectivity through treasury management systems (TMS) and internal connectivity through enterprise resource planning (ERP) systems; and new technologies that are, essentially, the future of connectivity.

Bank Connectivity – What to Know

Bank connectivity is among the most essential for treasury teams. There are multiple facets to bank connectivity, from downloading reports, to uploading payments, to considerations around how technology is changing.

“When we start talking about bank connectivity, most will think about bank formats,” said Bob Stark, vice president of strategy for Kyriba. “While formats are a big part of connectivity, it’s best to start with the protocol—how you actually connect to a bank.”

When connecting to banks there are many choices that treasury can choose. In North America, FTP (File Transfer Protocol) is typically the standard for domestic connections, whereas SWIFT is the most common for connectivity to international banks. While there are global protocols such as EBICS that are for specific countries, these are not often used by American companies.

However, as banks begin to open up their platforms via APIs, many predict that both FTP and SWIFT connections could become obsolete, especially as banks identify opportunities to expand real-time cash management services via APIs that were not possible using protocols such as FTP.

When it comes to bank formats, there are many choices, largely dictated by geography. For bank reporting, we often see BAI files in North America and MT formats internationally. Banks are starting to offer XML ISO 20022 CAMT files as an alternative to these traditional formats. Many expect XML CAMT formats to become the market standard, a position SWIFT has endorsed as it looks to replace MTxxx formats with ISO 20022.

Bank Connectivity – What to Choose

To determine the most appropriate methods for bank connectivity, a good place for treasury to start is with its banking profiles. For example, if you have three domestic banks, and one is your “lead” bank, that network would likely be best managed by host-to-host connections. You probably won’t require third-party software or the use of a network like SWIFT to be able access your banks. You can connect to them through FTP or an API directly, which would allow you to download statements and upload payments without any middleware or intermediary networks.

The treasury department at telecommunications giant Sprint typically uses the online portals that its banks offer. Treasury manually logs in and pulls the bank file and imports it into its treasury workstation. “Because we’re on the website for multiple reasons like initiating payments, we just go ahead and download the BAI formats that our banks offer for our workstation,” explained Howard S. Smith, CTP, treasury manager. “It’s a small enough operation. We just got in the habit of doing it this way so we don’t have to compete for IT resources. And we have an older workstation; some of the newer workstations have an easier setup in the cloud. So we’re probably on the back half when it comes to automated connectivity.”

Sprint has used its treasury workstation for about a decade and is in the market for a new one, and will likely go with a Software-as-a-service (SaaS) module that is managed by a TMS vendor. And connectivity between the treasury workstation and the banks could possibly be simplified, depending on the relationship between the TMS vendor and the banks. “If the vendor already has a relationship, then it could just be a matter of signing an authorization,” Smith said. “It could be as easy as flipping a switch. Or maybe it works well with the bigger banks, but maybe with the smaller banks, you have to involve IT.”

Most corporations that have large domestic and international banking relationships will look to an intermediary for some or all of their bank connectivity needs. The volume of what treasury sends and receives becomes much more important, because an intermediary such as SWIFT factors transaction volumes into its pricing.

Nevertheless, sometimes choosing different bank connectivity methods can ultimately save money. The treasury department at multinational courier FedEx is in the process of moving over to SWIFT for all of its payment files. Currently, when a bank wants to send treasury an MT940 statement, it has to go through one of FedEx’s two aggregator banks. “We connect to the aggregator, and they transmit a BAI file to us and those files are structured like MT940s,” said Kyle Kremser, CTP, treasury systems and controls principal for FedEx.

But now by moving to SWIFT, treasury will be able to connect to those banks around the globe and receive those statements directly. FedEx should achieve substantial cost savings with this effort. “Internationally for treasury we see that the connection will be more expensive, but we are eliminating the aggregation in the U.S. as well, and net we will be saving money for our treasury connections,” he said.

This is part of a larger initiative from FedEx’s treasurer to move to SWIFT payments enterprise-wide. “We are already moving to SWIFT for the treasury payments, but we’re being challenged additionally to move everything to SWIFT, including accounts payable and reconciliation statements coming in,” said Kremser.

For more insights, download Best Practices in Treasury Connectivity here.

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