Imagine, if you can, that you are a German pensioner who has retired to the golden shores of Australia. Every month, the German government will send you your pension, which you can withdraw from a local bank in Australia. It probably does not cross your mind how this process actually happens. But until very recently, it was a process that was done manually: the Bundesbank created a magnetic file and then couriered it on a plane down to Australia, where the relevant bank processed the information and made the payments.
Unless you are the courier, this system was clearly not ideal. The wrong files could be sent, the files could be corrupted, or the files could get lost. Luckily, new advances in SWIFT technology are helping to pension off this kind of inefficiency.
Bulk payments are the kind of small, regular and non-time essential payments that make the world go round, such as salaries being paid or insurance premiums being collected. Because of their size, the systems to process them have been very inefficient. But with FileAct from SWIFT, that has all changed. "[Traditional messaging such as] FIN is just too costly for low value payments and it is not adapted for mass payments in terms of messaging," says Jean-Yves Garnier, deputy manager at Natexis Banques Populaires. "These payments are a commodity but their cost will have to decrease dramatically. We are all losing money heavily on this so let's move to a single standard."
European institutions have taken much of the lead in this, in replacing physical payment instructions, either between banks, or between banks and the automated clearing houses. However, due to the moves of the financial action task force of the G8 and G30, reducing costs for bulk payments, both local and global, is likely to be an obligation for banks in coming years.
Garnier was joined at the Sibos session by Pierre Boisellier, the head of Arcelor Treasury Services and for once the banker and the corporate were in full agreement. They both noted that SWIFTNet's FileAct is the best solution for banks and corporates to solve the problems of bulk payments. Boisellier said that his company – the world's largest steel company with Eur26 billion in annual revenue, and 100,000 staff in 60 countries – would use FileAct for all its salaries, supplier payments and taxes but would keep using FIN for more one-off type payments such as FX trades, and loan deposits.
As yet, no Asian banks nor companies have signed up for this kind of solution from SWIFT. But according to Ian Johnston, the Asian head of the cooperative's banking industry division, he expects 30 institutions to sign up to FileAct by the end of this year. "The take up of FileAct is in its early days in Asia," he said. "Banks have to be SWIFTNet enabled and so it depends on their migration to SWIFTNet. Some smaller players can also get a starter pack for FileAct from SWIFT Alliance and that should help them."
Indeed the first Asian bank to adopt the system is Commonwealth Bank of Australia which uses it for, amongst other reasons, speeding up and making German pension payments in Australia more secure.