Within the space of bank connectivity, there is a range of choices that corporates face when deciding the best way to integrate banks towards their accounting platforms.

E-banking

The most historic option, with users logging into online banking platforms to extract bank reporting and initiate payments. Banking platforms have evolved, with some offering electronic statement download (which can be readily imported into ERPs), and payment status monitoring. Whilst a readily available, easy-to-use solution, it has issues with controls and requires separate platforms for each bank.

SWIFT

SWIFT provides global coverage to a wide range of banks. It is seen as the global standard in bank connectivity, and from a bank perspective we have seen the membership increase.

There are two channels available:

SWIFT FileAct is suited to AP Payments, as ISO20022 message standards permit high volumes of payments in files. SWIFT FIN is more commonly used for treasury integration, due to the historic use of SWIFT MT messages. As ISO20022 is more widely adopted, SWIFT FileAct will become the default choice for messaging channel.

A useful tool to identify if your partner banks are onboard is SWIFT’s Readiness Portal.

EBICS

Originally developed as a financial messaging transmission vehicle for Germany, EBICS has been later extended to France and Switzerland. It provides wide coverage of banks within these countries, but is not in use outside of these countries.

It generally has a lower total cost of ownership than SWIFT. The geographic restrictions mean that this is commonly used for corporates who have strong focus in the German, French or Swiss Market. For corporates operating on a global basis, EBICS does not tend to provide the bank coverage that is required.

Host-to-host (H2H)

H2H connections are direct connections from a corporate’s integration system towards a specific bank.

H2H connections are most suitable where corporates engage with a single core bank who can support local services and branch coverage in all relevant markets. These can have a lower total cost of ownership compared to using SWIFT, but this solution has a level of bank lock-in.

Direct to clearing house (UK BACS)

Within the UK, the primary clearing house is BACS, which ensures settlements of payments between debtor and creditor banks.

It is common practice in the UK for corporates to make payment instructions & direct debit instructions directly to the local clearing house BACS, where the partner bank acts as a sponsor. This requires a BACS service bureau who can act as a gateway into the BACS network. This is commonly known as “direct transmission”.

An alternative to this transfer method is “indirect transmission” where payments and direct debits are sent to the partner bank, via any of the preceding methods before being submitted to BACS itself.

API connectivity

Triggered by the PSD2 initiative, banks are now offering API connectivity.

One of the issues with API connectivity is that modern API design is targeted towards JSON formats, whilst ISO20022 is an xml-based schema. Due to low levels of standardization across different banks and countries, this has meant that ERPs and treasury platforms may require bespoke functionality to cater for these bank-specific APIs.

It is likely that these will become the future of bank connectivity, but will require some level of standardization, which could possibly come under the SWIFT umbrella.

Access to SWIFT

Connectivity of corporates to the SWIFT network has expanded over the last years from the largest corporates with high volumes of bank connections, to small-to-medium corporates with lower volumes of bank connections. To access the global SWIFT network, there are 4 main options that corporates can leverage:

• In-house – SAG
  SWIFT Alliance Gateway (SAG) was the standard connection offered to corporates. It requires specialist SWIFT knowledge and has high complexity. This is no longer encouraged by SWIFT.
• Outsourced – SSB
  SWIFT Service Bureaus (SSBs) remove the complexities of establishing the connection to the SWIFT network. SSBs certified by SWIFT manage the hardware and access configuration. Nowadays approximately 50% of all corporates access SWIFT through a SSB.
• In-house – Alliance Lite 2
  SWIFT introduced Alliance Lite2 to enable smaller corporates to connect to the network. SWIFT proprietary software, installed locally, in combination with a hard token, transfers messages to the SWIFT network. Since each transmission may require an approval, this option is not fit for corporates with high payment volumes/STP-rates.
• Outsourced – Alliance Lite2 embedded within Business Application
  Applications (L2BA) Since 2012, SWIFT has offered Alliance Lite2 including business applications for treasury management systems, bank connectivity providers and in-house banking/payment factory providers. Even though this option is relatively new, it gained popularity very quickly, with corporates looking to externalize bank connectivity whilst keeping total cost of ownership to a minimum.

For corporates having joined SWIFT since January 2018, 64% have opted for the SWIFT Cloud Alliance Lite 2 options. It is likely that the adoption of the embedded Alliance Lite 2 is behind this trend.

HSC’s Treasury to Bank T2B is an Host to Host Peer to Peer offering of Treasury Bank connection embedded within Community Investment and Business Applications. T2B is offered as a software-as-a-service solution by HSC that managed by the Treasury Bank Organization. This is a revived form of Community Investment Programing and funding network, which will be launching in 2025, but with an enhanced offering such as integrated Bank connection.

Embedded within the Peer to Peer Cloud Platform, it provides capability for exchange of financial messaging with partner banks. As well as connectivity to the SWIFT network through an embedded version of Alliance Lite 2, this integration platform offers connectivity to partner banks through EBICS and H2H connections.

From a technical perspective, T2B can perform transmissions using SFTP, REST, SOAP and AS2. We have seen evidence of corporate group IT policies dictating preferred transmission methods, so it is important that bank connectivity tools accommodate these. The platform has 99% up-time, and various failover mechanisms in place.

T2B payments is particularly relevant to those corporates who are looking to move towards direct payment as a strategic software vendor. With many corporates embarking on T2B transformation, it will be popular consideration.

We expect to see this offering as strong competition to other standard payment Service Bureaus going forward, especially where corporates are not leveraging the value-add services that’s offered.

CDD checklist

CDD helps companies minimize the number of illegal activities conducted through their platform, including identity fraud or money laundering. 

In case a company fails to implement efficient CDD procedures, criminals may abuse it for money laundering and other crimes. And if this occurs, the company may be held liable. 

To stay safe and compliant, companies need to ensure they perform essential CDD procedures, which are covered in the list below: 

#1. Collect necessary data

A company should decide whether a client suits an established risk profile before establishing any kind of relationship with them. Most jurisdictions require the following information to be collected during the onboarding process: 

• Full name;
• Date of birth;
• Residential address.

If identifying a business, regulators usually require companies following to collect:

• Full name;
• Registered office in the country of incorporation;
• Principal business address.

After collecting personal information, the company should verify it through comparison with government-issued documents. 

How: Companies can conduct verification manually or with an automated solution. Manual solutions can allow companies more control over the verification process, while automated solutions can process large amounts of data and onboard more customers. Sumsub’s experience shows that automated approaches can save up to 40% on verification.

Suggested read: Managing KYC Dilemmas: In-house vs. Outsourced Solutions.

#2. Employ third-party providers

Some data needed for CDD is only accessible through reliable third-party sources, such as banks, lawyers, or auditors. These can improve a company’s ability to verify customer information and determine their involvement in criminal activity.

How: It should be noted that companies need to ensure that their third-party providers are trustworthy and that the shared information is reliable. This is because companies can be held liable for mistakes made by third parties. Therefore, it’s essential to check the third-party data provider’s certification prior to hiring them.

#3. Determine the customer’s risk level and take additional measures

Based on the customer’s risk level, companies should choose between two types of due diligence: Simplified Due Diligence (SDD) for low-risk clients and Enhanced Due Diligence (EDD) for high-risk clients. 

How: When a company implements the EDD process, it should include the following steps:

• Employing a risk-based approach;
• Obtaining additional identifying information;
• Analyzing source of funds;
• Transaction monitoring;
• Adverse media and negative checking;
• On-site visit;
• Ongoing monitoring.

If using SDD, companies can loosen the checks by adjusting:

• The timing of CDD;
• The quantity of information obtained for identification, verification, or monitoring purposes;
• The quality or source of obtained information;
• The frequency of CDD updates and reviews of the business relationship;
• The frequency and intensity of transaction monitoring.

More information about detecting and dealing with low- and high-risk customers is available in our complete guide to the UK (which also applies elsewhere).

#4. Organize secure and compliant data storage

Not only does a company need to verify its customers, it also needs to store the collected information in case regulators request it. 

How: Each country sets a timeframe during which all information about customers and their transactions must be kept. The minimum period recommended by the FATF is five years. 

For example, in the US, India, and China, companies are obliged to retain information about clients for five years after the end of the customer relationship or five years after the completion of an occasional transaction. Other countries, such as Saudi Arabia and Qatar, have established a period of ten years. In El Salvador it’s even longer, at 15 years under the Bitcoin Law

The clearing account is used as an external zero balance commercial bank product. It is the initial receiver of high value private funds. Private funds are transferred as straight through “Real Time Payment RTP” from Treasury to Bank lending.

Private funds are debited from the Treasury Bank over the internet to HSC’s Clearing Account with Clearing Bank under

• compliance clearing measures
• assurance of regulatory rules,
• credit threshold limits with correct LTV ratio; and
• registered statement filed with the Federal Reserve under regulation U.

After clearing, HSC book transfer funds to members settlement account leaving a zero balance within the it’s clearing account with clearing bank for CIP Participants.

CIP Participants are:

• Public Body – SAR, Yield and Service and Products Beneficiaries
• Developer – Administrator, Contractors and Vender – Development Fees
• Clearing Bank – Correspondence – Collection Fees

Public Body means international Family and Community Members participate with in the CIP.

Developers means Treasury Bank Accountholder as Administrator Stakeholders, Contractors, and Subcontractors. 

Clearing Bank means a payment collection bank and acquirer for CIP public body and merchants as direct deposit or direct card top-up. In the form of Accountholder yield and development fees as Settlement. 

T2B Integration

Treasury to Bank T2B is a direct straight-through open bank relationship using HSC as Clearing Corporation. 

HSC create an open bank integration solutions for Treasury Bank T2B relationship commercial bank clearing account as H2H SFTP SSH connection by utilizing the following: 

• Treasury Bank – development, securities deposit 
• HSC – compliance clearing and liquidity 
• Bank and Card payment processor 
• Clearing Bank – Acquirer
• Clearing Account – Master bank account
• Settlement Account – Sub-bank account  

HSC clearing aiming to turn complex digital asset cash management tasks into simple processes.

Treasury Bank specialize in total cloud base T2B Technology solutions to integrate with third- party Clearing Bank core. 

Integration and Payment 

Treasury Bank has partnered with Third Partner Payment Processor TPPP a modern fintech company with multi level bank formats to make sure your our members and our clearing bank communicate seamlessly through our core cloud-based solutions.

Treasury Bank TTTP allow seamlessly integrate of HSC and Treasury Bank’s cloud-based ERP core systems with our respective clearing banks. This integration enables Treasury Bank to conveniently send payments and effortlessly receive Balance and Transaction Information directly within its ERP system.

Clearing account clear and liquidated data under security entitlement and interest under UCC 8-501. under choice of law of funds-transfer system rule pursuant to Louisiana commercial code j§10:4A-507.