Following the launch of its software as a service (SaaS) offering earlier this year, SmartStream has teamed up with Swift to add its TLM OnDemand to SwiftNet. Financial institutions can now communicate with the SaaS version of SmartStream’s reconciliation service via the Swift network, explains Philippe Chambadal, CEO of the vendor.
“The notion behind the agreement with Swift was to offer a service so that two counterparties using the Swift infrastructure could eliminate trade breaks before they happen and sort out any problems that do occur very quickly by looking at the trade and reference data in the TLM utility on the Swift network. The service allows firms to reduce costs and operational risk,” explains Chambadal.
Existing Swift customers can therefore reuse their Swift infrastructure to access SmartStream’s subscription-based trade reconciliation service. The focus is on reducing counterparty and operational risk and minimising total cost of ownership (TCO), says the vendor.
There were a number of drivers for launching the service, says Chambadal, and the primary one was to help institutions to cut the costs within their back offices. The current financial climate has put pressure on financial institutions to drastically cut costs: “Firms have been spending hundreds of millions of dollars in their back office processing and they needed to reduce their cost base by at least 50%. They also found that their infrastructures were under strain due to high volumes.”
Chambadal reckons the TCO argument for clients is very convincing: they don’t have to pay for database administrators to maintain the data, Swift administration costs, hardware or office costs. “That is one aspect, but the other aspect is that they can authorise their counterparties to be able to look at their trade reconciliation data on the Swift network. Their counterparties can therefore look at their data in real time and this is very different to what they do now with spreadsheets and paper-based processes.”
It can take three to six weeks to sort out these problems within the OTC derivatives market for trade processing and reconciliation, claims Chambadal. The process via TLM OnDemand via Swift, on the other hand, is very quick, he contends. “We are talking a 21 day cycle, there are no upfront costs and you get charged by transactions. If the volume goes up you pay more but if your volume goes down, like in recent times, your costs go down.”
He also believes the integrated service will make the on-boarding process as simple as possible, providing a higher automated throughput of transactions and lower break rates. The single subscription fee means customers of the joint service will not be charged for the Swift messages consumed, adds Chambadal.
From Swift’s perspective, the partnership is non-exclusive and could represent a future chain of similar deals with the vendor community based on SaaS models. Swift has confirmed that it will be forging similar partnerships with other providers of SaaS solutions but only “where there is a clear benefit to the Swift community”, according to its global head of securities, Chris Church.
“The TLM SaaS service is now a destination on SwiftNet and the attraction for us is further enabling TCO for the industry,” explains Church. “Clearly SmartStream has a large presence in the industry and their target market is also largely on the Swift network. This is one of the first vendor partnerships in the SaaS area that we are working on. SaaS is a very interesting model and I think it is going to get a lot more traction in the market.”
Church agrees with Chambadal’s assessment of the SaaS space: “Cost savings come in two components: one is around the efficiency that can be gained through the service that SmartStream offers and the other is the TCO saving. The minimal investment, ability to realise efficiencies and costs savings and the fact that it is very simple and quick to take advantage of this make it attractive.”
According to Church, TCO reduction is what attracted Swift to the idea in the first place: “This is because we see our main purpose as to increase efficiency and reduce cost for our members. Being able to put the TLM offering as a SaaS model on the network allows our members to use their existing infrastructure and standardised messaging to send messages between each other and to the TLM software.”
Chambadal is also confident about the future of the SaaS service and is “delighted” with the uptake thus far. “We launched the SaaS product about three months ago and we have 70 clients already. We are converting new clients from the buy side onto the service at the moment and we will also be adding new functionality on to the service over this year.”
SmartStream will be adding its reference data service in the third quarter of this year, says Chambadal. “We are trying to make the process more efficient so that we can prove to people that we use the same reference data both sides and achieve 50 to 60% cost reductions,” he concludes.