As more companies become increasingly global, the need for automated financial exchange capabilities continues to grow, according to Frank Cook, first vice president, global foreign exchange, Mellon Financial Corp. (Pittsburgh; $729 billion in assets). Cook is responsible for Mellon's proprietary foreign exchange (FX) platform, Mellon IDeal Forex, which has undergone several transformations to meet the evolving needs of the firm's customers.
"Mellon is focusing its FX business in two ways," Cook explains. "On the strategic side, we're trying to meet customer needs with the right FX instruments - spot, forward and option instruments. The key to that is to have the right salespeople, the right research and the right products. The significant majority of customers are managing FX not so much for profit, but more to minimize risk."
Although multinational corporations have been active in FX for several years, increasing globalization means that companies further down the supply chain also are becoming involved, according to Cook. This leads to increasing international payrolls, stock options, claims and other transactions.
As customers' needs expanded to hundreds of payments a month, Cook notes, traditional SWIFT and EDI payments became too expensive. "International ACH costs a customer about half as much as a SWIFT transaction," he explains. So customers wanted a system that would enable them to use international ACH, while still providing more traditional payment capabilities, including the ability to track payments in more specific detail than they had in the past, according to Cook.
As a result, Mellon decided to relaunch IDeal Forex with new ACH capabilities and more powerful processing to handle more transactions. Mellon had initially rolled out a desktop version of IDeal Forex in 1987, added Internet capability in 1999 and added enhanced global cash management capabilities in 2002. The latest initiative, which began a year ago, went live in June 2005.
Revving Up the Engine
Mellon Financial's approach was to separate the FX process from the payment process, Cook relates. The bank's payment engine now allows for processing on an unlimited number of international payments, independent of FX transactions, he notes.
"The most significant technology challenge was on the reporting side," Cook says. "We have moved our report presenter from a proprietary product to one that eliminates any serial processing and allows for more presentation functionality," he continues. "This enhancement allows us to gather information for reporting purposes from multiple databases and present it in a way that allows our customers to view current trades, track the status of payments and see historical transactions."
For paper-based payments, the new system - which offers foreign payment processing via trader input and file upload - also offers improved automated processing of international checks, which Mellon has outsourced, Cook says. International check payments now can be drawn and delivered via in-country MICR-encoded checks. This facilitates automated check clearing because it conforms to the strict MICR criteria accepted by local banks in each country worldwide, according to Cook.
The expanded functionality also enables customers with large numbers of checks to increase the efficiency of cross-border transactions by making payments in local currencies. This reduces the time, cost and risk normally associated with sending U.S. dollars to foreign beneficiaries, says Cook, who expects the automation of foreign exchange to continue to grow both in terms of front-end applications and back-office technologies.
Institution: Mellon Financial Corp. (Pittsburgh).
Assets: $729 billion.
Business Challenge: Add international ACH capabilities and greater scalability to legacy foreign exchange platform.
Solution: Upgrade to in-house-developed IDeal Forex system.