Monday, October 09, 2006

Is SWIFT too expensive?

On the opening day of the Sibos conference in Sydney Australia there was the usual blurb about rebates and price reductions for members of the SWIFT network. SWIFT CEO Lenny Schrank announced an 8.2% price reduction which amounts to EUR 15 million in 2006 as well as a rebate of 5% (EUR 20 million)to SWIFT members. Overall messaging prices he says have been reduced by 50% for the period 2002-2006. "In total we are giving back EUR 60 million to our members," said Schrank. SWIFT also plans to reduce messaging prices by a further 15% over the next five years.

So what you may say. Whilst SWIFT may make a big deal of these price reductions at every Sibos, they need to be considered in the context of how does SWIFT compare with other global IP networks in terms of cost? I am thinking of the BT Radianz's and Savvis's of the world who maintain that they are more cost competitive than SWIFT.

As a senior European banker reminded me over dinner the other night, the price reductions and rebates meant nothing to him as SWIFT is a monopoly. So whilst it may offer rebates (something which not all banks view favourably given that they have to budget for them), it is still expensive. When asked about alternative IP networks such as BT Radianz, the banker said whilst they boasted a competitive network, he was forced to use SWIFT as its major customers were also on SWIFT.

This whole issue of how cost competitive SWIFT is was further compounded by Schrank reporting record financials for SWIFT in terms of pre-tax profitability. He made the joking aside that SWIFT Board members start to worry when he announces that SWIFT is making too much money, and although it may return some of this to member banks through rebates, how much is too much money? After all isn't SWIFT meant to be a not for profit co-operative?

SWIFT's ambition is to grow its messaging traffic. One way of doing that has been to seek new network users such as corporates. Schrank and Shah spoke about how SWIFT had changed its tune towards allowing corporates onto its network. An initial vote to allow corporates to join SWIFT was flatly rejected by the SWIFT board, but recently the Board unanimously (98.7%)voted to allow corporates to join SWIFT.

Having spoken to some bankers about the Closed User Groups (CUGs) and the new Corporate Participant Category SWIFT had developed to faciliate bank to corporate connectivity, one banker remarked that some companies had established CUGs hoping it would solve the complexity of having to deal with multiple banks and multiple standards, only to find it was just as complex.

When asked if SWIFT planned to offer any other carrots to corporates, Schrank said they were only looking five years ahead. When asked why SWIFT had limited its new corporate participant category to companies from qualifying countries, Schrank said SWIFT had to start somewhere. "We have the top 200 corporates which is plenty," he remarked.

What about other corporates? I thought SWIFT wanted to be everything to everybody. The conclusion seems to be that the MA-CUG and new corporate participant category are not the panacea some thought it would be in terms of helping solve corporate to bank connectivity issues.

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