Tuesday, October 02, 2007

Corporates vs fund managers on SWIFT

When it comes to corporate treasurers and investment managers connecting to the SWIFT network, SWIFT has got itself into a rather tricky situation. Having actively pursued multinational corporations in order to drive more volumes onto SWIFTNet, there are now approximately 200 corporates on SWIFT, and corporates make up 33% of SWIFTNet FileAct traffic.

Arguably 200 corporates is not a lot in the overall scheme of things, but with a number of vendors such as Sterling Commerce, Broadridge and SunGard announcing service bureau or expanded Member/Concentrator offerings to facilitate connectivity with SWIFT, thereby reducing the upfront investment for corporates that do not want to connect to SWIFT directly or invest in SWIFT domain expertise, it should provide some inducement for more corporates to connect to SWIFT.

After corporates complained that they could not directly connect to SWIFTNet via their ERP systems, SAP also announced at Sibos this week an integration package to facilitate direct connectivity between SAP ERP systems and SWIFTNet. Great news for corporates, some of whom have had to use their own middleware (Microsoft) in order to connect SWIFT with internal applications.

At Sibos in Sydney last year, former SWIFT CEO Leonard Schrank suggested that 250 corporates on SWIFT may be enough. But it caused some to ask, what about the small to mid-tier corporates? Couldn't they benefit from SWIFT connectivity also? Well today BNP Paribas announced that it would actively pursue mid-market companies with earnings of $100 million or less.

"We have to generalise SWIFTNet," said Pierre Fersztand, head of cash management, BNP Paribas, announcing that it would try to make SWIFT corporate connectivity more attractive to 100 mid-market companies in Europe by working with integration and ERP vendors to simplify connectivity to SWIFT and by partnering with a SWIFT service bureau.

Banks appear to be bending over backwards to get more corporates to join SWIFT. And whilst one can see volume as the driver - the more volume on SWIFT the less it will cost banks, corporates and all SWIFTNet users - one has to ask why aren't banks providing the same level of support in terms of making it easier for fund managers to connect to SWIFT?

SWIFT had targeted investment managers long before they permitted multinational corporations to join SWIFTNet? Yet with attendance of less than 3% from asset managers this year, compared to 100 representatives from more than 60 multinational corporates, SWIFT has failed to mobilise the investment management community as successfully as it has corporates.

SWIFT's new CEO Lazaro Campos admitted in yesterday's opening plenary that SWIFT had failed to convince fund managers that they should connect to SWIFT to facilitate STP. Whether price reductions will be enough to encourage investment managers to join SWIFT is debatable. For investment managers who are more concerned with 'alpha' and portfolio performance, the STP and standardisation benefits of SWIFT do not provide the same allure as it does for multinational corporates.

The main reason why multi-banked corporates are joining SWIFT is because they want a single and standardised interface to communicate with all their banks, instead of having to pay out EUR 50,000 each time they want to connect to a proprietary banking interface.No such incentive exists for fund managers.

Interestingly, although corporate interest in SWIFT is increasing, there are still a number of banks that see corporate connectivity on SWIFT as a direct competitive threat and are reluctant to actively promote it. Of SWIFT's 8000 member banks only 220 banks offer SWIFT corporate connectivity and a much smaller number are promoting the service.

If banks in general are reluctant to support corporates joining SWIFT for fear of 'disintermediation', should we be really surprised then that they have failed miserably when it comes to selling SWIFT to investment managers?

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