Friday, September 05, 2008

SWIFT - All you can eat

“For the first time, SWIFT ... has finally realised that it has competition.” Those were the words of FinancialTech Insider guest blogger, Ted Iacobuzio, managing director and practice leader, payments, TowerGroup, at Sibos in Boston last year. At last year’s event, new SWIFT CEO, Lazaro Campos, announced that from the 1 January 2008, high-volume customers of SWIFT could opt for a three-year fixed fee contract and that they could increase their messaging usage by 50% at no additional cost.

Building up to Sibos in Vienna this year, reducing the cost of ownership of SWIFT is likely to be a dominant theme. There will probably be the usual user rebate announcements, but this year will see the official launch of the new SWIFT “Lite” interface that Campos alluded to last year. “A SWIFT button on the fax machine,” he stated. “Beautiful simplicity. Simply SWIFT.”

As a network provider, SWIFT faces significant competition from commercial IP network providers (BT, Savvis et al) who claim that they can provide similar if not better levels of speed, reliability and value-added services for half the cost of SWIFT. “The threat to SWIFT is that people are rethinking flows that go over SWIFT and we have to be quick as an industry to respond to that,” said Gottfried Liebbrandt, head of markets, SWIFT, in the run up to Sibos in Vienna.

SWIFT’s weapon in its battle to remain the network of choice for banks and their customers is Alliance Lite, which is being piloted by more than 20 SWIFT customers. The first official release of Alliance Lite is scheduled for October.

Instead of having to install “SWIFT-specific connectivity” at their premises, Alliance Lite allows firms to connect to SWIFT via the internet at lower cost using a hardware security token. The jury is still out on whether this will be enough to stop network providers like BT Global Services crowing that it can offer connectivity to banks for half the price of SWIFT.

Liebbrandt said cost remained an issue, not just for emerging markets where SWIFT is focused on gaining greater traction, but for all users of SWIFT. “Total cost of ownership of SWIFT has come down,” he said, adding that he anticipates investment managers, some corporates and smaller banks will use Lite.

The good news for corporates is that SWIFT is looking at reducing the strict criteria for joining its SCOR (Standardised Corporate Environment) model, which enables corporates to interface with multiple banks via a single, standardised CUG (Closed User Group).

There are currently more than 30 corporates on SCORE, and more than 150 banks. However, at Sibos last year mid-sized corporates such as Virgin Atlantic stated that SWIFT was only viable for large corporates with “deep pockets” and the rest had no real choice in how they connected.

“We are looking at relaxing the criteria to join SCOR, which currently is tightly-defined (companies have to be listed on an exchange in FATF countries),” said Liebbrandt, adding that SWIFT had posted a discussion paper to obtain feedback as to who should be eligible for SCOR.

Yet, of the 8000 or so banks that are members of SWIFT, only 250 offer SWIFT corporate connectivity. Liebbrandt said the number of banks offering SWIFT corporate connectivity had doubled over the past two years, but that at the end of the day it was something SWIFT could not control. “We are seeing a lot of interest from UK banks,” said one SWIFT spokesman. “If they think they are losing business they will do it .”

Of SWIFT’s more than 8,400 customers, Liebbrandt said an increasing number were investment managers, stock exchanges, corporates and clearing and settlement providers. While half of the traffic on SWIFT is still payments, securities now comprise 40% and FX, 7%.

The largest growth in SWIFT volumes in the past year was in the area of treasury which grew by 29.4% as at April 2008. The next biggest area of growth was securities, which increased by 24.8%. Payments traffic grew by 12.4%.

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