Thursday, September 17, 2009

SWIFT in the retail network space?

SWIFT would like banks and other financial intermediaries to use its IP network more, particularly when the banking co-operative has not had such a good year in terms of traffic. While SWIFT chairman Yawar Shah said in the opening plenary that SWIFT should focus on those areas where it is more likely to succeed, the banking-owned network is eyeing up opportunities in the retail network space.

It is kind of ironic that SWIFT feels it can be successful in the retail space, when on the face of it managing a closed network with just 8000 banks on it, hardly equates to a successful network business, particularly when your pricing is not necessarily as cost competitive with other IP-based networks that have substantially higher volumes and carry more transactions.

Francesco Lanza, marketing manager, network services for SIA-SSB was a little bemused to hear about SWIFT's plans to move into the retail space. SIA-SSB, which is owned by leading Italian banks such as UniCredit, has 550 banks on SIAnet, which handles wholesale, capital markets and retail traffic (payment cards) on its network, providing connectivity to STEP2 in Europe, to SWIFTNet for Italian banks and to multilateral trading facilities in Europe.

Lanza says that SWIFT could have its work cut out for it in the retail networking space. "Retail traffic is huge compared to wholesale and it requires a different service model." And unlike SWIFT, which saw network traffic decline in the wake of the crisis, SIA-SSB saw double percentage increases in network traffic across most months last year, largely because it carries not just wholesale traffic, but also retail.

According to Lanza, SWIFT's "central hub" network approach is unsuited to the retail environment where a peer-to-peer topology works better. SIAnet works on the basis of network nodes, which are able to reach out to other nodes not requiring a central hub, which means government agencies are unable to pry into information carried on its network, says Lanza.

SWIFT found itself in hot water with data privacy organisations a couple of years back after it allowed US intelligence agencies to look into messages carried on its network. In response to that SWIFT is looking at developing a mirrored data environment located in Europe for European traffic. However, Lanza says that means additional cost.

It raises the question yet again as to whether SWIFT should be in the network business. While it may have started out as a replacement for the telex, with the advent of the internet and global IP networks, is running a network (despite all the stuff about non-repudiation) really SWIFT's core business. Arguably in the retail space the same level of non-repudiation is not needed and SWIFT's network is likely to be perceived as being too closed.

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