SWIFT - eat as much as you like

Guest blogger, Ted Iacobuzio, managing director and practice leader, payments, TowerGroup, shares his views on SWIFT's "eat as much as you like" opening plenary speech.

Well, another SIBOS, another opening plenary. On the surface, the same old, same old - rebates, price cuts, we really work hard for you, etc., etc. Not scintillating, but a good old-fashioned crowd pleaser--a typical "new broom" speech.

But scratch the surface, and it was actually far more interesting. The actual reductions in price were indeed old news. But the changes in pricing structure--three-year agreements for large banks, for example--and, just as important, the change in SWIFT's own attitude to pricing, and, hence to its customers, indicate that the consortium has perceived threats to its business. For the first time, SWIFT seems to be acknowledging the fact that the world has evolved and that it needs to address this as well. It has finally realised that it has competition.

This can only be a good thing for the industry. There is nothing like a competitor breathing down your neck to focus your mind. The expected price cuts for the big banks were there and in reality only a small proportion of SWIFT users--the very largest--will even consider this new flat-rate deal, even though these largest users account for 80% of SWIFT transactions, and the majority of growth, as SWIFT's head of pricing Andre Boico has pointed out.

But there was a significant shift in creating a "eat as much as you like" deal at a flat-rate. This could work effectively to drive volumes and more important, tie users into SWIFT. And addressing the issue of "total cost of ownership" for the rest of the community will address the George Orwell issue: some members of the community are more equal than others. The cost of just being connected has long been an issue, and so the industry will be watching with interest.

The other interesting thing to note was the devolution to a regional structure. The slide said it all--Sibos is taking place in the heart of the US mutual fund business, yet over half of the attendees, are European. The US banking session spent a considerable time trying to discuss SEPA. SWIFT is betting on regionalisation to get more traction, and needs it, er, swiftly.

SWIFT on the "offensive" in Boston

A common 'behind-the-scenes' gripe of banks at Sibos is that SWIFT is too expensive to connect too. Even large volume users of SWIFT say it is too expensive, yet they have to connect to it because their customers demand it. Well, for the first time in my more than 10 years of attending Sibos, (not something I like to divulge), SWIFT has tried to knock this kind of 'backroom' talk on the head.

I did get an awful sense of 'deja vu' when SWIFT chairman, Yawar Shah, announced in the opening plenary at Sibos in Boston yet another rebate - 15% on top of the 10% SWIFT had already delivered, bringing the total rebate for 2007 to 25%, with another 5% rebate earmarked for January 2008. 'Whoopee do' is often the retort of most banks to SWIFT's rebate announcements.

It seems SWIFT has finally woken up to the fact that yet another rebate, no matter how significant, is not necessarily enough to evoke excited chattering amongst the masses. So SWIFT went on the "offensive" as it were, which may sound somewhat contradictory given that the standard joke is that SWIFT does not mean moving swiftly. However, Shah seemed eager to knock that one on the head saying that SWIFT realised it needed to work harder and more aggressively.

"I want to see SWIFT on the offensive through a combination of governance and more aggressive leadership,"

said Shah acknowledging publicly the competitive threat SWIFT faces from other network providers (BT Radianz, SAVVIS et al) and that internet bandwidth continues to come down in price, increasing the challenge for SWIFT to remain relevant from a pricing point to its users.

Eager to try and put its data privacy issues behind it, Shah banged on about the new distributed architecture SWIFT was deploying, which means intra-European data will be kept within Europe. And with 100 representatives from 65 corporate entities attending SWIFT's "biggest ever Sibos" in Boston (there are actually more corporates attending Sibos now than fund managers, which make up less than 3% of total attendance), Shah was keen to re-iterate that it did not intend to come between banks and their corporate customers.

Well that is a relief, but the message does not appear to be getting across to those smaller regional banks, who according to large corporate customers of SWIFT's like Microsoft, are still not actively supporting SWIFT corporate connectivity for fear that they will be 'disintermediated'.

Shah even spoke about whether SWIFT should extend its tentacles to insurance, which raises the question is SWIFT extending itself a little too far in its efforts to be everything to everybody?

A good example of the 'contradiction' that SWIFT has become however, is its desire to be more competitive, much like any commercial entity. But hang on a minute isn't SWIFT meant to be a co-operative? Yet, when SWIFT's new CEO Lazaro Campos took to the stage, he sounded more like the CEO of a commercial company than a banking co-op.



Walking amongst the audience (the first time I have seen a SWIFT CEO do that), rather than talking at banks from a lectern on the stage, Campos announced a new "lite" SWIFT interface for those banks that have often bemoaned the high cost of connecting to SWIFT, despite all those rebates.

Eager to debunk the perception that higher volume users of SWIFT pay more, Campos also announced that the SWIFT Board had approved a "fixed fee" for a three year period for high volume users of SWIFT, which meant they could increase their volume on the network without paying extra.

Taking a leaf out of HSBC's book which emphasizes that despite being global it is still a 'local' bank, Campos said SWIFT would establish regional operational centres in the US, Europe and Asia, so it could be closer to its customers.

Last year the big theme in terms of future SWIFT growth was the BRIC countries. This year however, Campos said there was still significant potential for growth of SWIFT traffic in the US and Japan.

Whilst "governance on the offensive" was mentioned, I am not sure if this will satisfy those banks that still believe SWIFT needs to address its governance so it more accurately reflects who is accessing SWIFT, which let's face it is more corporates these days than fund managers. It remains to be seen even with SWIFT "lite" and price reductions whether SWIFT can engage fund managers as successfully as they have corporates.

Beyond the world of SWIFT, Bank of America CEO, Kenneth Lewis, highlighted the recent credit crunch and how it was not really a surprise to those that heeded the warning signs. He went on to talk about how integral a robust and secure payments messaging infrastructure was to successful economic markets.

Yet, somehow I don't think the resiliency of SWIFT and payments messaging traffic is going to mean that much to those sub-prime mortgage borrowers impacted by recent events, nor has it prevented one of Bank of America's largest competitors and one of SWIFT's largest volume users, Citi issuing a Q3 profits warning ahead of its official results announcement.