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Is SWIFT Running Fast into a Monopoly?

The news that SWIFT has been organising meetings between payment banks and several large Corporates in their Le Hulpe offices could be seen as great news by many hoping for streamlining in the Eurozone payments area however, does it conceal the real worries that we should be concerned with?

SWIFT as we all know is a cooperative organisation owned by its users, mainly banks. It often describes itself as non profit making as it returns some of its revenue in rebates to its customers. Non profit does not mean it does not make money! SWIFT makes huge amounts of money considering it has no competition.  The rebates are based on a pro rata formula of number of messages over the network. So in fact the banks get rewarded for more messages going over the SWIFT network (a network the banks own).

If that arrangement is at least cloudy in its monopolistic picture, the fact that SWIFT is also the agent for ISO (International Standards Organisation) to control standard messaging development and usage should give concern to all. In effect SWIFT is running both favourite horses in the same race. Also it can be a judge, deciding the length of the race and the handicap of the horses running.

The monopolistic position SWIFT is in, is not news to many people in the financial markets, who I have worked with over the years but something they accept with a shrug and have to work with. It's almost sacrilege in the standards and banking world to talk about SWIFT with the word monopoly in the same sentence. Fear abounds in the industry that derives income from the very existence of SWIFT and the desire to maintain the cash cow.   

The current push by SWIFT is for corporates to join the network using ISO20022 and its XML structure to enable a lower cost and presumably a more attractive proposition to send their messages over SWIFT. However, ISO20022 can be sent over any network. The idea should be to allow corporates to send ISO20022 over their network of choice and SWIFT should simply be one of the networks.

This current situation could be resolved by a number of changes. Firstly, SWIFT could relinquish its agent role with ISO. As surely this role should be with a totally independent body, not someone running a network?

Secondly, why doesn't SWIFT create a group with all commercial network providers working towards an agreement of interoperability? SWIFT could join up the network interests of BT and all other European providers, ATT and all other US providers and so on around the world. All could agree to carry ISO20022 from their corporates into the SWIFT banking network.

Thirdly, sell SWIFT into the market and make it a commercial supplier. Ages ago this would have been a time to talk about security. However, surely in the 21st Century we are less concerned as network security has reached a plateau of acceptance, especially given that any network has some risk but there are many ways to tackle security. Even SWIFT allows the USA security organisations to view transactions over its network. In today's world security is an ongoing battle and one that is not solved by the operation of a closed network.

Now I may have stirred up a bit of a hornets nest with raising this taboo subject but its time in financial services we all evaluated the industry structure from top to toe and SWIFT should not be sacrosanct from close scrutiny and question.

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Comments: (2)

Jeremy Kidd
Jeremy Kidd - Cargill, Incorporated - Minneapolis 11 November, 2009, 04:59Be the first to give this comment the thumbs up 0 likes

Gary,

Even though I don't agree with several of your comments, I appreciate your raising them. Debate and discussion is always important and I love to stir the pot, so thanks for pushing into this space. I'd like to comment on a few things as a corporate user of these standards.

First of all, I think it's wrong to be worried about SWIFT as the Registration Authority of the ISO20022 standards. Their role in this is one of coordination and managing the overhead of having an ISO standard. There is a solid core of FI's, corporates, and a few vendors who are the ones really owning and driving the standard. If SWIFT relinquish their role as the ISO "owner," who will pick it up? My organization is in no position to do it and I'm sure most of the other corporates would feel the same way. - I believe most of us are involved in this initiative "in our spare time" and unable to manage the documentation, process modeling, and publication work required by ISO. In fact, I wouldn't want any of us corporates worrying about that. We should be focused on adding value to the content, not dealing with logistics. SWIFT have an entire part of their organization devoted to the stewardship of standards, which makes them the perfect candidate for the role, and I've seen no evidence of them abusing this position for their own gain. The only other alternative I can think of would be for one of the banks to take it over, which creates more of a proprietary risk to the standard than SWIFT ownership.

Secondly, it's always been clear to me that the spirit of the ISO20022 standards has been and continues to be openness. ISO20022 is not, as you suggest, a device for SWIFT to get more fee-based revenue from corporates. In fact, there is nothing that requires use of SWIFT's product or services when one adopts ISO20022. Any bank supporting ISO20022 should accept messages over FTP, HTTP, AS/2, proprietary channels, web-based upload, etc as well as SWIFT FileAct. At the end of the day, it's just bits and bytes. It's the work to standardize what those bits and bytes contain and how it's interpreted that matters, and that is a very collaborative effort.

Again, Gary, thanks for mixing things up. I hope there's some good discussion to follow...

   - Jeremy

Gary Wright
Gary Wright 11 November, 2009, 09:01Be the first to give this comment the thumbs up 0 likes

Thanks Jeremy

I am really trying to refect what so many people have been telling me for years about SWIFT. There is a general uncomfort about SWIFT beeing the ISO Agent and the network supplier. I beleive SWIFT should divorce the two. SWIFT could be a conduit for ISO by including other commercial networks onto a Global council. As a non profit making organisation this should not be a concern for SWIFT and allow the standards to be really run for the benefit of all

SWIFT should then run their network that i think should be privatised putting it on the same commercial footing as the rest of the networks

As you say ISO20022 is able to be carried over any network and hopefully this will be the case

SWIFT has lost revenue recently i am reliably informed and are looking at replacing those losses and like any other network has to keep increasing its users and traffic. Its my and others contention they are batting at two ends of the wicket and they need to split the ISO responsibilities and network

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