For many years I have been totally focused on message standards as one of the main drivers for financial services efficiencies that benefit investors and society in general. For this reason when SWIFT opened up to the securities markets all those decades
ago it was an obvious decision to utilise the incumbent network in the international financial markets, namely SWIFT.
The attraction was that it was a cooperative and had achieved spectacular success in the payments world by using its connectivity and capability to manage standard electronic messages. It was also essentially a private network owned by banks and run by banking
people. Therefore the leap to get securities messages created and used was not expected to be that huge. Forgive the naivety of pre- nineties thinking.
All this was happening in a world and a market that had still to embrace the Internet and PCs were primarily a secretarial tool. A world where central markets existed and communications to counterparties, in part, went via central markets, whilst others
were utilising bespoke or commercial networks like BT. The risks and costs of that set up need no detailing and the operational efficiencies of the domestic markets were not really a focus in those days at least not as much as they are today. International
cross-border investing and settlement was no where near as active as today and it was the complicated and expensive domestic market structures for clearing and settlement that was limiting economic growth via the release of investing funds accross Europe and
beyond. Communicating was often via Telex and standards did not exist. This called into question the capability of Custodians to support international settlement and brokers to be able to afford to offer pan international investing. In the world of the eighties
there was only one answer and of course SWIFT was the clear and obvious solution provided by Banks. However it also ensured that banks could remain in total control
Today with modern communications and standards would SWIFT be considered a solution?
I doubt that SWIFT would ever have been invented in today’s world, where the Internet has such a massive role, providing opportunities and benefits not envisaged in the eighties. Commercial network suppliers like BT have evolved technology and services at
a much faster pace than could be matched by any private network and certainly not by laboured committee laden structures that are such a feature in SWIFT.
Closed private networks have hardly any relevance in today’s world. Despite attempts by SWIFT to recognise the modern world needs of the market and introduce various post trade services, it’s not really in a position to compete with the commercial network
suppliers. Is SWIFT also able to satisfy the needs of investors and the markets that they use?
SWIFT did compete with a commercial network and gain some headway in securities within the UK when CREST was developed. However they only actually gained with mainly existing customers they lost out heavily to BT in the retail market and in volume of transactions
quite heavily.
More recently SWIFT has announced that they have signed up a thousand corporate customers. Impressive, until you measure against the tens of thousands that have been on BT for decades and the hundreds of thousands that are on commercial networks globally.
It’s impossible for SWIFT to compete with these figures and one wonders if they should?
Today’s markets need to be able to take advantage of modern, light and flexible technology, where FIs in both investing and trading can pick their network of choice. All the electronic standards messaging can be carried over commercial networks or via the
Internet. Why then do we need SWIFT today? It would make far more sense for the commercial networks to replace SWIFT or for SWIFT to evolve it into some kind of inter-communication bridge between commercial networks.
One could argue about security and it is the highest card in the SWIFT hand, but is SWIFT still the same in security terms as it was when originally set up? We know that SWIFT has supplied data and information to third party crime prevention agencies, is
this now a precedent? Does this bring into question SWIFT’s value as a closed network supplier that once went unquestioned?
The cost of SWIFT connections (despite a brave attempt to lower joining costs) is still massive in comparison to commercial network suppliers, who are able to keep taking advantage of new technologies from their R & D laboratories and of course broadband.
Then quickly bring them to market. This first became obvious to me in the mid-nineties at a City IT cruise when I saw for the first time the splendid development capability in BT labs.
SWIFT is now beggining to offer post trade systems and services that compete with many of its partners in an attempt to extend their revenue potential and value. It is an odd thing when software suppliers pay huge sums to be accredited by SWIFT and then
find they are in competition
Can I make a business case for SWIFT today? I have to say I am struggling. SWIFT is a fact of life but so was the steam engine once and the world moves on. Is it time to move SWIFT into the museum of what once was, but is today no longer needed? You decide
and please let me know of your business case for SWIFT