Ian Johnston

In the 16 years since Ian Johnston joined Swift, the world of inter-bank communications has undergone profound change. The rampant march of technology, in particular the World Wide Web, has opened up the business not only to increased competition, but also to great opportunity. Back in 1993, when Mr Johnston joined Swift after 20 years as a banker, the company had just 4000 live users in 106 countries who generated a total of 457 million messages a year. Today, Swift handles 3.9 billion messages a year from more than 9000 users in 209 countries.

The organisation has come a long way from its roots. The bank messaging organisation that, in 1973, operated out of a 40-square-metre office in central Brussels, has ballooned in size and now has offices across the world. However, the market in which Swift operates has also evolved and the company has been forced to evolve with it. By far the biggest change, according to Mr Johnson, has been customer expectations. "We are far more customer-centric than we were in the past," he says. "If we look at the financial services market today it is very different to what it was 16 years ago. The rapid development of new products and services and the significant expansion into investment products and wealth management has changed the face of banking."

He says that the move by banks away from interest margins and towards fee-based services, alongside the development of huge global institutions, has changed the whole market dynamic. "It requires a greater emphasis on speed, quality and, for us, cost reduction," he says.

Cutting back

It is unsurprising that cost reduction should be at the forefront of Mr Johnston's mind. The financial crisis has hit Swift's volumes hard. Yawar Shah, chairman of Swift, took a sombre view in his opening statement in the company's 2008 annual report. He said that the co-operative should be prepared for the possibility of a period of significant and potentially sustained volume contraction. Mr Shah also hinted that as a result of falling volumes, many of the company's investments in multiple market infrastructures could come under the cost-cutting microscope. His comments have led to wide speculation in the market as to what parts of the business could face the chop. "So, will Swift look to shed itself of underperforming assets only? Or will it look dispassionately across its broad portfolio of services and cherry-pick only those which can add immediate value to its core membership?" asks one industry observer. "By these criteria, Swift's recent forays into the insurance industry, funds distribution, prime broker and hedge fund servicing and the much-vaunted Trade Services Utility could all be in the firing line."

Mr Johnston takes a more sanguine view - particularly in light of his position as head of the co-operative's Asian operations. "Each time there is a downturn, Asia seems to come out a little bit better than the rest," he says. "Year to date, the traffic over the Asia-Pacific region is about 4% to 5% lower than what it was last year, but last year was our best-ever year, both in Asia and globally." Mr Johnston estimates that volumes in Asia in 2009 will remain static and that the company will need to focus on cutting costs and boosting those volumes. "We're not out of the woods yet, but things are looking a lot better. This year is a bit of a dent in the growth but we anticipate this will pick up in 2010."

Asian focus

Swift's strategy in Asia is more important now than it has ever been. Home to the two fastest-growing economies in the world, China and India, it is critical that the company harnesses this potential. Mr Johnston is aware of the challenges that lie ahead. "Asia is a very fragmented market compared to Europe. There are 39 countries, currencies and regulatory systems," he says. "Our aim is to become the infrastructure that drives the growth of Asian financial services, standardising their networks and messaging systems."

As it stands, trade-related messaging has been growing ahead of expectations for most of 2009 across the continent. "There is strength returning to the import/export market. Securities messaging in Japan and China has also experienced growth this year," says Mr Johnston. "We're seeing steady business flows, but we're not yet into a significant growth phase." The company is also working with Japanese securities depositary Jasdec on a project which, it is anticipated, will see Swift's volumes increase by three to four times what they are today.

The real growth opportunity in Asia, however, lies outside of the traditional markets. Swift confirmed its aspirations in China with the recent opening of offices in Beijing and Shanghai. "China is a big focus for us but the market is undergoing slow change so we need to be patient and work closely with the banks and authorities," says Mr Johnston. "The Chinese banks are now among the biggest banks in the world and the challenge for them is going to be growth strategy: whether they continue to grow domestically or grow internationally and how they will achieve that."

It is not only in China that Mr Johnston sees opportunities. The new emerging markets of Indonesia, Vietnam and the rest of south-east Asia, including Laos and Cambodia, are all within Swift's immediate sights. "These markets have got nothing at the moment [in terms of infrastructure], so they are starting from a clean sheet of paper," he says.

Capturing the Asian corporate market will also be a priority for Swift. It is part of a wider global strategy to capture the corporate dollar. Swift's annual general assembly in June voted unanimously to relax its stipulations that limited access to its services to exchange-listed entities. Oft criticised for making its barriers too high for entry, Swift has developed software that allows most companies to take advantage of its services. "The overall cost of ownership is coming down for our customers. I don't think the barriers to entry are anywhere near what they were in the past. I believe that cost has been totally taken out of the equation," says Mr Johnston.

The 'Swift for Corporates' offering, otherwise known as Score, and its 'Alliance Lite Interface' are products aimed at bringing more small and medium-sized companies into the Swift fold. It is a strategy that appears to be working. A recent survey of 230 corporate treasurers in the US by consultancy Financial Insights showed a growing interest in Swift services. It could herald a new dawn in terms of banks' relationships with their clients. Financial Insights analyst Jeanne Capachin said at the time of the survey that Swift's Alliance Lite Interface was in tune with the current mood for more open standards and bank agnostic connectivity. "Tier 1 banks are moving away from blocking standardisation efforts and are working with their clients to increase adoption and develop new solutions," she said. "We will likely also see less usage of bank payments initiation and cash management applications with the biggest clients as they move to more straight-through processing via their treasury management systems and communication gateways."

Mr Johnston does not feel that Swift's corporate offering in any way competes with banks for their business. "We're not providing banking services for corporates purely a means for them to communicate with their banks. Many of these corporates are multi-banked; we can co-ordinate that and give them visibility," he says. "Liquidity is king for companies and they want to know where their money is and how they can get hold of it. We are satisfying a demand for more flexible, standardised connectivity, richer information and greater security. That is why we see corporates joining Swift."

According to Mr Johnston, 470 corporates are already connected to Swift, 55 of which are in Asia. He expects a further 25 Asian companies to join this year.

Identity crisis

Looking ahead, the challenge for Swift will be to bring down its costs, while also meeting the increasingly diverse needs of its clients. "We're engaging with customers at every level, from the chief executive downwards. We want to understand and deliver on their expectations," says Mr Johnston.

Swift has come in for much criticism of late for failing to fulfil its potential. Critics say that its organisational structure means that it lacks flexibility and that it has recently suffered from somewhat of an identity crisis. Mr Johnston is adamant that Swift knows exactly what its place is in the shifting sands of today's financial services industry. "I think it is quite clear who we are and what we do," he says. "There are three core elements: One is our secure, reliable and responsible network. We take liability. There's no other organisation that does that." He also alludes to Swift's leadership in the development and maintenance of financial messaging standards and the unique community of Swift users.

It is hard to find a direct comparison with Swift from a competitive standpoint, but many of its services can be easily replicated by other smaller, more dynamic technology suppliers. It is a fact that Mr Johnston is wholly aware of. "We are re-engineering Swift so that it becomes a more efficient and effective organisation," he says. "The Swift that is evolving is going to be a very different organisation and ultimately our customers will be the ones that decide that."