Swift chief looks to stay ahead of the technology game

Q: What do the Society for Worldwide Interbank Financial Telecommunication [Swift] traffic figures tell us about the state of the economy?

A: The Swift numbers are giving good news. We have seen very robust growth in our core transfer services for money and securities – it was 9.5% last year and we are heading towards 10% this year. This is based on the strength of the underlying economy. We are seeing robust recovery in securities with growth higher than 10%, payments even in core areas such as Europe are growing at 7% or 8%, and there is very good growth in emerging markets, especially Asia-Pacific.

Q: What changes are we seeing in respect of currencies?

A: The US dollar is still the biggest currency, followed by the euro. The dollar is about 42% of all payments, the euro is something like 31% and the UK pound is about 9%, and then it quickly gets smaller. That order hasn’t really changed, it has been a stable order for a while. If anything, the euro has got a bit lower [with regards to market share] and the dollar a big higher. The other thing to notice is the rise of the Chinese currency, the renminbi, which has gone from number 15 to number 12 and it is now number seven but overall it’s still quite small at 1.5% of all the flows globally. However, in certain segments it is dominant. If you look at real trade payments and documentary credit payments out of China, it is now the biggest currency.

Q: Swift has taken a number of initiatives in the regulatory sphere. What has been achieved and what is left to do?

A: We are taking an incremental and gradual approach. We have put in place a sanctions screening service, which allows users to copy their Swift payment messages onto a screening engine and then it signals whether there are hits or not. It is primarily aimed at smaller or medium-sized banks that don’t want to run the software in house. It’s a cloud service and has met with significant take-up with close to 200 participants.

The other big initiative we are working on is a Know Your Customer repository providing a central place for banks to get data on other banks. ‘Know your correspondent bank’, is really what it’s about. We have signed up almost all of the major clearing banks for that service, which will go live later this year.

In addition we offer a sanctions testing service. For those banks that run in-house filtering engines, it essentially offers a diagnostic tool to see how those engines are calibrated. More than half of the major banks now subscribe to this service.

Q: How does all this work from a liability standpoint?

A: Liability primarily sits with the banks. We offer a well-prescribed service in sanctions screening to test against an agreed list of hits, but it is the banks’ responsibility at the end of the day to act upon it and correct payments. It is our responsibility to meet the service requirements, which is to actually screen the payments. We cannot make the judgements – as soon as there is a hit the bank will have to decide in a broader context, is it a justified hit? Do they need additional data and checks?

Q: How significant is this new utility role for Swift?

A: We see it as a natural extension. We have always been a cloud service and shared platform for processing payments messages and later securities messages. This falls into that same shared platform idea. The banks really need these shared infrastructures rather than doing everything themselves.

Q: What impact will the upcoming Basel Committee on Banking Supervision rules on intraday liquidity have on the banks?

A: We signalled this a while back and put out a white paper. We also traditionally had in place solutions to deal with it because people can use Swift messages to report on their liquidity position with other banks, they can use a number of the Swift [message types] to get intraday reports on ‘where do I stand with my liquidity positions?’, and they can take copies of their FIN messages [Swift’s core messaging service] to see what liquidity movements are taking place with their major counterparties. Now that the pressure is on we are seeing these solutions that we put in place a while back really being used.

Q: What has been the impact of the Bank Payment Obligation [BPO], which is a new payment method for trade?

A: We have seen a healthy take-up, especially in the trade corridors within Asia, and between Asia and Europe. We are starting to see people embrace the standard with agreements between banks to use the BPO and we have the ratification by the International Chamber of Commerce. The BPO is set for very good growth, which is good news because it keeps banks in the [trade finance] chain rather than just processing the payment.

Q: With so much regulation to comply with, are banks being distracted from the technology changes they need to make to stay ahead in the market?

A: Banks have to comply with all of the new regulations and this is sucking up all of their change capacity and all of their IT capacity. At the same time the business is changing fast – new entrants, new competitors, new business models are emerging in both payments and securities. Banks will have to react to that, they will have to innovate and adapt. There is a bit of a flipside in that the new players will also face the regulatory burden and to some extent this levels the playing field. But all of the chief information officers I talk to have this concern – they have to do both: comply with all these regulations, and innovate and adapt.

Q: What are the major innovation challenges they face?

A: In the payments arena we are now seeing a real emergence of new models of person-to-person payments with lots of new entrants offering even cross-border payments – traditionally offered only by banks and the money transmitters. We see big changes in the securities landscape, and [it is here where] Target2-Securities is an interesting development which will reshuffle the securities landscape – the role of custodians versus the role of [central securities depositories]. We see changes in the basic underlying communications technology. There is the whole cyber [crime] issue and the need for banks to be more vigilant and up their game in that area. There are new protocols, new topologies for networks, the whole cloud issue, etc, etc. 

Q: How much progress has been made in the area of preventing cybercrime?

A: Both the banks and Swift are keenly aware that the bar [on security] is rising. From a Swift perspective we have always been designed with security in mind. At the same time I am conscious that the bar is rising and the skills of the criminals are getting better. We really are in a constant mode of upping our games, employing new technologies and techniques, and constantly evolving. Security will be a core part of what we offer and what the banks offer.

Q: What role can big data play in helping the banks to improve their service?

A: From a Swift perspective, what we offer is a tool to get inside the flows over the Swift network. We have enriched this over the years with different information about the flows – what currencies are they in, what is the value of the flows, who are the counterparties – and banks use this as a tool to evaluate their business. They can see which countries are growing and how they are growing relative to the market. 

The second aspect is reference data – [Bank Identifier Codes], names, addresses, routing rules, [International Bank Account Numbers, or IBANs] – and we have a set of products for these which have been boosted in the case of IBANs by the adoption of [the Single Euro Payments Area].

Q: How seriously should we take the rise of Bitcoin and could it impact the payments business?

A: I have been fascinated by Bitcoin from the start for two reasons. One is that I find the technology really intriguing – the whole concept of a block chain, of a shared ledger among people with the majority deciding what is the correct version of the data you share. I think that may have implications beyond payments.

As a currency, my observation is that a lot of what Bitcoin is used for so far is the bad stuff – getting money in and out of countries where it is not allowed, buying bad stuff on the internet. We have seen that governments take a keen interest in money because they are the issuing sovereign or it’s a way to pay taxes. My opinion is that if Bitcoin can come to grips with that and find a way to provide transparency it could have an interesting future.