A community with a purpose Lázaro Campos, CEO, SWIFT

publication date: Sep 17, 2008

Thank you. Yawar. Ladies and Gentlemen, good afternoon. Let me add my own personal and warm welcome to each one of you.
 
We are back in Vienna. Austria. Land of great composers, musicians, artists and Californian governors.
 
When we were last here for a Sibos in 1988 we had 2,900 users in 60 countries.

FIN volumes peaked at 1,150,000 messages a day. Our availability figures circled around 99.7 % and we all thought it was an extraordinary achievement. Today, we have 8,500 users in 208 countries exchanging over 16 million messages on a peak day. Our availability figures exceed 99.99 percent regularly.

1988 was the year when most Sibos participants were agonising over the risk of opening up our network to Securities participants. This is the same Securities industry that accounts for half of our business today and has become our engine of growth.  

At Sibos 1988, we collectively reflected on the upcoming success of EDI for corporate to bank communication in the form of a new standard endorsed by the European Union, EDIFACT. At that time, the issue was to replace paper forms with electronic messages on bank’s proprietary platforms. Today, corporate treasurers have more electronic channels than they can cope with.

What they are looking for is rationalised access to differentiated banking services.

The network reach and STP rates we enjoy today were unthinkable then. We have now over 350 corporate customers interacting with upwards of 900 financial institutions through SWIFT.

A lot has happened in 20 years. But much more needs to be done. And that is why we are here.
It is in these forums that we can make breakthroughs.
 
We can look beyond our own individual agendas and think global. Think industry. Think community.
 
The audience in the room today is a microcosm of the entire SWIFT community. Regardless of segment, geography or function, you are concerned with business growth and operational efficiency.
 
In ending my remarks at the Opening session last year in Boston, I made some bold statements.
I talked about a future with easier connectivity, simpler processes and more innovative products.
A future where price is no longer the issue, the community is stronger than ever and where you guide SWIFT’s hand. So, have we delivered? Have we been listening? Can we now define better the next chapter of SWIFT? Have you guided us?

I hope I can ‘connect’ with each of you in the next 30 minutes or so because each of you matters. Each of you has a relationship with SWIFT. You have expectations. You want to derive value from your relationship with each other and with SWIFT. You want to monetise your investment in SWIFT. Each of you has pressing issues to deal with in your own environments and I’d bet that cost is one of them. So let me start there. 
Cost

Times are hard and they are going to get tougher. 

And, you look to SWIFT to reduce your business and operational cost while you are concentrating on managing risk and re-building trust. SWIFT is all about managing operational risk. It is about helping you reduce operational costs by improving STP. When it comes to reducing the cost of SWIFT, two angles are important: the cost of your messaging, and the total cost of ownership of SWIFT. 

First things first. Cost of messaging. Year after year, we reduce unit cost significantly.
 
In 2007 you enjoyed a 25% decrease – 10% structural price reduction, 15% rebate. This year, you have already seen 15% in price reductions and on Saturday, your Board discussed and agreed an additional 5% end-of-year rebate that brings this year’s total to 20%. We are well on our way to beating the 50% reduction pricing challenge set for 2011.
 
It’s more needed than ever before given the current market conditions.
 
This is the result of the economies of scale, productivity increases and cost reductions we’ve made. Make no mistake, we are totally aware that we need to be as lean and mean as you are. We will continue to drive our costs down.

Let's review some of the pricing changes we’ve done specifically:

The fixed fee pricing model I announced last year is gaining traction with those of you who are large volume users. It gives you lower unit costs and predictability over your messaging costs so you can budget better.

To date, 32 banks have signed up for this programme, representing 55% of total FIN traffic. That’s a significant proportion of our revenues. Fixed fee customers are growing faster. Growth from these accounts is currently at 19% vs YTD overall growth of 11.5%. And they are getting better than average price reductions. As always, we recognise and reward those that make our overall business grow and contribute to the virtuous circle that our cooperative needs.
 
In addition, we are conscious of market pressures and have taken specific pricing actions in other domains.

    * Bulk Payments pricing for ACH traffic and for corporates.
    * Securities settlement reporting, RMA service fees, TARGET2 and EURO1/STEP2 prices.

We are continually looking for opportunities to adapt the functionality and pricing of our offer.
 
That’s part one. But how about total cost of ownership? How about the real cost of transactions end-to-end? 

This is a more difficult and significantly more strategic area because the industry cost is orders of magnitude greater than your collective SWIFT invoice. This is where we need a truly collective approach. Much has been done to reduce the cost and complexity of connectivity, interfaces and integration with your back office applications.

Let’s start with Alliance Lite. A new means to connect to SWIFT. It is as easy as logging into a secure web site. Alliance Lite enables new low-volume customers to get up and running on SWIFT in days. Alliance Lite has been developed differently. It has been developed quickly and with a narrow scope.
 
We have used third party software, off-the-shelf. We've worked with a group of pilot customers and are delivering a solution that meets their needs, rather than producing a ‘one size fits all’ product. The first release of Alliance Lite is targeted at financial institutions and corporates with low-volume payment requirements.
 
Alliance Lite was a paragraph at last year Sibos. It’s a live offering today. It’s being launched here at Sibos.
 
We’re already working in parallel on a subsequent version for fund managers. A beta version will be in the testing phase by the end of the year. And this is only the beginning.

Our ambition is that Alliance Lite will be an additional channel for our customers and partners. We do not want to sell retail; we would much rather sell wholesale.

But don’t just take it from me. This is a quote from one of the pilots:

“It is quick, easy and logical. I am extremely expressed. It’s fantastic! You are on the verge of creating an essential communication platform and you seem to have found a way to exploit it for the benefit of more users in a way that makes me think of ‘Intel Inside”. Robert Holland, Director, THF Management.
 
Total cost of Ownership. The biggest source of cost to you is the deployment of new standards and changes to the messaging platform.
 
I’ve often said that SWIFT is a master of change. We do it well! Mandatory standards releases, technology migrations.
 
And much of that change is required if we are to make the most of standardisation, guarantee flawless execution, and ensure a secure and resilient platform for you to reach your counterparties around the world.
 
But, the more I talk with you, the more I appreciate the pain we sometimes inflict. And in some cases, it’s pain with no gain. One customer told me he estimates that the cost of implementing a mandatory standards release is 3 million US dollars, when in fact most of the changes are not even used for his business operations. Clearly this doesn’t make sense. Because Standards are and will continue to be at the heart of SWIFT, we have been taking a hard look at how we define, develop and implement standards.

For example, we are bringing more customers into the development process through pilots, and we now have a ‘fast track’ approach where we try to strike the right balance in between speed, relevance and buy-in. And SWIFT is now carrying ‘other’ messages: the first users are now using our Derivatives solution by exchanging messages in the FpML Closed User Group. As for implementation, we are launching a range of tools such as electronic templates, e-dictionaries, translation and mapping rules and of course Integrator.
 
Alliance Integrator is the second great delivery this year. It wasn’t even a line in my speech at Sibos last year. This is an add-on to our Alliance interface family that helps you map SWIFT standards to your own back-office data formats. Low cost, relevant functionality to support deployment of XML based solutions.  

And its launch is having ripple effects. You will see that vendors are proposing alternatives to it on the exhibition floor. Exactly what we wanted.
 
We have also been re-examining one area in which a mandatory migration was being considered as a possibility.
Co-existence

I’m talking about the challenge of MT/MX standards co-existence and migration. This is a much discussed topic and we have now moved the discussion from the corridor to the meeting room. We want to become more pragmatic in managing our standards releases and coexistence. We know much more now than we did 10 years ago when we started the XML journey.

“Co-existence is a given; the issue is its duration. There are those in favour of migration who want the period of co-existence as short as possible and those who want to make it as long as possible”
Alan Goldstein, Managing Director & Chief Information Officer, BNY Mellon Asset Management, Chairman of the Standards Committee of the Board, SWIFT

As Alan Goldstein says the issue is about how long the coexistence period will be. And unless we do something now, we risk getting it wrong.
 
The business case for MX adoption is strong for new areas where standardisation is lacking or where there are low levels of STP. But the business case is simply not there in areas where you are all enjoying high levels of STP. So, we are re-setting our approach and becoming more pragmatic.

    * we will focus on business standards.
    * This is about standardising common data models and rules instead of syntaxes; we will then provide tools and services for translation between syntaxes;
    * and finally, we will provide guidance on target syntax, while letting the market move at its own pace.

This approach will prevent all our customers from having to march at the pace of the slowest soldier, and allow those who want to move more quickly to reap the benefits of their investment without delay.
 
Let me be clear: we are firmly committed to ISO 20022. The approach with the data dictionary and structured schemes is the best way to reduce the costs of standards deployment and maintenance.
Resilience

Moving on from reducing cost to improving resilience.
 
Just a year ago, I announced the Board’s approval of 150 million euros to fund a programme that will move us to meet your requirements for increased processing capacity, improved resilience and continued cost efficiency. Distributed Architecture will deliver a multi-zonal messaging platform – a crucial step in strengthening our position as the leader in secure global financial messaging. A few months later, in January, the build phase started, and now we have systems already deployed in our lease facility.
 
Phase 1 remains on track for completion by the end of 2009 allowing us to run messaging services in multiple zones and operate from a third operating centre.
 
In parallel, we are progressing according to plan to establish a command and control centre in Hong Kong that will allow us to rotate global operational control in a true follow-the-sun model. And we are already scoping the second phase with the help of the Technology and Production Committee of the Board. 

“We never know what the next disruption will look like or how broad or deep it will be. So when it comes to hardening our systems, building in redundancies, planning for contingencies, we can never rest.”
Kenneth D. Lewis, Chairman and CEO, Bank of America

As Ken Lewis said: We never know what the next disruption will be or come from, that’s why we can never rest.

Indeed, as we invest on lowering the barriers to connect to SWIFT, we cannot afford to take our eye off the ball when it comes to operational excellence. We will continue to strengthen our operational capability and our resilience. Your business depends on it. We know that. In fact, operational results year-to-date are nothing short of spectacular.

99,99%. Exactly how it should be.

Unfortunately, not all providers do the same and there is industry talk about concentration risk.

I understand that. I understand that overseers, regulators, supervisors and central bankers, are concerned about the overall resilience of our industry. What I cannot understand is that some of that concern is squarely aimed at SWIFT. And that there are discussions around finding an alternative to SWIFT for those systems that use SWIFT exclusively.
 
This is equivalent to any of you deciding to adopt two different hardware platforms for your operations. Two different operating systems. Two different office automation solutions. Do you? Of course not. That would add an unbearable amount of complexity and significantly increase your expense. We know that.

That is why nobody does it. Concentration risk is managed by investing in redundant systems, business continuity procedures and ensuring that your processes are tried and tested. Often and thoroughly. We know that. That is our business. That is what we are made of. Our FNAO culture demands it.
 
We have four access networks intertwined seamlessly; redundant and independent network nodes in every continent; multiple operating centres in two continents and command and control centres in three. And all of it is being improved significantly once more through the Distributed Architecture programme. SWIFT alone has invested hundreds of millions of euros to ensure our approach is second to none. And we will continue to do that. We are even assessing the possibility of an additional resilience layer that would not depend on our operating centres nor our existing network. Truly independent of the existing components but integrated with your current interfaces.
 
Nobody goes as far as to ensure service continuity to that extreme degree. Nobody but SWIFT. And you are right to expect that of us. FNAO.

As an industry we must address resilience. But we should do so by identifying weak links within the industry. There are too many. Let’s get to them. Maybe they could use SWIFT too.
Value

As I said at the beginning, there is no longer a ‘one size fits all’ SWIFT. We have worked hard this last year to look at what we provide through your eyes. Considering what you need, where you have pain points, what we offer, where we could do more.
 
For example, in response to a request from the largest prime brokers, we developed a solution to match confirmations to Executing and Prime Brokers. We went from first discussions to pilot in less than 9 months. We did this in competition with others, and got the business because we were fast. But also because we offer a community approach, where users are deeply involved.
 
Another example, there is no point in offering an easy remote connectivity option if it still takes six months to join SWIFT. So we have renewed our internal procedures (and even our by-laws) to simplify our user categories, approval processes and to move from ‘commitment’ to ‘live operations’ in days. From six months to a few days.
Alliance Lite 

When I first met with the product team of Lite, I asked them to explain to me why it would take more than five days to connect to SWIFT. They laughed. They thought I was joking. And then they became very quiet because they realised I was dead serious.
 
By giving them a seemingly impossible objective, we were forced to throw away the rule-book and start all over. Sometimes, the best maintenance is a complete rewrite. And that is what they did, and I am truly impressed that they actually managed to bring it down to days. Streamlined process, one-stop-shop ordering, SWIFT in a few clicks.
 
And another example. If you are a Corporate, you find that the single connectivity window to multiple banks provides great value, but the integration of SWIFT to your ERP systems and the footprint of the SWIFT interface are significant hurdles. And you need a solution to let individual officers sign payment instructions. We are working with the largest software vendors to provide ready integration, we will support an e-Identity solution that allows for individual signatures, and of course Lite will allow you to decrease the SWIFT footprint.
 
And finally, any domestic CSDs in the room? We really want your business (if we do not already have it of course). We want to help by making current standards interoperable with the ISO messages and by offering a much cheaper and relevant solution for securities reporting.
 
In the words of Mikhail Laufer, President, Depository Clearing Company: “The ability to employ the same message transfer system with major Russian banks, foreign banks and major investment companies with a single standard with all those organisations was crucial to us and our clients. This was why we chose SWIFT.”

We are changing the way we work and act. No generic solutions but specific solutions to specific needs. We now build for somebody and then generalise.

And what I’ve shared is only a snapshot of what we’ve been up to.

This week is a great opportunity for you to find out more and for the SWIFT team to gain deeper insights into how we can add more value to your businesses. They are ready to engage and listen.   We recognise that you have a choice.

Every customer has a choice; we just want SWIFT to be YOUR first choice. And we can only be your first choice if you are genuinely satisfied with our services.

If you recall, last year I wanted you to be delighted! We have been thinking long and hard about how to define and measure delight. It all really comes down to a simple question: “Would you recommend SWIFT?”

And if you would “why”. And if you would not: “why not”. Simple.
 
We are working hard to make the SWIFT experience delightful.  

There is one other area that I’d like to cover. In some way it was ‘born’ at Sibos in Boston. It ties in with what is happening this week in Vienna. It’s an aspect of SWIFT which I believe will influence and underpin how we evolve as an organisation, a cooperative and a community. I believe we have a responsibility to get involved in the communities to which we belong.
Corporate Social Responsibility

Remember Nicholas Negroponte? He spoke at a breakfast session that over 800 people attended in Boston. That morning, many of you discovered his plans for the One Laptop per Child project.

It was something of a defining moment. We were unprepared for the immense interest that followed. What has happened since?

In December, your Board approved the funding of 3 million euro to support the ongoing rollout of OLPC. We have since worked with the Foundation to select the countries where this money will be used – Cambodia, Nepal, Brazil, Paraguay and Rwanda. In each case, the funding is accelerating deployment of the PCs that was already underway. We also committed a further one million euro this year and have provided office space for the OLPC Europe team at our offices in La Hulpe. We’re delighted that members of the OLPC team are here in Vienna.
 
By the way, this year SWIFT will match your donations in support of this worthy initiative to educate young children in under privileged parts of the world. Some of you have already contributed. Thank you.

We have also launched a significant Corporate Social Responsibility programme at SWIFT covering culture, education and the environment. It’s the right thing to do and it makes business sense.
 
Indra Nooyi, Chairman and CEO of PepsiCo Inc., captures it best when she talks about “Performance with a Purpose”. A vision based on the belief that “companies must achieve financial success while also leaving a positive imprint on society”. “Business success cannot come at the expense of society, the planet or employees. If it does, then that success will be fleeting.” 

And it is not only about funding. It is about individual engagement.

Our programme aims at providing employees the opportunity to get involved. Personally. Because it really matters.

So, what should you remember of all of this? The ‘new’ SWIFT is walking the talk.

We’re putting customers right at the centre. We’re working at a different pace and with a renewed focus on the right issues. It’s about what we’re doing AND how we’re doing it.
 
It is about changing all the clocks at SWIFT. It is about counting days, not months.
 
And we’re also thinking about the future. 

What really keeps me awake at night is the erosion of the current value proposition of SWIFT. Where we fail to maintain the value of the franchise for you.

We will not sit still and suffer the erosion of our value proposition. On the contrary, we will drive commoditisation for your benefit. We will make ourselves redundant and seek new ways in which we can add value. 

Yawar has raised a really interesting point about SWIFT as a shared service.

We should talk about that.
 
We are hearing more of you ask SWIFT to help with regulatory issues such as AML, even though you told us to stay away from that just 18 months ago.

We should talk about that. 

Will our monolothic centralised systems model be the model for the future? Or will we need a decentralised approach? We should talk about that too. 

Last year, Lite was just a sentence in my speech. Integrator was not even mentioned. This time next year we need to have written an entire next chapter for SWIFT and we need to be delivering it.
 
But for us to write that next chapter, I really believe that we have to be bold enough to bring today’s taboos to the table. And to tackle them head on.
 
And what better place than here to get those discussions underway?

This week provides an excellent opportunity to shape that change and that next chapter within the context of the broader landscape within our industry.

Sibos is the ultimate meeting place.

So, thank you to the 200+ speakers and 240+ companies from around the world who are contributing to the conference programme and to the exhibition.

And of course, thank you to all of you for being here.

We have set out to build on the best of Sibos and offer you still more. Just as we’re doing with SWIFT.

We’re going from networking to collaborating in the spirit of a SWIFT community inspired and in action.

We talked last year about a different SWIFT emerging. SWIFT is changing.

We’re forging ahead with what I’ve already promised, and we’re clearly extending our vision well beyond to defining the next chapter of SWIFT and what it could be. We want to make SWIFT more relevant than ever. We aspire to be recommended by you.

We want to be your FIRST choice. 

Have a well-informed, stimulating and opinionated Sibos.

Thank you.