The 5 Percent Solution

Every year, like clockwork, Lenny Schrank, CEO of La Hulpe, Belgium-based SWIFT, opens up the Sibos conference with a speech enumerating the recent achievements of the bank-owned organization along with its upcoming goals. Then, he announces a healthy price cut for message traffic over SWIFTNet, SWIFT's secure, IP-based, interbank messaging infrastructure.

But now, Schrank has come to the realization that no matter how much SWIFT cuts prices, the total messaging cost for a global bank only accounts for a small sliver of IT spending. Indeed, analysts estimate that the annual IT spend by financial institutions is in the neighborhood of $500 billion.

Take the case of one top bank with annual IT spending of $4 billion, Schrank offers. Its SWIFT messaging bill comes to approximately $10 million. Accordingly, the attitude to price cuts by one of that bank's executives has been, "You're going to cut your prices 10 percent, thanks very much, but that's not going to make my board cheer," he recounts.

Taking a 'Bite' Out of IT Costs

How, then, can SWIFT make bank boardrooms break into a cheer? Schrank believes that the starting point is to help banks lop off 5 percent of their global IT operations costs - easily tens of billions of dollars. "That's serious money," notes Schrank. "It's a lot more than a 10 percent SWIFT price reduction."

But, in order to accomplish that, SWIFT will have to be more than a messaging infrastructure; it will have to morph into either a transaction processing infrastructure, a business process management (BPM) infrastructure, or whatever you'd call a global hub that not only exchanges messages, but also initiates, supports, reports on and concludes complex transactions, according to Schrank. "These are long-lived transactions, like a global payment or a securities trade or shipping a container from Hong Kong to New York," he says.

By focusing on the mechanics of a trade rather than the messaging flow, SWIFT can create an infrastructure that can bring greater efficiencies than the point solutions it would replace, Schrank asserts. "We model, 'What are the counterparties? What are the flows? What happens in these various parts?'" he explains. "We capture that, and that's the standard and out comes the XML schema, which is the way you'd represent these interactions."

Banks could then lower their IT spending by adopting transaction-centric standards, relying upon any of the large global technology services companies as implementation partners, Schrank continues. Although it may call for banks to interact with their counterparties using SWIFTNet, thus increasing the SWIFT messaging bill, Schrank expects that the commensurate decline in a bank's IT budget would more than compensate.

The shift from messaging to BPM implies that SWIFT would go beyond its current domain, which is wholesale back-office systems in banking and securities. Although that in itself is a sizeable chunk of total IT spending, achieving the 5 percent IT budget savings will require an extended reach of SWIFTNet beyond its current functions into as-of-yet untrodden pathways. The network is in place, the transaction standards can be built and all that's left is the imagination of key decision makers to envision applications that use the common infrastructure, Schrank contends.

But first, SWIFT has to get beyond the back office into the CIO's office. "We can talk to the CIO, the COO, the big guys, about what they have other than a few batches of telexes, which should be on SWIFT, that they built 20 years ago and are really albatrosses that should be better on SWIFTNet," notes Schrank. "That's the way we can take a bite out of their total IT ops cost."

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