The Society for Worldwide Interbank Financial Telecommunication (Swift) has had a busy year in Asia. From launching its enhanced trade services utility (TSU) and Accord for Securities products to helping put market infrastructure in place from Hong Kong to Mumbai, there are few sectors of the financial world where the messaging services provider is not involved.
A highlight of the year is Sibos, Swift's annual conference, which opens Monday in Hong Kong. The financial messaging giant will be welcoming a who's-who of the transaction banking universe to the event to discuss everything from treasury in China to messaging standards and funds distribution.
Ian Johnston, Swift's road warrior Asia-Pacific chief executive, sat down with AsianInvestor and FinanceAsia to discuss the 12 months just passed and what we can expect from Swift in Asia.
How would you describe Swift message flows today?
If you look at what's happened, it has been a roller coaster ride -- for our customers, for the financial markets and, to a certain extent, for Swift's traffic as well. In a nutshell, global traffic is at about the same levels as this time last year. Year-to-date, Asia-Pacific traffic is 3.5% lower compared to the same period last year but for the month of August, we were actually 4% higher year-on-year. What's happening is the traffic is improving and the gap over last year is narrowing. I think we'll end this year traffic-wise somewhere around the same levels as last year.
Do any particular traffic flows stand out?
We are seeing higher growth in securities than in payments in the region, with certain pockets where that growth is more substantial. For example, the securities market in Japan is experiencing reasonable growth rates -- about 6% year-to-date -- but overall the region is below last year's numbers.
While payments overall are below last year's numbers, in Hong Kong, for example, we are ahead because of the Hong Kong Monetary Authority's real-time gross settlement system, which went live on Swift in May.
You have previously mentioned ambitious growth plans for Asia-Pacific, can you please elaborate?
Just to clarify, these constitute not so much a "plan" as an aspiration or vision. If you look at Swift's revenue globally, Asia-Pacific generates about 15% of the total, while the US is about 20% and Europe 65%. Any company with this kind of revenue concentration would like to spread it around to minimise concentration risk. My vision is to investigate how we can grow Asia-Pacific's contribution to global revenue with a target in the vicinity of 25% generated out of the region by 2015.
At this point in time, we're still in the marshalling stage of how we do this and are not necessarily sure what the race is. We're now gathering information, meeting with our customers and trying to understand what the market trends are going to be. I suspect market infrastructures and new developments in Asia-Pacific around harmonisation and the growing interdependence of Asian financial systems will be those trends, but I really don't know now how we're going to build on this or where [the additional revenue] is going to come from.
What are Swift customers asking in their discussions with you today?
The first thing they invariably say is "When did you arrive?" because I always seem to be travelling. But after that they tend to be interested in understanding what has been happening in the different markets around the region.
Fundamentally, customers are interested in driving down their costs of ownership. They want to be more efficient and reduce the total cost of processing -- not necessarily just in relation to their use of Swift, but their total cost of operating. They want to understand what the new products, services and trends are in the marketplace and how they can benefit their business. For example, in India I spoke about Swift's capabilities in the funds industry because they have an initiative to build a national platform for the mutual funds business. In China, they're asking me about what's happening in the area of exceptions and investigations or the trade services utility because trade is a very important aspect of their economy. It really depends on where you are.
Some market participants have said Swift's trade services utility (TSU) is a great "infrastructure" but not very useful at the moment. What is your take on the utility?
It's a big world so it does take a while for a product to get around and get connected. The important thing regarding TSU and its take-up is that banks need to understand what the business benefits are for them towards their end customers. Basically, banks need to come up with different financing models that incorporate TSU into what they do today.
Practically speaking, the utility is a very solid product but the go-to-market model for some banks is not clear and some work needs to be done on the technology issues around pulling the data out of documents and getting it into TSU.
What do Swift's message flows tell you about the economy?
We have identified a correlation between GDP growth and payments message growth, where our traffic generally rises at around two to two-and-a-half times the GDP growth of a country. Over a period of time, if that correlation proves to be reasonably accurate, you can start to get a link from other growth indicators and you can get into a situation where message traffic growth on Swift, while not necessarily a "lead" indicator, could point to other indicators that are lead indicators.
In the area of trade, the growth in trade messages started to return towards the end of the first quarter. If you overlay this with the fact that the decline of trade messages began around the first quarter of last year and we saw exports drop throughout the year, a reversing of the situation may tend to indicate a return to export growth. What we really need to do is overlay this trade message growth with, say, shipping statistics and then we could start to determine if we're seeing a recovery in trade or, maybe, the establishment of letters of credit that precede actual export. There's a session at Sibos on Wednesday showing some of the initial work we're doing in this area.
What's on the front burner for Swift this coming year?
I can see a couple of ongoing trends Swift will be involved in. The securities market is going to continue to grow, especially with regards to Accord for Securities and corporate actions messaging work. For example, the Bombay Stock Exchange went live on Swift in July and its corporate actions service will go live this fall. Our general work with market infrastructures will continue, and will include JASDEC [Japan Securities Depositary Centre] developing its ISO 2022 messaging for Japan and the Vietnam Securities Depositary going live later this year. We're also doing some other exploratory work in the area of payments market infrastructure in the region. I can't go into the details but it entails looking at how regional and global banks can reduce their total cost of participation around Asia-Pacific.
If you're looking at products, next year we will continue to push a product released at the end of last year -- Alliance Integrator. When many of our customers use their Swift interface they want to be able to automate Swift messages out of their back office applications; what Alliance Integrator does is make this integration very simple and cost effective. It's a product that provides significant benefits to a lot of customers. Otherwise, I can't really tell you too much about new products but I can say, watch this space.