On June 30 this year, for the first time, SWIFT sent more than 10 million messages in one day through your system. You must be pleased by how fast you've been growing in recent years?
Schrank: This has been a very strong year. The 10 million-message day is a clear demonstration of that. Everything is strong. Year-to-date, payments are nearly 13% higher and this was meant to be a mature, flat market. Securities is fundamentally strong with 11% growth, year-to-date. The big surprise has been treasury messages, which are up 15% year on year. Trade has been flat for a number of years but this year it is up 5%. Put it all together and you get 12.5% growth overall year-to-date in messaging traffic.
In particular Asia is doing great and it's been a long time since we could say that. Japan is 27% up on last year. China is up nearly 20%. Hong Kong is tearing along at 16%. 'Time for growth' is the theme for SIBOS this year and it's certainly true for us in Asia. I think this time it is sustainable. We will need to follow through with some investments in Asia to make sure the opportunities become realities.
What kind of investments?
We want to build up our activities in China. We have had minimum resources on the ground in China, although we have a very important partner there in IPAX and China already represents 1% of our business. But we are recruiting a senior manager to run our Beijing office. We have to hire, train and put people into China and work with our partners to power up what is clearly a major growth opportunity there for the next few years. China is already the number one destination for our trade messages. You could say that we are surrounded by insurmountable opportunities in Asia in general and China specifically.
Are you winning new business from other existing messaging systems or are you bringing in new business straight into your own systems?
It's both. It's organic as the economy expands and SWIFT increases. It is also due to our strategy of building new market infrastructures in clearing and settlements especially in Europe and Asia, which account for new bursts in messaging. New market infrastructures have kicked in in the UK, Germany, Austria, Italy and Singapore over the last year. Market infrastructures now account for 30% of SWIFT traffic. We are working hard in Japan to get the people in clearing and settlements systems there to adopt SWIFTNet as their single window. The opportunities in China for SWIFT standards and SWIFTNet especially for regional to international traffic excites us a lot.
This is all new business that is sustainable year after year and it lowers the costs of doing business for the entire industry. If you are a regional or global institution and you need to interoperate with multiple market infrastructures, if you didn't use SWIFTNet, you would have to have multiple interfaces, standards, security models, technical connections, and networks. If you have to have four or five of those, it is very expensive. If you all use SWIFTNet, you only have one.
How are you progressing with the overall migration to SWIFTNet?
We're on the final lap now with 85% of the financial institutions and 68% of the traffic migrated so far. We aim to be in the high 90% level by December although we can't take our eye off the migration ball. But now the benefits of the migration really begin.
Are there any big names not represented in your payments system at the moment?
No, every major financial institution is a member of SWIFT. But there are some important market infrastructures that we want to be on SWIFTNet.
Like the clearing house in New York and Fedwire, which are both talking about using SWIFTNet. There are also some key ones in Asia that we want to get.
It has also been your stated intent to get more fund managers and institutional investors on the securities side of SWIFT. How has that been going?
It's been slow with fund managers. We are struggling there because brokers and bankers have traditionally treated them so well over the decades. They still have lots of proprietary linkages and we still have to make the case to the fund management industry that the more they use SWIFTNet, the more everything will be transparent and automated. But it is not an easy sell.
For small financial institutions, SWIFT is probably a bit too complex and expensive until our product people come up with a lighter way to connect to SWIFT. But given the security and reliability aspects, you can only go so light. There is a lot of discussion about how we can use the larger financial institutions as concentrators and aggregators for these smaller financial institutions. There is a lot of excitement about how we can do that. This is so that the smaller financial institutions can indirectly become part of the SWIFT community. It also is a way for SWIFTNet to be used by the larger institutions to improve their relationships with the smaller institutions. It will also help us get more traffic. So this is an exciting development.
Is this concentration or aggregation model the same model you are looking at for the corporates with the member administrated closed user groups or MA-CUGs product?
It is related but different. Currently in the MA-CUGs, the corporate joins SWIFT but can only use SWIFTNet to send messages to the bank at the centre of their wheel. In the concentrator model, the link between the smaller institution and the bank is not necessarily SWIFTNet; it could be a proprietary link. That is what is innovative about it.
Is the challenge for SWIFT, finding ways to extend your reach without diluting your core principals of speed, security and reliability?
SWIFT is pretty much for the big and medium sized guys. We were not designed for the very small institutions. We now have 8000 members but going indirectly through other channels will allow us to grow quite substantially.
With the MA-CUGS, we bump up against logistical issues. If you have a large corporate it has tens of thousands of payment instructions a day with twenty or sixty different banks. It is not really realistic to get twenty or sixty MA- CUGS set up in weeks, as it will take a lot longer. But the corporate would not have the time or patience to do that so we have to work with our board and our members on how we can smooth this whole thing out. There is a lot of interest in this but at the moment it is pretty clunky.
Is there also a danger that in doing this you might also be stepping into your member banks' own territory?
We don't want to do that. It is not what is good for SWIFT that matters but what benefits our members that really counts. So we need to find a solution that helps banks better serve their corporates while at the same time makes it quicker for the corporates to get on board and let SWIFT benefit from the improving traffic.
SWIFT is all about cooperation with your members. How are you cooperating with technology companies to improve to increase your automation and processing capabilities?
We cooperate a lot. On top of our banking and securities sales forces, we have a third that focuses on our technology partners. We have tripled the size of this technology partners solutions group and I think it should triple again. We are working with some of the biggest technology companies in the world such as Oracle, IBM and Microsoft among others.
We have lots of SWIFT solutions that we are developing using our new business process modeling and using the XML standards approach. All these new systems are coming out over SWIFTNet, but all our members have old legacy systems. So how are we going to take a new SWIFT solution and bolt it onto an old legacy system? The answer is that these technology companies we are working with are SWIFTNet enabled and they will be able to link the SWIFT solution to the back office through middleware. This is fundamentally critical for deploying our new systems over the next 10 years.
The opportunity is also huge to migrate people from these legacy systems that use proprietary messaging platforms to using SWIFTNet. But we have to go out there with our sales force and develop a compelling business case for each opportunity. The people who will have to do the work will be the technology companies who are now into global services. So we need to work very closely with our technology partners to make sure they understand SWIFTNet and they have SWIFTNet inside. They are our secret army.