Swift: how far will it branch out?

Appeared in Banking Technology on March 4, 2009

Wednesday, March 04, 2009

A pilot involving three reinsurers - Swiss Re, Munich Re, and Scor - and two brokers - Aon Benfield and Willis, is scheduled to begin in May. The companies involved will handle their reinsurance accounting and settlement transactions using messages defined by Acord, the insurance industry’s electronic standards body, and the Swift platform. If the pilot proves successful, the service will be opened to other market players in May 2010.

The project, called the Rüschlikon Initiative, started in 2007 when a group of reinsurers and brokers (gathered in the charming Swiss city of Rüschlikon) decided to work on setting up an industry-wide shared utility for automated, standardised reinsurance transactions.

“It proved difficult to get such a large and relatively long-term vision funded, and that is when Swiss Re and Swift found each other,” Andrew Muir, marketing manager for industry initiatives at Swift, recently told Banking Technology. “Swift was looking for a way of extending its own value proposition into the insurance world, which has already benefited from use of Acord standards. We had been talking with Acord for some time about a collaboration to tighten up implementation discipline around their standards, using our platform; this seemed an ideal opportunity to put our theories to the test.”

Swift joined the initiative in early 2008 and was officially appointed as the project’s messaging platform last September. “We found the reinsurance industry at about the right time, when it was looking for a way of standardising and harmonising processes,” Muir added. The co-operative will be working with participants to develop additional functionality over time.

Muir explained the reinsurance industry had a wholesale aspect to it, “which appeals very much to the Swift membership,” and poses no problems regarding eligibility.

“Reinsurance transactions also tend to be very large in value,” he added. “At Swift, we understand high value, low volume transactions, and our value proposition speaks very well to it.”

It isn’t the first time Swift reaches beyond a strictly-defined banking sector, first by moving into the securities industry some twenty years ago and, more recently, by providing corporate access to its network, although this currently remains limited to corporate-to-bank communications. 

“We are gradually increasing the size of the community serviced by Swift and, therefore, gradually increasing the degree of standardisation and harmonisation from one end of the transaction to the other,” Muir said.

From there, a natural question is whether other industries could benefit from the Swift infrastructure in the same way. After all, corporates already have their foot in the door, and while insurers, reinsurers, and brokers are part of the financial services industry at large, one could see in this latest initiative the first signs of corporate-to-corporate communications via Swift, as well as the potential for the mergence of new messaging standards specific to other sectors.

Muir admitted he couldn’t think “of any industry that hasn’t at some point said that it would like to see more process harmonisation.” “But for now,” he added, “Swift has its hands full with the wholesale financial services industry.”

Remember Sepa?

I don’t know about you, but I can’t help but wonder how the current mayhem will impact SEPA adoption. While compliance isn’t optional, it can at the very least be minimal, and other areas of concern seem to have taken precedence over SEPA for both banks and corporates.

Given the more pressing challenges brought about by the financial crisis, the business case for SEPA on the banking side is looking weaker than ever. Now certainly isn’t the time for banks to be losing revenue in their payments operations, and even less to be investing money to that end. 

Meanwhile, the take-up of SEPA Credit Transfers has so far been very low and several national communities continue to lament the superiority of their domestic tools to the SEPA instruments meant to replace them.

Among the ideas out there to help move the implementation are more regulation, the establishment of a central project governance body or even, as recently suggested by Paul Styles of ACI Worldwide, giving Swift a mandate to help move the European payment industry toward a full SEPA environment.

In the end, rather than deadlines set in stone, shouldn’t the main focus be put on a value proposition that appeals to all parties involved? Inventing instruments with functionality worth migrating to, while devising a viable, pan-European business case for the banking industry?