Emerging Financial Internet, The

The Internet works because with one simple underlying technology you can do many practical things in a competitive environment. It is a level playing field where suppliers need to offer better services rather than compete by tying customers into the technology or single commercial proposition.

While the Internet is great for many things, is there an open network for the financial community? Financial Insights has identified that SWIFT could be the ubiquitous communication network for exchanging financial information and the level playing field for the financial services community. In essence, SWIFT could be the Financial Internet.

SWIFT is already becoming the single window in the interbank and market infrastructure community replacing multiple dedicated connections to local clearing, large value transfer system (LVTS) and real-time gross settlement system (RTGS), and securities clearing systems. Recent announcements that New Zealand will become the first market in Asia/Pacific to have all its domestic payment and securities market infrastructures accessible via SWIFT's international standards shows the steady evolution of a single connectivity window. This picture is also being borne out across Europe with Target2, Step2, and many other clearing and settlement systems reachable over SWIFT. While this is great for the banks, the really exciting territory is the corporate to bank space, and SWIFT could see dramatic returns here in the next 18-24 months.

Economics dictate that open networks will win out eventually. On the corporate front two recent announcements from SWIFT (the release of Alliance Light and expanded trade messaging) indicate the usual glacial pace of change in the member-owned cooperative is improving. The mutual owners of SWIFT have often maintained that the network is the preserve of its member banks and is an exclusive club - closed to outsiders. Almost 10 years ago, the members voted to keep corporates out completely. In 2003, they voted to allow members under a scheme that turned out to be quite complicated and commercially unworkable in the eyes of the corporate world (member-administered closed user groups). In 2006 a new, more practical, corporate model was developed (SCORE) and in July 2008 SWIFT has broadened - slightly - the corporate-to-bank messaging offering (MT798 trade services envelop), and, most startlingly, introduced an Internet-based connectivity option, Alliance Lite, that could significantly widen the user base for corporate adoption.

These recent changes could result in an inflection point in the growth curve of corporate connectivity. This wider adoption could lead to a feedback loop that would positively impact the adoption of e-invoicing and the rollout of SEPA Direct Debit and lead to significant improvements in the financial supply chain.

SWIFT members are showing glimpses of foresight that SWIFT could indeed become the de facto Finternet (the financial Internet) in the banking and corporate world - a secure, reliable, authenticated, and trusted network with standards to exchange business critical information. This is indeed something that corporates and banks want for many reasons. Specifically, corporates want to:

• Decrease reliance on proprietary bank technology and a lack of vendor standards that drive up cost.
• Avoid proprietary services that lock in a relationship even if the corporate is dissatisfied with the relationship service.
• Ease managing multiple bank relationships (and systems) with minimum hassle.
• Use electronic communication means to avoid fraud and increase visibility and control.

By providing the financial community (banks and corporates) a single window for connectivity to European payment clearing mechanisms, multiple bank connectivity, an easy and convenient way of connecting, SWIFT could enable huge savings in technology and connectivity and increased STP rates across the entire financial services ecosystem.