SWIFT 7: The Time For Change is Now

SWIFT chose Sibos 2010 to announce that it would be releasing a major update this year, bringing a number of benefits to its user base of more than 9,000 banking organisations, securities institutions and corporate customers in 209 countries globally. This new release is one of the largest upgrades of the SWIFT network and its protocols for a number of years.

The looming release of SWIFT 7.0 presents many banks with a substantial headache, at a time when they are already wrestling with the changes that have resulted from the banking crisis. There are just 10 months to go to get the new release compliant before SWIFT ends its support of version 6.

This new 7.0 release from SWIFT, mandated for the end of 1Q12 isn’t simply a change for the sake of change, it provides financial institutions with groundbreaking and powerful new messaging and connectivity tools. For example, the upgrade will deliver a more modern, web-based graphical user interface framework for the entire Alliance family. It will also enable easier installation and configuration management, as well as offering easier integration of FileAct flows. Indeed, the new release is designed to bring banks, securities and corporate SWIFT users many opportunities to reduce costs and risks, improve efficiency, and increase flexibility.

So while the long-term business case for SWIFT 7 is clear, upgrading this essential payments platform poses a number of short-term challenges. For all organisations interfacing with SWIFT there will be a need to upgrade software and also possibly hardware too.

There are many technical considerations and choices. For example, users must make critical checks to confirm that their operating system is compatible and that all interfacing software is upgraded to become compliant. Importantly, as we approach the deadline for migration, organisations must also ensure that they have built in sufficient time to test the system and become familiar with the portfolio of new features so that they are in a position to take full advantage of the investment.

Facing these challenges, many banking organisations, securities institutions and corporate customers are taking the opportunity to review the way that they manage their relationship with SWIFT and some are making the case to outsource to a SWIFT service bureau.

For those banks that are already outsourcing their SWIFT services to a bureau, the mandatory change should be a seamless transition. It will be banking business as usual, while the SWIFT experts at the service bureau ensure that the new software and hardware is implemented, IT training is undertaken, and all the necessary licencing and administration is completed.

For such banks the case for outsourcing SWIFT services is less to do with managing such transitions than it is to do with cold, hard cash. This is because, on average, banks which use a well-run SWIFT bureau service see cost savings of 30% to 40% when compared with running comparable operations in-house.

So why don’t more banks outsource their SWIFT operations? The answer, very often, is to do with loss of control. SWIFT provides a necessary and critical element in a bank’s payments capability. The banking crisis has made many banks risk-averse. The notion of outsourcing SWIFT operations may be seen by some as a gamble too far. “How can we handle things,” they reason, “if something goes wrong?”

In practice, however, a SWIFT service bureau typically addresses this question better than an in-house operation. SWIFT bureau’s have dedicated people focused simply on delivery of the service. If a SWIFT payment has a problem, these experts are directed immediately to resolve the issue effectively. This means in turn that a bank’s own people can continue to focus on their other business-critical projects, rather than having to fire-fight SWIFT problems.

In-house operations, by contrast, often struggle to be able to release the necessary people – assuming that they have been able to train and retain the necessary skills in the first place. And, of course, personnel diverted to resolve a SWIFT issue are not available to work on the other projects on which they were working originally.

While many banks fear a loss of control, the reality is that in many cases using a SWIFT service bureau is less of a gamble than keeping it in-house.

The introduction of SWIFT 7 will deliver a range of reporting and cost benefits of significant value, banks and their customers will experience more efficient and flexible payments and reporting. However, the challenge and cost which it entails must not be underestimated.

But time is short. Banks need to plan their strategy to upgrade to SWIFT 7 immediately. But before they do that, they face a choice. Do they accept the pain and cost of doing so in-house, or face the potential fear of going to a SWIFT service bureau?

The decision isn’t easy – but it is one which needs to be made quickly.

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