The Society for Worldwide Interbank Financial Tele-communication, the industry utility responsible for moving trillions of dollars of payments and securities around the world each day, announced a fateful decision on February 6, 2001: It had chosen Global Crossing to take over the operation of the Swift infrastructure and upgrade it with the latest generation of high-speed Internet protocol, or IP, technology.
Fifty-one weeks later, the Hamilton, Bermudabased telecom upstart, which in just a few years had come to symbolize both the promise and the excess of the technology boom, filed for bankruptcy protection. Swift’s $300 million five-year contract wasn’t worth the paper it was printed on.
Global Crossing’s decline could have touched off the worst operational crisis in Swift’s 27-year history, with dire effects on the 7,400 institutions in 197 countries that depend on the nonprofit joint venture to exchange more than 100 million messages a month, most relating to funds transfers and securities transactions and settlements. “A lot of organizations throw around the word ‘global,’” says Swift chief information officer Joseph Eng, “but we really mean it.”
The utility’s choice of Global Crossing may not have been too, well, swift, but its response to the crisis was -- there were no service disruptions. The big question now is whether Swift will be able to keep reducing its basic message price, as it has done every year for the past decade, from 42 cents in 1992 to 16 cents last year.
“We like to think we have contingencies for everything -- and we did in this case,” says Leonard Schrank, chief executive officer of La Hulpe, Belgium based Swift. The plan, hashed out early this year when Global Crossing was foundering, called for Swift to retake control of its network and to procure the necessary connectivity and support services from multiple suppliers.
For Eng -- who as CIO oversees a staff of about 1,000, or two thirds of Swift’s workforce -- that meant a sudden shift of gears. Last year he was managing an outsourcing relationship with Global Crossing; now he’s calling the shots.
Schrank chose presciently in 1999 when he recruited Eng, whose background is in telecommunications. With degrees in computer science from Rutgers University and New York University, Eng had previously held senior information technology posts at Ameritech Corp., the Chicago-based Baby Bell.
At 35, Eng is the youngest of Swift’s eight-member executive committee, and the only American other than Schrank, a former Chase Manhattan Corp. executive who joined as CEO in 1992. “It’s not the years, it’s the miles,” says Eng, who recently reflected on his year of turmoil in an interview with Institutional Investor Assistant Managing Editor Jeffrey Kutler.
Institutional Investor: Do you consider Swift a telecommunications company?
Eng: Swift is more of a consumer of telecommunications; it’s not a telecom company per se. We don’t lay down cable. We provide messaging services to our customers in the financial industry. It’s on the order of a hosting service that one might buy from IBM. But at the same time, we are very dependent on networks, which you might say gives us the look and feel of a telecom company.
What’s the status of the transition from Global Crossing?
Having terminated that exclusive agreement, we are pursuing the build-out of our own secure IP network. We are responsible for running the network, but we rely on other providers to get the necessary geographical coverage. This has been a very challenging period, but from an operational service-level perspective, there was no impact.
Will the telecommunications problems make it harder for Swift to meet its cost-containment targets?
It’s definitely a challenge. The deal with Global Crossing was designed to continually improve our cost position. We still have that intent as we move into managing the multivendor IP backbone. We have the same budget pressures as any other company, and we’re not immune to competitive pressures either. But post September 11 we have seen an awakening in the financial industry -- and in the entire business world -- to the importance of security and reliability and risk management. Although we won’t necessarily have the lowest-cost solution as we expected to with Global Crossing, we’ll have an acceptable-cost solution that meets those needs for security, reliability and risk management.
Is your membership going to pay more for security and reliability?
We never compromised those attributes in the past, but what happened to Global Crossing and the telecom industry in general was not foreseen. In this new arrangement, with a greater diversity of providers in the Swift-managed network, we will have more resiliency and less vulnerability to a single supplier’s failure.
Do you view independent financial networking companies like Reuters Group affiliate Radianz as competitors?
There is not always a clear distinction between competition and cooperation. Radianz, for example, may be selling an IP network, but it’s not necessarily competing with Swift, which sells messaging services that go over an IP network. And unlike a conventional vendor, Swift has the additional role of setting standards that allow financial institutions to exchange structured messages.
Do industrywide technical standards figure significantly in your IT management process?
Yes. Our secure, reliable financial messaging is part of a larger business context revolving around both cost reduction and mitigation of risk. Though we may not be in a position to deliver all of the auto-mation benefits of straight-through processing [of trades and payments] by ourselves, our messaging and connectivity are certainly important enablers of STP. Standards allow for a common method of communicating so that financial institutions can minimize the errors in their back offices that inhibit STP. Swift also works closely with other standards bodies like Fix [Financial Information Exchange] to ensure that all the various specifications interoperate with each other. We don’t want a Tower of Babel where everybody is speaking different languages and can’t deal with each other.
Has the rapid growth in Swift’s securities-related business put unusual demands on your IT organization?
Whether the transaction is a payment or securities transaction, and whether the customer is a bank or broker-dealer or investment manager, our operational approach is consistent. We are expected to provide the highest level of security and reliability, with guaranteed message delivery anywhere in the world. That said, we have to pay close attention to our largest customers. Whether it’s a bank like Deutsche Bank or a market infrastructure like Continuous Linked Settlement Bank or a central bank like the Bank of England, they depend on continuous service from Swift to handle the huge volumes that they generate.
How did September 11 and its aftermath affect Swift’s operations?
One can never plan for such an unthinkable event. But we do plan extensively for disaster recovery and operational continuity, and when that happened we went into a set crisis management drill. None of Swift’s operations were affected; we were running throughout the September 11 crisis. Once we were in crisis management mode, we turned to helping customers that were affected get their Swift connections and services back.
Now that terrorism is no longer unthinkable, has your crisis management approach changed?
We have to put our commitment to security and reliability in the context of these kinds of events, and now we have to work with our entire community on ways to be better prepared. We all remember how well the community got ready for Y2K, and this calls for the same kind of broad effort. Swift will be holding some serious discussions along these lines at its Sibos conference in Geneva in early October.
