One of the most visible signs of technology deployment in financial services is the way in which interconnectivity has thrived in the last few years. Communications have improved both in quality and volume both on the retail and wholesale sides of the industry. In retail, mobile telephony is forming the core of convergence for many banks with television, once the expected winner, being a poor third. In wholesale, the industry cooperative Society for Worldwide Interbank Financial Telecommunications (SWIFT) continues to dominate although few recognise its multiple roles in the industry, and its foothold in the US geographically and in funds from a market perspective are still embryonic. Information is key, but to be more accurate information sharing is key. Today's banking world relies on information being shared in ways that were never imagined even five years ago. I have already mentioned SWIFT. The Society for Worldwide Interbank Financial Telecommunications has two functions in the financial services world both on the retail and wholesale side.
First it is appointed by the International Standards Organisation (ISO) to be responsible for standards setting and management. Second in its capacity as an industry-owned cooperative, it also operates a unique computer network between its members, all of whom are financial institutions. The combination of guardian of standards and provider of message routing places SWIFT in a very powerful position. Virtually any major technology deployment tioday will need to take advantage and note of standardisation of messaging. In the wholesale area, most banks are now following ISO15022, the previous standard being ISO7775. However, the process of continual improvement goes on and even now, ISO20022 is being engineered and messages and processes worked on by industry members. There are several issues to take note of here. First, and rather ironically, the technologists have to take into account not only the standards in place at any one time, but also the development of future standards, thereby increasing potential costs. But of course, at the same time, those standards themselves are changing and being managed. This may sound difficult enough, but the word standard itself may be giving a false sense of security to the business managers involved.
The issue is that, even when a standard is issued, and even when there is general agreement of the specification and use of messaging, the reality is that there is enough leeway and enough pressure from within to make the delivery of a real standard almost impossible. Take an example. In securities processing there is a suite of messages called corporate actions messages. They are designed within ISO15022; the detail of how messages in this suite are configured, laid out and sent between counterparties is laid down in a ‘Standards Release'. Essentially, any institution sending messages should conform to these standards and layouts. The reason for the standards is to enable cost reductions and efficiency improvements (often referred to as Straight Through Processing or STP) by having ‘certainty' that the data in a message can be interpreted at the receiving party in a way that enables that data to be translated straight into electronic systems. Yet, when canvassed, it becomes clear that, even with the standard published and in place, there are up to a hundred different variants of any given message being used at any one time. Some of these variants, but importantly not all, are dealt with by having sub-groupings of SWIFT members where the individual variations are serparately codified between the correspondents so that they can gain their own particular benefits from the standardisation while still, presumably, being able to compete in terms of service delivery.
These groups - Message User Groups (MUGs) and Closed User Groups (CUGs) - do allow for the system to work to an extent. Part of the reason this can happen is the level of validation being performed on behalf of the sender and recipient by SWIFT. I would argue that the minor benefits gained by having multiple variants of interpretation of a standard would be far outweighed by the cost reductions if all the members agreed to a much higher level of consistency (and thus reduction in variations) in their message formats. Variants, if they do exist for rational business purposes, should be codifiable into the normal cycle of standards development. This does serve to highlight that both technologists and business managers must have sufficient knowledge of both the theory and the practice to be able to make intelligent decisions. Of course communication need not be interpreted simply as messaging. Nor is SWIFT the only player in that arena. BT Radianz also provides network connectivity and several of the larger trade and settlement support utilities have their own proprietary systems to support their members. Certainly the Internet has provided the opportunity for increased resilience and redundancy in communications. There are effectively a plethora of ways to get information from point A to point B including Manual (paper), Fax, Email, Ftp, Virtual Private Network (VPN), SWIFT and so on.
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