SWIFT Plenary - Lazaro Campos' speech

Lázaro Campos, CEO, SWIFT Thank you Yawar and good afternoon. Welcome to Sibos. Welcome to Hong Kong. Welcome to Asia. This is by any measure the right continent to be in right now. You breathe optimism here. Where we see ‘crisis’ in Europe or America, here, they see opportunity. And it is no surprise as the word “crisis” in Chinese denotes a combination of Danger and Opportunity. If you look at domestic institutions in Singapore and Sydney, they see this downturn as an opportunity for them to gain market share from the major foreign players. Chinese banks are now the largest in the world if asset valuation is your metric of choice. And they are expanding internationally at a faster pace than ever before. In mainland China, the feeling is that the worst of the financial crisis was felt last October. And their economy is beating expectations in terms of growth (8% by year end). In fact, we can see clears signs that Asia is on its way to a faster than expected recovery. And that is good news for all of us in this globalised world. For many of us who are based in Europe and the Americas it is refreshing to see that there is light at the end of the tunnel. Although Asia also suffered significantly through the crisis, (just around the corner from here 2 million workers are said to have lost their jobs in the Guangdong province) signs of recovery are overwhelming. But away from Asia, times remain tough; and have been since we were in Vienna a year ago. In the immediate aftermath of the Lehman collapse and the soaring activity in the markets, SWIFT, along with other essential market infrastructures, did just what it needed to do. We were operationally sound. We coped with spikes in volumes. As Yawar just said, we offered peace of mind in the midst of turmoil. One concrete manifestation of the global recession has been a decline in SWIFT traffic for the first time in our history. We saw the immediate impact as of ‘Lehman Brothers Monday’. Payments traffic dried up, interbank lending declined, and in October, money market transactions dried up as well. The only thing that grew was securities traffic, because market players were reshuffling their portfolios. For a while, the increase in reporting-related traffic masked the broader trend. Everyone wanted to know their positions, Reports that investors used to request once a week, were being asked for several times a day. That drove a significant increase in securities traffic for a period. By December, however, securities traffic was also down. We ended the year where we wanted to be, but much of that was thanks to the securities transactions and reporting activity in September and October. January and February traffic volumes were 4-5% under 2008 levels. And we know there is a direct correlation between our traffic figures and levels of activity in the real economy. In fact, if our traffic figures are anything to go by, in February we collectively hit bottom. Things have been better since. Although, year-to-date we are 2-2.5% under last year’s volume instead of an anticipated growth of 9%, we can see a positive trend in the past few months. However, we see an 11% gap in traffic volumes versus budget. I expect that gap to remain until the year end. So, now that we see signs of recovery in Asia, how long will it take for the rest of the world to follow? Is the worst over? Are we on our way to recovery? Are the lower figures in July and August a reflection of normal seasonal effects, or are we entering a second leg of the downturn? Our panellists seem to think that we are on our way up. What is your view? I am certain that much of the debate this week will centre around that question. And, as usual, most of us won’t express an opinion and will say later that we had predicted it all along..... What is clear is that SWIFT traffic is a good proxy for economic and financial activity. And we are looking at ways in which we can identify “early signs” and “predict” more accurately what the future holds. Andre Boico our resident expert on macroeconomic trends will run a few sessions during this week to show the parallels in between economic indicators and SWIFT traffic. Very interesting indeed. And this is only using header information. Just think what it would be like if we actually used message data to run the scenarios. It could be a hundred times more valuable and insightful. And we are already doing it for our Trade messages (of course, as per our Data Retrieval Policy and with Board endorsement).

Customer First

Back in 2007, I put the concept of ‘customer first’ front and centre in our plans for the cooperative. That commitment is unchanged. It is unchanged despite the crisis and the downturn in business. If at the first big obstacle, everything we’ve said about customer centricity goes out the window, then clearly there's something wrong. Mind you, this crisis is possibly the mother of all obstacles and that has strengthened our commitment.

We have launched initiatives that further increase our obsession with customer centricity.

For example, we've now worked with 23 of our top clients and have surveyed more than 8,000 individuals to measure their levels of delight in concrete terms. The one overarching question we ask is, “would you recommend SWIFT?”
 
Respondents give a rating from 0 (extremely unlikely) to 10 (extremely likely). We then take the percentage of respondents who give us a 0 to 6 rating (called detractors) and deduct it from the people who give us a 9 or 10 score (called promoters). We ignore the 7s and 8s because they are neither one nor the other. The result ensures that we avoid wasting our time with misleading averages.

Results so far tell us that promoters outscore detractors by 38%.

Just to give you one context metric: Financial industry average in the US is 3% and Best in class would be 36%. So far, so good. Some of the large clients seem pretty delighted. We plan to roll out this approach in all of our surveys (including by the way our post-Sibos survey.....).

We've also launched a significant business efficiency programme that puts customers at the centre and helps us to reduce our structural costs in the short term and to ensure continuous improvement and a ‘customer first’ mindset in the long term. It is called Lean@SWIFT.

When many of you think of SWIFT, you think standards. You think straight through processing. You think quality of support. You think operational excellence. You think FNAO.

But do you think efficiency?

We must add a new dimension to our value delivery to you. Efficiency. You know the story. You all have gone through it. Deliver more with less. We shouldn’t be any different. Our ambition is to weather the immediate storm of declining traffic and invest in the future and deliver on our price reduction promise that Yawar already mentioned.

Back to Lean. Our target for increased efficiency is 30%. Yes, you’ve heard correctly. 30%. And we want to do that without degrading the service you receive from us. In fact, the approach should also enable us to improve the service we offer. 20% will translate into short term structural cost reductions. The remaining 10% will fund our future.  Although it’s still early days, we are seeing the value of this approach – we are on target to achieve our operating profit this year, despite the reduction in revenues.

And in addition to the efficiencies that are being brought about by Lean, we have already looked at other areas for cost savings such as platform optimisation, vendor re-negotiations, off-shoring and what I’d call ‘business as usual’ cost containment. The net result of these efforts to date is around 30 million EUR.

To do that, we cannot just cut our costs arbitrarily. We must ensure that the reduction is here to stay.
For that we are reviewing every process at SWIFT and simplifying it. We are concentrating on the part of the processes that deliver value to you and getting rid of as much as we can of the rest. If you would not pay for it, we should not be doing it.

However, we must not reduce our business operations down to routinised practices that suppress the creative instincts of our people. We do not want them to become standardized parts of a predictable machine. We must balance our need for standardization and predictability with the need of individuals, especially passionate ones, who we value because they are unique and unpredictable. Too many companies lose sight of this when downsizing or improving efficiency.

Lean is run as a structured business efficiency programme over a period of two years. It is overseen by the CFO and the Audit and Finance Committee of the Board and led by the person who used to run Technology Operations and gave you 5 9s - that's how committed we are to the programme. We have considerable experience in managing industry change programmes and we are applying the same rigour and discipline to running Lean, whilst bearing in mind that here we are not only talking about changing processes and procedures, we're also talking about changing the mindset and behaviours of our people.

This cultural change is essential. If we are to grow beyond messaging, we have to change now. And that change is enabled by Lean and by a desire to embrace innovation and collaboration. To return to that pioneering spirit that created SWIFT.

Innotribe

In the run up to Sibos (and since arriving in Hong Kong) I am sure you will have heard about Innotribe. ‘Innotribe’ is a SWIFT initiative designed to foster collaboration and innovation with you - the financial community. In 2007 I introduced swiftcommunity.net. I said it “may well become the best investment SWIFT has ever made to harness the power of the community for the benefit of the community”.
I also said “I don’t know where this will go”.

Two years on, it now has over 11,000 members and 198 communities, and we’ve just launched yet another version.

But while swiftcommunity.net encourages discussion, dialogue and information exchange, innotribe.com is about end products and services that make a difference to your business – solutions to your pain points that are collaboratively defined and then co-created and delivered.

Innotribe provides a framework where you can suggest and discuss new ideas relevant for SWIFT.
It comes to life virtually (through innotribe.com) and physically through events, creative labs and other forums.

Make no mistake, technology is changing the way new products and services are defined, produced and delivered.

The Internet and the recent “social networking” techniques and tools (known as “Web 2.0”) now enable people to interact without geographical or social boundaries. Web 2.0 gives a new meaning to the term “collaboration”. At the Board Offsite in March last year, we had some first discussions on this and we talked about new ways of collaboration.

Specifically:

• Leveraging the global workforce – think P&G (pgconnectdevelop.com)  – and not relying on new ideas to come only from within the company
• Co-creating with the community – think Wikipedia
• Open platforms – think Facebook, Twitter or Linked-in.

These are new ways to collaborate and they lead to a different model of innovation (or research and development).

This new model encourages more customer centricity; it enables co-creation with customers throughout the development cycle and adopts a more agile and cost effective development process.
Essentially, it enables a different culture to thrive in the community – one of willingness to experiment, openness to contribute and a belief in sharing the rewards of collaboration.

I believe the creation of SWIFT was in itself an example of what we would now call ‘collaborative innovation’. And since then, our business model has not fundamentally changed, despite growing in reach, scale and scope of activity.

Whilst we could imagine SWIFT as a trusted service provider of choice and a platform for community-driven collaboration and innovation, we have seen examples that demonstrate that the financial community sometimes prefers to set up (and pay for) new shared infrastructures rather than rely on SWIFT. And that is because we do not have a good way to cater for investment by a few.
Examples of that would be CLS, EBA or Identrust. 

So, how do we reconcile collaboration and innovation within the spirit and the business model of the SWIFT cooperative?

Let’s have a quick look at some of the initiatives underway that, despite the downturn, are on track and progressing as planned.

Distributed Architecture phase 1 is being rolled out as we speak. By the end of this year the multi-zonal SWIFT will be a reality. And we will have increased our capacity and our resilience while continuing to comply with Data Privacy legislation. This ambitious programme has been a major endeavour, delivered ahead of time and under budget. We will now be able to respond proactively to the need for new processing zones anywhere in the globe where the business requires it.

In Asset Servicing, our Prime Broker / Executing Broker solution is gaining momentum. Very positively received and a great example of our ability to respond quickly to an industry need.

We are about to welcome our 500th corporate to SWIFT. We must be doing something right! Although to Yawar’s point, we may want to review our ambition. 500 is still a drop in the ocean…..

TSU counts now 100 customers and is slowly and finally taking off.

And then there’s Lite, Integrator, Easy E&I, Accord for Securities, and a range of other initiatives that have continued despite the challenging economic conditions. 

In terms of our core services, FIN and SWIFTNet continued to perform at the 5 9s you expect, even though we have been renewing our backbone network and refreshing our SWIFTNet technology platform.
Our technology and operations remain fundamentally sound.

And there are plenty of other things in the pipeline too.

A Sanctions forum took place a couple of weeks ago in London where we are contributing to discussions on how to help you respond to regulatory and supervisory challenges. This will be a very important opportunity. SWIFT is well positioned to act on behalf of the industry.

E-identity is now at the centre of our mission.

In response to the significant demand for Consultancy and Professional Services linked to Integrator sales and TCO studies, we will be investing ahead of demand. This is a key area for us to re-invest some of the 30% efficiency gain achieved through Lean. Industry resources are scarce and demand is growing rapidly. An exciting area that may need a non-traditional approach. We need to focus our energies on addressing your pain points and business problems.

I will come back to some of this when I talk about SWIFT2015 later.

‘Giving back’

Now let's take a few moments to talk about something that I know is important to all of us. SWIFT touches financial institutions and corporations in 209 countries around the world. It also touches thousands, if not millions of people, many of whom live in developing economies and are less fortunate than ourselves.

And then there is the next generation. The young people who will take over from us and become future movers and shapers.

As a company founded within the spirit of a cooperative, I believe we have an obligation to help shape that future.

In the last two years, we have made tangible progress .......we have started to make a difference.

With us this week are three foundations that we believe in and that we are supporting – all falling within the framework of ‘green’ and ‘giving back’.

For those of you who were with us in Boston 2 years ago, OLPC does not need introduction. They inspired all of us when we invited Nicholas Negroponte to speak at our first CSR breakfast meeting. We have continued to support them and have this far contributed more than 4 MEUR to their cause. This has resulted in 20,000 laptops being deployed in Brazil, Paraguay, Cambodia, Nepal and Rwanda and another 6,000 soon to be distributed in Mozambique and Burundi.

Investing in children's education is the right thing to do.

The International Polar Foundation is committed to climate change. It aims to create a link between science and society. It communicates and educates on polar science and polar research as a way for us to understand key environmental and climate mechanisms. Through our partnership with them, we want to create more awareness about climate change within our community. At SWIFT we are walking the talk and plan to reduce our CO2 emissions by 60% by 2012.

And you know what?
 
A significant portion of our CO2 footprint comes from, yes you guessed, Sibos. This week we are embarking on a journey to a ‘greener Sibos’.

By the end of this week, with your help, we hope to have outlined what we want to achieve by this time next year in Amsterdam. Don’t miss the opportunity to contribute.

Lastly and closer to home, we are proud to be here in Hong Kong for the week. We know Sibos brings significant assets to the local community. But beyond the hotels, restaurants, taxi drivers and the event industry in general, we want to give something more.

You will have seen in your kit a flyer about a foundation called Changing Young Lives. We selected this Foundation for a small donation, but more importantly because our employees here in Hong Kong are committed to get directly involved and make a difference for young children who are underprivileged.
I applaud that. Monetary donations are good. Employee engagement is even better.

Back to the changing culture I mentioned earlier.

SWIFT2015

So let’s project ahead. 2015. Where will this cooperative be? What will you value? What will have made us ‘essential’ to your business?

We are embarking on defining our next strategy. As Yawar has said, this will be a consultative and iterative process. And what better place than Sibos to do some of that consultation.

While SWIFT itself has not changed its fundamental purpose, our customers' perspectives on what SWIFT can and cannot do have changed. We have launched a significant programme to get your input on the next chapter of SWIFT. We have already conducted or scheduled over 100 meetings in more than 30 countries where we meet with communities or individual customers to get their views.

We will continue to do that and expect to give you a summary of that feedback by December. Then, the validation phase starts and we expect SWIFT2015 to be agreed by the Board in September 2010 or earlier if we can make it.

Much of what we do in consultations with individual customers is to ask probing questions. The key is that we must listen and understand. Listen to your challenges and needs. Understand where SWIFT can help.
All from your vantage point.

When we engage collectively with National Member Groups, the approach is different. We typically use a set of scenarios to trigger debate. They are not cast in stone. They are only intended to trigger discussion on the type of things we could do. They should be seen as a discussion tool, not a first set of options to choose from.

Let me share some of the scenarios and the feedback we are receiving.

First and foremost, we know we must protect the value we have collectively created at SWIFT since it came to life 37 years ago. But that does not necessarily mean doing more. In fact, our first scenario suggests the opposite.

Concentrate on core with a vengeance - Do less. Cut cost to the bone. Shed all non-essential activity and concentrate on supporting our Correspondent Banking, RTGS and custody franchises. Excellent service, unbeatable prices. Short sighted? Not sustainable in the long run? Maybe, but you never know how long the long run might be.

Core Extended - Capitalise on our existing position and push ahead with more aggressive shared services. There are domains where, two years ago, you would have encouraged us to stay away; the message now is, ‘maybe you should do it’. There is appetite for the cooperative to do more while you concentrate on core business. And I understand that. Our concept of shared services makes sense because we want to concentrate on those services and processes which do not in themselves deliver a competitive advantage to the business. They may not be sexy but they are essential. And that is what we do best. Things that are essential. Things that happen in the background that must be done well.

Essential shared services delivered by SWIFT. Examples could be doing more in the areas of matching, exception management, reference data.

Go local - Making SWIFT totally relevant in a domestic context. Franchising SWIFT so the local community benefits from the portfolio and brand AND owns a controlling stake in the venture. Creating local processing and storage capability where required. Extending services to cover the entire need of the local community including retail business and cards. Interconnecting with local networks and ensuring interoperability.

This scenario has attracted significant interest from some countries already.

Is this the next logical step for the cooperative? Will this be the right answer for local markets who want to re-use their SWIFT investment but would not adopt a global solution nor accept a global decision-making process?

Marketplace – A significant extension of 'Core Extended', whereby SWIFT not only provides some of the shared services but it also orchestrates their delivery by members and partners. You become the providers of services on the basis of common standards and open source protocols and technology. This is the result of applying innovative and collaborative ways of working. This could be the logical next step of our Innotribe initiative.

This is not about messaging anymore. This is about Software as a service. Business processes in the cloud. New business models.

Here an example could be a Corporate Actions hub where all the relevant shared services are orchestrated with business applications to provide a full life-cycle solution.

Is this the SWIFT we would create if we were to start from scratch today? Is this how we should be fostering collaboration and innovation in the Financial Services industry?

The questions in each of these scenarios need to be asked from different perspectives – as a customer/user looking for TCO reduction, as a member of SWIFT looking to protect the franchise and the cooperative spirit, and as a shareholder looking for a return on investment of the SWIFT asset.

And of course, that is not all.

We still have many other unanswered questions that are relevant to every scenario. We need to find a way for communities or groups of institutions to be able to come to SWIFT with their projects.

You must be able to invest and get return on services that later become part of the SWIFT portfolio.
We also need to decide how our business and pricing models should evolve.

And last, but extremely important, as Yawar has already said, we must review our governance model to take into account our chosen future. Our governance structure must enable and accelerate our move to the future. As far as community feedback is concerned, as you would expect, there is much polarisation of views..........

Summing up

A few minutes ago Yawar issued a call for action. And of course, I’m in total accord with him. But, let me be absolutely clear, the clock is ticking and the process towards the achievement of our 2015 strategy has already begun. We have a job to do.

We need to move quickly and confidently. 

We need to accelerate in order to ensure that the benefits of a changing SWIFT can be felt by all of you, now.

As you know, we are already engaged in and committed to a comprehensive process of consultation with you. (These days opinions are perhaps more polarised than ever before – and that is no bad thing).

Of course, we will keep asking you for your input and counsel – that’s our commitment and our responsibility. 

Your responsibility is to join the debate, help advance the dialogue and make sure your views are heard – that’s why our time here together at Sibos is so valuable.

However, just as Joseph Yam pointed out that it is unrealistic to expect to find a “textbook perfect market”, similarly, if we wait for the textbook perfect strategy, we’ll be waiting a long time. 

We’ll discuss and debate; we’ll review choices and options; but we’ll actually do nothing. A call to action means just that, “action”. 

So, where there are many choices, we need to prioritise. Where there are options, we need to establish preferences. And when decisions have been made, implementation must swiftly follow.

To be frank, we need to avoid ‘analysis paralysis’ ..... where the sheer burden of the decision-making process conspires to prevent any kind of decision actually being made or any action being taken.

We must move beyond being known only for FNAO and operational excellence ..... and I believe we have earned the right to do so.

We need an environment and a culture that embraces and rewards innovation and collaboration as well – all within a framework that is focused on you, the customer, and makes SWIFT your first choice.

Ladies and gentlemen, let me summarise my messages to you:

We’re in good shape operationally. We’re weathering the financial storm. We are on a diet. We exercise regularly. We’re becoming lean and efficient. And we are ready to take a leap towards our new future.

Your job - your responsibility – is to guide us:

Is it Core, with a vengeance? A Lean, committed and single-purpose cooperative that delivers 'best-in- class' service at a fraction of the cost, as long as it is viable?

Is it Extending our core franchise and investing in shared services? A company that continues to add value and constantly raises the bar of what the cooperative space can be?

Is it ‘Going Local’? Franchising SWIFT for domestic needs.

Is it rebuilding SWIFT in today’s collaborative and innovative environment by creating the Marketplace? 
A bold leap into the future that will build tomorrow’s cooperative platform proactively.

Or is it a combination of all of the above?

Questions. Questions. Questions.

These are important times for our cooperative.

Sibos is the right place to be this week. You’ve been very attentive in listening to me. But from here on, this week is about listening to you.

And when we reconvene for the Closing Plenary on Thursday afternoon I’ll tell you what I’ve heard.

Until then…

…I wish you a busy, insightful and productive week.

Thank you and have a great Sibos.



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