The money network: Migrating to SWIFT

special report When you haul yourself out of bed for another day of work, take some consolation from the fact that even abstract concepts like money have to do the same thing. Financial institutions around the world send their money out to work every day, distributing it around the globe so it can multiply.
Written by Simon Sharwood, Contributor
special report When you haul yourself out of bed for another day of work, take some consolation from the fact that even abstract concepts like money have to do the same thing. Financial institutions around the world send their money out to work every day, distributing it around the globe so it can multiply.

And when that money moves, it almost certainly travels using services and infrastructure provided by the Society for Worldwide Interbank Financial Telecommunication, commonly known as SWIFT. Formed in 1973 by a group of 239 banks in 15 nations that were tired of processing international currency transfers by a combination of manual data entry and telex messages, SWIFT has since become a colossus carrying billions of dollars around the globe each day. Over 7,500 financial institutions in more than 200 countries are now SWIFT participants, and the company processes over nine million messages each day.

SWIFT's importance to the international financial service industry is now inestimable, as globalization demands easy movement of funds across borders. The result is climbing message volumes for SWIFT's services : in 2004 the number of messages transmitted over SWIFT's networks rose by over 12 percent, while in 2003 the network carried two billion messages for the first time, doubling volumes in just four years.

This growth has meant that the company has enthusiastically introduced new technology as and when needed. In 1997, the technology the caught the company's eye was Internet Protocol (IP). SWIFT announced its intention to IP-enable its products and services, delivered in 2002 with SWIFTNet and announced it would switch its operations from its previous X.25 network to IP at the end of 2004.

Today, most Australian and Asian SWIFT participants either have completed their migration or are busy tying up loose ends.

Yet the advent of SWIFTNet has many others in the financial services community interested in using SWIFT, as while previous versions exchanged proprietary messages, the new IP-enabled version of the network can handle any XML-formatted traffic.

SWIFT intends to take advantage of its newly open architecture to develop and encourage new services. -One of the challenges SWIFT faces is that the company's origins are in international transactions and the banking environment," says Ian Johnston, Regional Director of the company's Banking Industry Division for the Asia-Pacific. -In the last 12 years or so we have been very successful at broadening the uptake of SWIFT into the securities market. We have also expanded into foreign exchange and currency trading," and the company is now looking at other services such as file transfers describing bulk quantities of low value payments.

Johnston hopes other SWIFT users will do likewise. -Banks have already made the technology investment to use SWIFT," he says, and SWIFTNet's new architecture should allow them to -... leverage into new offerings."

Johnston says the key to any upgrade or migration is the company's own software. Dubbed SWIFTNet Link, the package - ... handles everything with reference to IP."

Making the move is not quite so simple, however, according to Vivienne Cummings, Westpac's Project Manager for its SWIFTNet upgrade.

Cummings says that while SWIFT's software and support have been of very high quality, there are significant integration challenges involved in a successful upgrade.

-The biggest challenge is selecting the software vendor to make it hang together," she says, as existing applications that generate SWIFT's old -FIN" format messages need to work alongside new applications that translate them into IP-ready formats.

The choice is made complicated by the fact that IBM's MERVA family of products, a favourite SWIFT message-generating tool for many financial institutions, does not have a direct upgrade path to generate SWIFTNet messages. Several alternatives are available, most holding either SWIFT's Gold award certifying compliance with its next-generation software or the Silver accreditation indicating compliance with current specifications.

Yet Westpac found picking a winner was difficult.

-We wanted to make a strategic investment," Cummings says. -Some of the solutions we looked at were not mature. Others did not have a presence in Australia. Scalability was an issue, and we wanted to make sure that whatever we bought could be used for future applications." The Bank eventually settled on Sungard's MINT solution, software it felt was sufficiently robust to power its systems and, perhaps more importantly, do so with such reliability that its reputation would not be jeopardised by the move.

Page II: When your money moves, it almost certainly travels using SWIFTNet, a network for financial institutions. We charts the ups and downs of a few Australian banks which are upgrading to the network.

But with the choice of the new supplier came some project management challenges.

-A lot of complexity came from the number of companies involved," Cummings says. -We needed to work with eight or nine vendors, to arrange support from all of them and to get the timing right for their individual contributions." SWIFT itself was one of those vendors, but was not alone in requiring long lead times to arrange its contribution to the upgrade.

Westpac's solution to this issue was to commence its upgrade with a weeklong meeting between all of its internal stakeholders and representatives of each vendor, so that everyone had the opportunity to learn the other's requirements first hand. Weekly updates then became a way of life on its project, which started planning early in 2003, commenced in earnest in January 2004 and finished in mid-August.

This amount of time is required because while the upgrade is conceptually simple, the peculiarities of each SWIFT user add complexity, according to James Bibby, a Principal Consultant with Decllion Solutions Australia, a SWIFT business partner that assists business to install and operate SWIFT solutions.

Bibby has worked on at least fifteen SWIFT to SWIFTNet upgrades for Banks in Australia, Papua New Guinea, Samoa and New Zealand, including projects for two of Australia's big four banks, and says that there are few hard and fast rules to follow when planning an upgrade.

-The aim has to be to create a new system but have transparent impact on the business users. Doing that means getting your head around not just the application but also the underlying configuration in terms of IP addressing. You need to understand the nature of a SWIFTNet instance, the PKI requirements, and many other issues."

Misunderstanding any of these nuances, he says, can derail an implementation.

-SWIFT has gone to extraordinary lengths to make migration as easy as possible," he says. -But I think it is fair to say that the complexity of an individual organisation's SWIFT infrastructure is the biggest issue."

-You only need to miss one or two things in there to give you a hiccup that delays the migration or makes for a lot more work," Bibby adds, and the need to finesse each solution therefore makes it more than useful to work with a third party.

-Organisations I have seen migrate well took the time to understand how SWIFTNet operates and how it would be applicable to their existing infrastructure so they could test their knowledge and skills and understand the help they would need," he says. -Be prepared to seek help and advice, be it from a service partner or from SWIFT themselves. Take the time to understand the nuances."

Similar issues affect the networking side of an upgrade, according to Jeyan Jeevaratnam, Managing Director of AT&T Australia and New Zealand.

AT&T connected four of Australia's top five banks to SWIFTNet, and Jeevaratnam says identifying individual issues is important.

-You have to speak to the right people," he says, recalling projects where his clients needed to make significant efforts to understand all of the applications that would be touched by the communications changes SWIFTNet brings. -But the main part is ordering the last mile. We have done complete upgrades in 20 days because SWIFT has an organised schedule for upgrades. There are no particular issues at all from a communications perspective."

Another important first step is matching connectivity needs to the number of transactions a user generates. -If you only create a few transactions you can use a dialup connection," Jeevaratnam says. -For those who generate more than forty transactions per second we can offer solutions using multiple redundant routers, multiple redundant IP connections and load balancing to endure reliability."

Setting up this equipment, largely based on Cisco routers and VPN boxes from a list of vendors nominated by SWIFT, does not unusual skills. -Once you decide what kind of volume of transactions and resilience of network you need to support them, it is largely a case of plug and play to install the router," he says.

Once the routers and other infrastructure are in place, does SWIFTNet open doors to new services, products and possibilities?

Westpac is confident of success, but yet to have its own positive experience. At the time of writing, the Bank's SWIFTNet system had been operating for just over two weeks, leading Cummings to say that - ... we are finding our way through SWIFTNet and can certainly see the potential. We are beginning to see what the value proposition will be for our customers."

Of course many IT projects of course struggle to offer hints of ROI after two and ahlad years, never mind the two weeks. And the clarity of Westpac's vision may therefore be a tonic for those who struggle to get out of bed in the mornings. If SWIFTNet makes it easier move funds around the world, perhaps it can also let investment managers do just that little bit better and speed the day when we can all retire and make early starts as abstract a concept as the currency SWIFT conveys.

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