SWIFT Reimagines Banks' Role in Commerce for a <nobr> Data-Driven</nobr> Future
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The Society for Worldwide Interbank Financial Telecommunication is about as Establishment as you can get.
The organization, based in Brussels and owned by member banks, has been transmitting payment messages between financial institutions across the globe since the 1970s. But with a team of about 10 professional disruptors collectively known as Innotribe, SWIFT is trying to cast itself as an agent of change.
Innotribe mostly plays an evangelist role, organizing innovation-themed events. At a SWIFT conference in New York in March, I arrived late to a workshop on building incubators and scratched my head at the roomful of straight-laced bankers full-on engaged in arts and crafts, making show-and-tell models with balloons and Tinkertoys.
Naturally, Innotribe has been on the TED Talks circuit. In a presentation at this year's TEDx New Wall Street conference, Peter Vander Auwera, an Innotribe innovation leader (that's one of the titles on his email signature), advised budding corporate trailblazers, "Focus on the abstractions, things that are five to 10 years out."
It all sounds a bit pie-in-the-sky. But clearly banking is in need of some kind of transformation.
"Every piece of our revenue stream is being nibbled at around the corners," Bradley G. Leimer, the vice president of online and mobile strategy for Mechanics Bank in Richmond, Calif., says of the industry. "Some is being taken in big chunks."
"Banks need to look beyond transactions, payments, and money flows" and think about "what other things their customers have of value they can protect," he says. "What is the banking model 20 years from now?"
Innotribe is offering one possible answer, based on the storehouse of data that banks have accumulated from their retail customers. Its idea, dubbed the Digital Asset Grid, reimagines banks as a facilitator of commerce, not just in terms of how payments get processed but in terms of how consumer data gets shared over the course of a transaction.
An example: You need to buy a bouquet of flowers. Instead of visiting the local florist, or comparison shopping across different florists' websites, you pick up a mobile device and type (or say) "request florist delivery." Bids start flowing in from several shops in the area. It's similar to the way a general contractor gets bids for construction jobs, except at this point none of the bidders knows who you are.
Your bank can vouch that you are good for the money. It may have even told some of the vendors (with your permission) that you already have loyalty relationships with their stores. But you've made only a nonbinding, general request.
After reviewing the options (and, perhaps, customer reviews of the stores coming back to you with offers), you accept a bid. But you don't send anyone your data. It stays put at the bank, which would be the custodian of your "digital assets"-which can include everything from your name, address and payment account numbers (debit, credit, PayPal, etc.) to your medical or shopping history. The retailer gets temporary permission to access the data, and only for the purpose you've specified. Like an attorney, the bank reveals client information on a need-to-know basis.
Underlying all of this is the Digital Asset Grid, which would point the retailer to the appropriate bank for the data it needs.
The Digital Asset Grid is Innotribe's second stab at in-house innovation, and by far the more ambitious one. (The first was MyStandards, a collaborative website for back-office bankers rolled out in the spring.) The grid would be SWIFT's first consumer play in its nearly four-decade history; the organization would run the infrastructure, maintaining a worldwide map of where everyone's secured data resides and keeping track of who has the right to do what with which data.
Contrast the idea with what happens today. The merchants control the interaction. The florists compete with each other in a broad sense, but they're not trying to outbid each other one purchase at a time. They set the terms. Take them or leave them. Meanwhile, your personal data is parked in multiple places, a reality that is unsettling for many people, especially when you think about all the purchases you've made via Amazon.com and eBay and countless other online vendors (not to mention all the intimate details you've voluntarily given Facebook).
With a Digital Asset Grid, the consumer has more control over her data and considerably more clout in her dealings with vendors than in today's world. Her bank has played a big role in giving her that power and privacy, and knowing this could make her a happy, loyal bank customer.
"The answer to every market problem since the Industrial Revolution has been to expand what the seller can do," says Doc Searls, the technologist and author, most recently, of "The Intention Economy: When Customers Take Charge." It was his ideas that inspired the SWIFT project.
The changes Searls advocates would expand what customers can do, and it all hinges on having what he calls a "fourth-party service-unambiguously working for the customer, as an agent for the customer." The agent role, Searls says, is a natural one for banks because of the information they have about their retail and business customers: "Who better than a bank to play the role of integrating relationships and potential relationships?"
When you talk to Searls and like-minded colleagues about "vendor relationship management" (an inversion of customer relationship management) and "intent casting" (as in "I intend to buy some flowers-whaddaya got?"), it all sounds a lot like what consumers were promised business would become during the wide-eyed early days of the 1990s dotcom boom. We never got it. Searls, who advised SWIFT on the project's early stages, readily admits this.
"The drawback is that it requires a sex change to do that kind of thing," he says. "Any large, mature business category is very steeped in its ways."
The gold bugs would differ, but money these days is really a form of data, implying that banks already know how to store data. Some banks already have dabbled in storing information other than currency. Wells Fargo offered vSafe, an electronic document storage service, for three years before shutting it down in March, citing low customer interest and adoption.
The data banks SWIFT is talking about would go well beyond holding digital copies of wills and contracts. Vander Auwera, whose other title is evangelist for the Digital Asset Grid, says the spectrum of such assets ranges from our account numbers and logins to reputational information like seller ratings on eBay. In the system his team envisions, "I decide which sides of my spectrum I want to release to which party in what context."
The results of a consumer survey released in May by Cisco Systems suggest SWIFT is on to something. More than a quarter of Generation Y respondents reported "high interest" in a hypothetical "infomediary who would manage consumers' digital identity and 'footprints,'" and more than half of this group indicated "some interest." The percentages were nearly as high for Gen X, and even a majority of Baby Boomers were at least moderately intrigued by the idea.
Moreover, despite the financial sector's unpopularity, 39 percent of consumers told Cisco they'd be willing to use their bank for this service, more than any other type of organization. Second place went to "no one" with 32 percent, and the government was a distant third at 15 percent. Facebook was the least popular choice, at 3 percent.
It's encouraging news for banks, but is it enough to give SWIFT the traction it's looking for? The grid model still invites skepticism. For example, if consumers consolidate all of their personal data at their bank, won't that make banks even more attractive targets for thieves than they already are?
"It seems that every week there's another breach" at a bank or retailer with access to personal data, says Jacob Jegher, a senior analyst at the research and consulting firm Celent. "No one is immune to breaches. Who can we trust?"
Innotribe representatives have been pitching the Digital Asset Grid concept since last fall in workshops with member banks, at industry conferences, in blog posts and with a four-minute film entitled "Flowers for Grandma" depicting a consumer-driven transaction like the one described above.
In the meantime, Respect Network, a technology start-up in San Francisco, has been building a prototype of the rails on which the grid could run. Drummond Reed, Respect Network's managing director, says that before he began working with SWIFT he planned "a network for trusted exchange of personal data" patterned after the four-party model of the credit card networks. Just as each plastic payment involves an issuing bank and an acquiring bank standing between the cardholder and the merchant, each transfer of information would involve one cloud provider (which could be a bank) representing the business and one for the individual.
Consumers who join the network could opt in to "link contracts," readable by both humans and machines, with their choice of vendors. The contracts specify what pieces of the customer's data are shared with merchants, and for what purposes.
The customer can unilaterally change the settings of this "personal channel" at any time, and manage all the relationships in one place. You could allow Nordstrom to see your pants size on Monday and share your recent buying history with Target on Tuesday, and then cut off access for both on Wednesday. Sharing wouldn't open you up to a barrage of spam; it would bring you offers that are likely to meet your needs or wants, but that would be optional and the extent of the sharing would be adjustable.
The idea depends on getting merchants to buy in. For them, joining would mean signing a nuclear nonproliferation treaty for data privacy-basically agreeing to give up control of information about consumers who connect to them through the network. "All members agree to respect each other's right to control personal data," Reed says.
On top of that, merchants would be expected to pay for these links with consumers, just like they pay for the privilege of accepting card payments.
So why would a Target or a Nordstrom ever go for this? "In exchange, they're getting a higher trust relationship," Reed says. Today, "people are afraid of giving away personal data, and it's hurting the retailers' ability to develop deeper, more trusted relationships." Giving up control can mean more sales over the long term, he says. "Under strong privacy and security guidelines, it's a different value proposition than something like a Facebook."
For the cloud providers (read: banks), there are fees to be made for this matchmaking between empowered consumers and respectful retailers, according to Innotribe and its partners.
The first big test of the grid's feasibility will come in October at SIBOS, SWIFT's annual international conference, where about 7,000 bankers are scheduled to convene in Osaka. Innotribe will present the prototype of the infrastructure and examples of apps that could run on the system. The goal is to "tell the story in a way that resonates from a business value proposition with our members," says Vander Auwera.
He emphasizes that the grid is a research project at this stage; SWIFT's board has not yet decided to put it into practice. The group has spent a six-figure sum on the idea's development, pocket change for an organization that generates more than 500 million euros in annual revenue.
Whether bankers buy the concept, it should get them thinking: How can banks innovate and be seen as something more than utilities in a world where regulation and technology are making their old business models untenable? Surely there is a more imaginative answer than simply charging people for stuff that they used to get for free.
Marc Hochstein is the executive editor of American Banker and oversees BankThink, a blog about ideas in financial services.