One business where time really does mean money is the securities industry. Automating the process of settling and administering securities promises to save banks vast amount of money, particularly by cutting humans out of the processing cycle.
Trades that need human intervention to settle are slow and expensive to process, and prone to error or breakdown. With many stock markets planning to move to next-day settlement of trades, banks need rapidly to increase settlement automation.
Swift, the dominant international messaging network for securities settlement, thinks it has the answer. Swift is introducing a highly ambitious technology upgrade to its inter-bank network that it claims will save the securities industry hundreds of millions of dollars a year, by allowing much greater automation of securities trades.
All financial institutions using the Swift network for securities trading messages must switch to a sophisticated new messaging standard, called ISO 15022, by November 16 this year.
ISO 15022 handles a wider range of tasks than previous standards, and should allow much greater automation. It promises to reduce error rates, shorten settlement times, and reduce banks' exposure to settlement failure risk.
Rolf Hage, vice president for IT and administration at Handelsbanken, a securities custodian in Sweden, says ISO 15022 will allow his bank to automate much of the troublesome process of fixing securities trades that fail to settle because information in messages is missing, wrong, or badly-coded.
"This is important because we've got a settlement time of three days, meaning effectively that we have only one day to fix a problem," says Mr Hage.
The new standard also promises to make banks' IT work easier. "The costs of system maintenance will be cut, and it will become easier to make changes in the way that businesses operate and communicate with each other," says Gert Raeves, securities product manager at HelioGraph, a software vendor.
Perhaps as importantly, links between banks should become easier and cheaper to create and maintain. "The clever thing is that ISO 15022 allows you to deal with a large number of different market practices across the world in a formal manner, and that means that there will be much less need for special connections between players," said a principal analyst at PA Consulting. "Of course, this means that the standard is much more complex."
And that is the problem - switching to ISO 15022 certainly is not cheap. "The challenge is harder than people think, and some people are investing seven-figure sums," says Andrew Muir, director of global securities solutions at Mercator, a securities software provider. Even Handelsbanken, which has not spent millions, thinks its investment will take two or three years to pay off.
Mr Muir adds that the benefits are great, but many financial institutions are to start major IT projects just now.
Coming on the coat-tails of a deep bear market and recession, and just two years after the year 2000 changeover, the timing of ISO 15022 could hardly have been worse.
Some institutions have yet to start serious preparations, just months before the changeover.
Mick Fennell, a business manager at financial software specialist Misys, is still tying to convince some of his customers that they need to upgrade urgently to ISO 15022.
"We talk to leading banks, and most of them don't know about the business benefits," he says. A substantial number of banks may be unprepared when the deadline comes.
"Not everyone will be 100 per cent ready by November 16. We don't have the progress that we should have, given the time that's left," admits Leonard Schrank, chief executive of Swift.
If many institutions - or even a few large ones - reverted to manual processing, the result would be a slowdown in securities settlement, possibly disrupting securities markets. Yet if Swift postpones the changeover, banks could delay the change indefinitely - and Swift's credibility would take a battering.
"There's a game of 'chicken' going on," said PA Consulting. "Some banks don't want to spend the money. Swift has to do something, but it can't be seen to back down."
To break the deadlock, Swift is working on a fallback mechanism. Laggards would have their old-style messages handled by the network after November 16, but would pay for the privilege. "We don't want people to go back to using faxes, but we want to push them towards ISO 15022," Mr Schrank says.
Yet even those companies with software installed and tested won't necessarily see smooth trading on Monday, November 18.
"Some companies will have to change their information model to provide proper information in ISO 15022 messages, and that could be a big change for them," says Kurt Woetzel, chief information officer of Bank of New York and chairman of Swift's securities committee.
He fears that some banks may misconfigure their new software, so that their ISO 15022 messages carry wrong information. That would create disruption and raise settlement processing costs.
Anecdotal evidence suggests such fears may be justified. Steve Potter, principal consultant with financial software provider Sybase UK, visited a leading bank whose systems were supposedly ready for the changeover. "One of their systems was described as ISO 15022-compliant, but was actually using the Swift data tags wrongly," he says.
The November 16 changeover is as much a business issue as a technical one. But Swift has failed to persuade many users that they will gain financially from the move, and that it should be a high priority.
The changeover "wasn't explained at a high enough level of organisations to get the necessary focus", says Mr Woetzel.
Back in Sweden, Mr Hage is ready for the changeover. But if Handelsbanken's customers are not ready on November 16, many trades that the bank handles won't settle in time. "There are not that many of our clients who have moved to the new standards yet. Banks have other priorities, and this is not that high a priority," warns Mr Hage.
Swift's ambitious upgrade promises great benefits, but time is running out for banks to prepare for it. Swift still has to persuade some financial institutions that this is one investment they really should be making.
