Sibos 2013: 'My, Dubai, how tall you've grown!'

I was last in Dubai 13 years ago, presenting at the GITEX IT show on Internet Security. Working with a local partner which specialised in Lotus Notes implementations and was comprised mostly of (local) Indians, I developed a taste for masala dosa and an affection for the small emirate. Then the skyline was troubled only by the World Trade Centre and the recently-finished Burj Al Arab. I heard stories of the tennis court on the helicopter pad at the top of the hotel and the complexities of putting foundations on sand and oil-bearing rock.

Fast forward 13 years: much has changed. As I flew in over the north of Iraq, past cities with the now-familiar names of Kirkuk and Mosul and over the Gulf, I noticed the gas plumes from oil drilling operations and then then glowing sprawl of Dubai itself. On the taxi to my hotel (itself not there 13 years ago) the skyline now resembled that of Seoul as skyscrapers had sprung up along the main routes, now dwarfed by the Burj Khalifa. But Dubai is still as warm and inviting as always, at least to a Westerner like myself.

Before I arrived I read an Economist article on Dubai’s development and its long-term strategy to diversify away from fossil fuel into banking, leisure and trade. Dubai has made a decision not to rest but to achieve all it can and to move on from its legacy. As a financial centre, Dubai has established itself as a safe haven not only in the Middle East, but globally. Forecasts are that Dubai will be the 7th most popular tourist destination and the free trade port continues to grow in both reputation and throughput. Dubai’s strategic view made me think about two Sibos-related topics: standards and technology. 

Firstly, in many so-called developed nations globally we have less well-developed banking systems and little appetite to change. The risk of change is too great to replace these old computer systems so we must make-do and mend, maintain what we have and develop wrappers to interface the old with the new, which then quickly become our legacy. I remember well the story of the bank CIO who was younger than many parts of the core banking systems he was tasked to keep running. In the UK this discussion has more recently been focussed around how banks can collectively move their computing platforms into the 21st century and, if necessary, who can force them to.

Dubai did not take such a risk-averse approach and committed investment in its “new” industries. Growth continues apace and, as evidenced by the Burj Khalifa, the seemingly impossible can be achieved.

Secondly, the issue of standards compliance is similar to how we re-engineer our global banking to be more supportive of global trade. We currently rely on MT messages and national payment and data formats which were sufficient in a more manual, domestic environment but are increasingly unsuited to global business.

The now not-so-recent ISO20022 standard promises to be able to handle richer data, to facilitate automation and to allow consolidation in corporates but the business case still fits better in the inter-bank space than the corporate-to-bank for non-multinationals. As with regulation of payment service providers, SEPA has acted as a vehicle through which to drive this change and its success is yet to be assessed. Even ISO20022 is not perfect, as the need for a Common Global Initiative to ensure consistent interpretation shows.

In addition, the middle-aged, ISO13616 International Bank Account Number (IBAN) standard is also proving more complicated as it gets used for higher volumes of traffic. It is clear that some banking communities have adopted each national format in a consistent manner but also some banks have opted to do their own thing, with the IBAN algorithm dependent on branch, account or intra-bank information such as the currency in which it is denominated. This “lip-service” compliance causes exceptions for automated validation and conversion processes, whether as part of a corporate’s migration or as a bank-provided, contingency service. It is also clear that, by not accepting what could be a “standard” version of the IBAN, each bank will be causing problems not only for its own customer, but for the originating bank and its customer too. Little issues like this set back progress, such as the SEPA migration, and create the need for additional resource.

There are banking communities which have taken a proactive approach such as the Dutch Banking Association (NVB) whose IBAN BIC service has been helping accountholders in the Netherlands get correct IBANs and BICs despite the complexity of having portable account numbers – more similar to taking your postal code with you when you move house than transferring a mobile phone number. This is a good example of taking the long view and robust planning.

Realistically, IBANs work best in the inter-bank space and I estimate that most FIs have not updated their core banking systems to work internally on IBANs but still using their account and (where necessary) a domestic branch code. This approach makes complete sense, but why then insist on issuing a non-standard IBAN when it is going only to be decomposed and discarded on receipt much like an envelope is thrown away in favour of the letter it contains?

So at the start of Sibos, I look forward to discussions with delegates around overhauling banking technology and implementing standards correctly and consistently so that we can transform the global banking industry in the same way that Dubai has transformed itself: dramatically but without losing its underlying traditions.