PAYMENTS: Barbarians at S.W.I.F.T.'s Gate

The impending establishment of the European monetary system in conjunction with the ever-accelerating advancement of technology has some analysts suggesting that Society for Worldwide Interbank Financial Telecommunications's (S.W.I.F.T.) virtual monopoly on interbank payments messaging is in jeopardy.

In the next three years, European banks specializing in European foreign exchange must develop new revenue opportunities to replace that which will be lost when a common currency is adopted. "So the messaging business becomes appealing," says Ira Morrow, financial services research director of Stamford, CT-based Gartner Group.

But S.W.I.F.T. officials, aware of the potential European bank threat, see it differently. "I wouldn't call that competition; I would call it consolidation and market evolution," says S.W.I.F.T. CEO Leonard Schrank. "The internal bank foreign exchange business is going to go away. There is going to be some counter-balance for that based on additional business for the Euro (which) will be a major currency. But net-net, it will be that our 300 series messages will go down. In addition, intrapayments will go down." He says that strong increases in the securities business will compensate for this, as major pension funds and money managers in Europe and Asia invest in Europe as a result of the Euro's strength.

In addition, the European Banking Association-formed to make a market in the Euro and consisting of about 50 bank members-will rely on S.W.I.F.T. to exchange messages, using its terminals and netting software. S.W.I.F.T. is also negotiating with the European Monetary Institute, which will become the European Central Bank, to provide an interlinking system for communication with other central banks.

And though Schrank is confident about S.W.I.F.T.'s future, others could arguably service its market for less. Morrow contends that off-the- shelf, commercially available systems can be used by global technology players like IBM Corp., GE Information Services, AT&T and British Telecom to offer banks similar functionality. Even more, a larger scale of service based on their commercial messaging businesses means that they could achieve a lower cost per message than S.W.I.F.T. "If you look at the worldwide growth of banking and the need for a number of these people, like the European banks, to find a new line of business or GE as a (value-added network) to restructure its business (S.W.I.F.T.'s) business has become more attractive."

-bers tfn.com

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