Though some are warning that the Internet threatens banks' control over payment systems, senior bankers in the global payments business aren't buying the message.
Far from fretting, bankers attending the annual conference last week of the Society for Worldwide Interbank Financial Telecommunication spoke of how they are moving aggressively to use the Internet to their advantage in corporate cash management.
They are already executing expansionary Internet strategies -- into new geographic markets, services, customer bases, and even nonbanking businesses.
They said they were not worried about one of the conclusions of a Boston Consulting Group report making the rounds at the Swift meeting in Munich: that the Internet poses a threat to the global payments revenue expected to be generated this year from services including wire transfers, correspondent services, and lockbox operations.
Nicholas Viner, vice president at the Boston-based research firm, said that the Internet, besides opening the door to competition from nonbanks, is driving down transaction fees by eliminating inefficient paper methods.
"The Internet will be an absolutely critical driver in changing the payments revenue structure," Mr. Viner said.
Revenue from each domestic payment is expected to drop to 79 cents by 2007, down from $1.11 in 1997 and $1.17 in 1994, he said. Revenue from cross-border payments is expected to fall even further, to $3.38 in 2007, down from $13.52 in 1997 and $20.55 in 1994.
"We can't do anything but embrace the Internet and find ways to make it work for us," said Patricia Schulte, senior vice president of international treasury and trade at Bank of America.
Bank of America is intent on pushing more services toward the Internet in a more timely manner -- and is budgeting more money than ever for these initiatives, Ms. Schulte said. The goal is to have business units develop services that "ride the Internet channel" that Bank of America is creating as it converts customers of the former NationsBank to Bank of America's cash management platform.
Previously, if one of the corporate services groups wanted to build a new service, it would develop its own proprietary links to connect customers to it, Ms. Schulte said. With the Internet, she said, the desktop links that had led only to the bank's cash management department could become a gateway to the entire bank.
Another goal of Bank of America's cash management is "taking the U.S. customer base and developing it into a global customer base," Ms. Schulte said. "The Internet makes it much easier to get out."
Chase Manhattan Bank's Treasury Solutions group is getting into businesses beyond ordinary cash management as it readies itself for Internet competition.
"We live with the constant threat of disintermediation," said Stephen F. Wilder, senior vice president of Chase Treasury Solutions.
Potential contenders could be any "astute nonbanking entity that has the ear of the client," he said. That company could offer customers payment execution as just one piece of a broad range of services, such as inventory management, logistics, production, shipping, and cash collection services.
Such functions fall under a category known as "working capital," and its management is an area Chase has been focusing on for the last two years, Mr. Wilder said.
He called Chase a "general contractor" for its customers as it begins to act on their behalf in forging relationships with software houses, shipping companies, logistics experts, and consulting companies.
"We're really moving beyond pay-and-receive into richer" transactions, he said.
The Internet has become a central element in facilitating Chase's shift to working capital management.
"The Internet is all about simplification," Mr. Wilder said. On the Internet, "a large corporate customer doing complicated things is not much different than you or I buying a book electronically."
Chase is in in-depth conversations with potential third-party providers of working capital services, such as logistics companies and consulting companies that analyze cash flows, Mr. Wilder said.
Banks that are not similarly approaching the marketplace with experts in other industries are endangering their futures, he said.
Elizabeth Ghekiere, senior vice president of Bank of America, agreed, saying, "Cooperation will take very different forms in the future. Some of our partners will not be in the financial services sector. We'll want expertise where expertise lies."
Ms. Ghekiere was one of the organizers of Identrus LLC, the multinational banking joint venture that wants to manage a digital certificate program for ensuring security in business-to-business electronic commerce.
Bank of America announced its "first real implementation" of Identrus last week, Ms. Ghekiere said. It will issue certificates on smart cards to enable customers of Cisco Systems Capital Corp. to digitally sign and send leasing agreements over the Net. The service is expected to reduce turnaround time to two or three days, from 30 to 60 days.
The bank hopes to go live with the application -- a move that would extend its reach considerably beyond basic cash management duties -- as early as November, and "certainly by the first quarter of 2000," Ms. Ghekiere said.
Most of the members of Identrus will probably opt to offer digital certificates as an outsourcing service to correspondent banking customers, said Mary McKenney, principal of global institutional services at Deutsche Bank, another founding Identrus member.
Such a move would let the big banks of Identrus reach small businesses that typically fall below their radar screens. Outsourcing also would leverage the banks' "heavy duty" investment in digital certificate technology, data centers, and customer service, Ms. McKenney said.
Deutsche Bank plans to launch a digital certificate outsourcing service for smaller correspondent banks and their clients early next year, Ms. McKenney said.
Chase announced this week it is using the Internet with its affiliate, Intelisys Electronic Commerce LLC, to create a business-to-business purchasing community. All of the bank's 350,000 business customers will be able to both purchase goods more cheaply and sell their goods more easily by becoming part of the Intelisys on-line community.
Mr. Wilder foresees "dropping Intelisys down into the shops" of Chase's correspondent banking clients, which in turn could offer it as a service to their business customers. "As an Internet application, it can be scaled," Mr. Wilder said, creating ever-expanding rings of potential customers.
A Deutsche Bank executive serving as its Identrus project manager in Germany, Markus Walch, said he agreed that banks are trying to go after Internet opportunities. "I just don't think they are moving fast enough," said Mr. Walch, managing director of a Deutsche Bank subsidiary, GFM. Mr. Walch, who attended the Swift conference, was in Washington Wednesday attending the annual meeting of the Smart Card Forum.
Mr. Viner of Boston Consulting Group encouraged banks to think carefully about which new Internet revenue opportunities to pursue, and to go after them.
His advice reiterated the findings of a report published by Bank Administration Institute and PSI Global last year. "Strategic decisions regarding where to invest in the payments system stand among the most important challenges facing banks today," the report said.
Banks say they are confident they can meet the challenge.
"Banks own the lion's share of corporate relationships," said Mr. Wilder of Chase. "So we have a very broad, well-established customer base. And we also tend to be trusted."
"We know how to do this," said Ms. Ghekiere of Bank of America. "We really have expertise" in providing new services such as digital certificates. "This is not a space for banks to be intimidated in."