Swift, the international communications and payments network, is attempting to reinvent itself.
Swift, a multibank cooperative formally known as the Society for Worldwide Interbank Financial Telecommunication, intends to recast itself as a market-driven business enterprise in partnership with the banks, chief executive officer Leonard Schrank said this week.
Speaking at Monday's opening session of the company's Sibos '96 conference, Mr. Schrank laid out three strategic priorities: risk management and reduction; reengineering the back office; and assisting with the development of banking strategies for the 21st century.
In the past, Mr. Schrank said, Swift was seen as a lowest-common- denominator utility for delivering payment messages. Its success was measured by the rebates to members that it traditionally announces at the annual conference.
"The rebates were big savings, but they weren't very strategic," Mr. Schrank said.
A $400,000 rebate to a bank's payments division was a boon for operations executives, Mr. Schrank said. But if Swift could save a bank $4 million or make a $40 million difference to its bottom line, then the CEO would be impressed, he said.
Mr. Schrank attempted to articulate a big-picture strategy while simultaneously describing Swift's traditional networking and cost benefits. The two sides of that message indicated to some bankers that the organization still has a way to go to deliver the promised value-added.
Swift has historically been judged by how well it delivers payments, and whether they are completed quickly, securely, accurately, and economically. The organization became a basic back-office component for thousands of banks.
As bankers have dealt with changes in the payments system and focused on risks in various forms, the importance of Swift has grown.
"Payments used to be a back-office business," said Yawar Shah, senior vice president of global institutional payments at Chase Manhattan Corp. "Now that's changed. Payment issues have reached the boardroom. They have been transformed into an end-to-end, full business event."
Mr. Shah, who also serves as deputy chairman of Swift's board, added, "The payments business is going through the most rapid and profound change in its history, on almost every front."
Swift has expanded access to its payment network, opening it to broker- dealers in 1982 and to fund managers in 1992. Last spring, Swift began a pilot to give some corporations direct access.
By taking a broader view of payments, Mr. Schrank is attempting to stake out a more central role for Swift.
Four years ago, when Mr. Schrank joined the organization from Chase Manhattan Bank in London, such a role would have been difficult to envision. Swift was under fire from members who complained about lagging technology, high prices, and the bureaucracy that weighed down Belgium- based organization.
"We have come a long way in four years," Mr. Schrank said. "We couldn't talk the way we do if we hadn't earned high credibility."
In his speech, Mr. Schrank said banking is undergoing a structural shift from bilateral correspondent relationships to an emerging "hub and spoke" model in which banks interact with public and private market infrastructures designed to manage risk.
"Swift has a natural role to play in market infrastructure," Mr. Schrank said. "We are experts in secure messaging. We have global connectivity. We set standards in all our markets. We are a trusted third party."
Europe's move toward a single currency is also driving Swift to find new business. The Euro, if it arrives on schedule in 1999, should cause a drop in foreign exchange transactions - a change Mr. Schrank said Swift has long anticipated.
"We will grow our way out of it because our securities traffic is growing," he said. "We will grow our number of transactions that year, we'll just grow them a little less."
One area where Mr. Schrank said Swift might make up for the drop in foreign exchange transactions is trade finance, a process requiring voluminous documentation. The Bolero Association - comprising banks, shippers and traders - is working with Swift to convert existing procedures into electronic data interchange.
"This will move Swift up the value chain from carrying messages to storing information," Mr. Schrank told delegates. "Our proposal will also include a cross-industry joint venture to commercialize the application. Nonbank connectivity will be addressed via a secure gateway for accredited network providers and application developers."
Mr. Schrank also described Swift's expanding role in foreign exchange settlement risk.
"Swift is already working with Echo," he said, referring to Exchange Clearing House Ltd., a London-based bank organization for multilateral netting and settlement.
In back-office reengineering, Mr. Schrank said, Swift aims to help banks raise the percentage of transactions processed electronically through a system called straight-through processing, or STP.
"Today, the average STP rate for customer payments is 30%" Mr. Schrank said. "We estimate that for every 1% overall improvement, members will save $15 million annually. By eliminating message investigations and repairs, your costs will drop.
"Our goal for Swift 2001 is to see STP rates rise to 50%. This equates to a cost savings to members of $300 million annually - nearly the entire annual operating cost of Swift."
Mr. Schrank said Swift could provide training, assist in developing tools, and improve national coding. Major banks may be able to perform much of this themselves, he said, but they won't achieve straight-through processing until their correspondents attain the same level of standardization.
"Some of the weaker correspondent banks around the world are sending them garbage," Mr. Schrank said.
"As a cooperative, we have absolutely nothing to do with developing our strategies," he said. "That involves competition, so it's (the banks') responsibility."
Mr. Groenfeldt is a freelance writer.