The New York Clearing House Association expects gradually to lose 35% to 40% of the transaction volume on Chips, its flagship system for large- value payments.
Chips, formally the Clearing House Interbank Payment System, each day handles about $1.4 trillion of foreign exchange, trade, and other payments- or about one-fifth of all the exchanges of value in the world.
Although the network's average daily volume has risen 9% this year, to 232,000 transactions, association officials said they expect traffic to slow as other networks emerge.
One network, to be operated by CLS Services Ltd., is expected to open as early as 1999. CLS, a London-based bank focused on clearing and settling foreign exchange transactions, is being developed by the Group of 20, a collection of large international banks.
Other initiatives also could channel volume away from Chips.
"We just plan on losing it, either to the G-20, Multinet, Echo, or some combination," said George Thomas, senior vice president at the clearing house group.
Echo and Multinet are multilateral foreign exchange netting systems designed to reduce trading risk for banks by streamlining the settlement process.
Mr. Thomas said the volume losses on Chips would be gradual, giving the 144-year-old clearing house time to develop strategic direction.
Association officials plan to make up some of the transaction shortfall by building trade-payment volume on Chips.
The association also may require that all members be able to receive electronic data interchange transactions, boosting EDI volume on the network.
It has developed free software for EDI-the automated exchange of payments and related information in standard computer formats.
In addition to Chips, the association provides check clearing, automated clearing house, and electronic check presentment services.
The association is awaiting regulatory approval for a move that would split its operations into two companies: ChipCo, which would focus on large-value payments, and SvpCo, which would handle smaller-value payments, such as ACH transactions.
Association officials said large- and small-dollar payment systems have distinct characteristics that make separating them logical.
"It became very evident as we sat around the table at monthly meetings that our strategies were collectively not going in the same direction," said Lori Hricik, senior vice president at Chase Manhattan Corp. and a member of SvpCo's working group.
John Mohr, association executive vice president, added that bank members had "been concerned about who writes the rules on Chips."
He said a reorganization would make banks "feel more comfortable about using the system, knowing that their views will be represented."
Another change aimed at building volume: Chips participants are no longer required to maintain an office in New York City.
This rule change could attract members such as Mellon Bank Corp., Wells Fargo & Co., and Banc One Corp.
The number of banks using Chips has declined to 98, from 104 last year and 111 in 1995.
Mr. Thomas said Chips also plans to expand its operations from 12 hours to 16 hours per day. The new hours would bring the association's operations more in line with those of the Federal Reserve Bank System's Fed Wire.
Fed Wire, a real-time gross-settlement system, operates on a 12-hour day but is changing to 18 hours this year.
