Boston Consulting Group predicts that within eight years no more than five truly global banks will control about 66% of the cross-border payments market in Europe.
Three of the candidates angling to be hubs in the new payments environment, which will be radically changed by the introduction of a single European currency, are U.S.-based.
Martin Lebouitz, global payments project executive in Chase Manhattan Corp.'s treasury solutions unit, does not see smaller banks getting into that exclusive club as the new currency, the euro, transforms the commercial landscape.
"I think the key to being a euro provider is having an integrated, pan- European platform," Mr. Lebouitz said. "U.S. banks that have operated with integrated technology platforms and are in a good position to compete-they play to technology and scale."
Mr. Lebouitz predicted that the main players will be Chase, Citicorp, BankAmerica Corp., ABN Amro, and Deutsche Bank.
The consolidation phenomenon is global, with a European vortex, said Karen Wendel, a CAP Gemini Consulting vice president who is also handicapping big-bank survivability.
"The euro is going to destroy franchises" that are confined to single countries or small regions, Ms. Wendel said. "These banks have to think it is time to get big, partner big, or get out."
She sees six candidates with the necessary global heft: the five named by Mr. Lebouitz and HSBC Holdings, which includes the Hongkong Bank Group.
"To build an integrated platform on a pan-European scale can take five or six years," Mr. Lebouitz said. "And a critical mass of customers is important. These are banks with huge customer bases and huge operational facilities."
He expects the euro to change the dynamics of competition.
"Previously, competition was in individual national markets, and smaller countries had entry barriers. The euro will do away with national barriers to competition."
Chase began preparing for a unified Europe in 1988 when it started to strip its data processing out of its European branches and focus it in an operating center in Bournemouth, England. Chase has since spent hundreds of millions of dollars on the facility.
"There were a lot of compelling reasons," Mr. Lebouitz said. "It was a lot cheaper and efficient to operate 24 hours by 7 days in a centralized place. If we were making changes to code, we could do so in one place."
By the early 1990s, Chase had integrated all its data processing platforms in a single mainframe environment.
"We started thinking of the euro like the real-time payments environment in the U.S., where payments flow through the same system and are transparent of geography," Mr. Lebouitz said. "This became the basis for our euro architecture."
Chase is the only one of the U.S. banks that has signaled its intention to use "remote access." Relying on telecommunications, Chase can operate in one country and connect directly to the payment system in another country. For example, Chase will use the Swift banking network between the United Kingdom and Germany.
"To an English or a French bank, it looks like Chase is a domestic bank," Mr. Lebouitz said.
All payments will flow through Chase Frankfurt, which will become the bank's money desk for the euro. Frankfurt was chosen because Germany was the first country to announce it would close for only two holidays- Christmas and New Year's Day; Chase is the No. 3 payment system player in Germany, behind Deutsche Bank and Dresdner Bank, and Chase expects most of the euro volume to be concentrated on the German and French systems.
Mr. Lebouitz says he is confident that Chase is prepared for the euro. With 63 project teams working on it, individual systems will be tested soon, followed by integration testing and full-scale rehearsals. Customer tests are expected to be under way by the fall.
He said the experience of integrating Chase Manhattan Corp. and Chemical Banking Corp. after their 1996 merger "put us in good stead for the euro."
Citicorp is running two parallel and connected projects-one for the consumer side of the bank in Brussels, and the other for the global corporate bank in London - with more than 600 people involved.
On the retail side, time frames are not as tight. The wholesale banking community will start to use the euro Jan. 1, but retail customers will not see new notes and coins until 2002.
Bill Grant, European monetary union project director for Citicorp's corporate bank, said it started preparations in October 1996.
"We see the EMU as a business project with strong compliance content, in contrast to year-2000, which is a compliance project. There are major technical changes taking place, and the currency change is just another piece in the jigsaw."
Mr. Grant said he views the introduction of euro as a positive event that Citicorp can take advantage of "to serve our global customers and to serve our customers globally."
A central team of 25 people is coordinating integration of the technical projects into the businesses of foreign exchange, transactions, cash management, trade, and securities.
"In our structure there are more than 100 technical projects driving through the business structure," Mr. Grant said. "Every country is impacted, be it 'in' (the euro sphere) or 'out.'"
From a technology infrastructure standpoint, the changes are more major in the "in" countries in Europe.
"It's a truly global project," Mr. Grant said. "The currency integration in Europe is designed to create efficiencies ... . We've accepted that there will be significant rationalization in the financial institution sector. Ultimately it's about survival, and I would anticipate that Citi will be a big player."
With branches in all financial centers and as a member of the clearing organizations, Citi can be indifferent to where traffic is concentrated.
Mr. Grant likened the process to building a highway network where minor roads will be closed once traffic volume falls off. Most of the traffic will have been diverted to the main routes.
"It doesn't make much difference (where the traffic is), as long as we're offering the globe to our clients," he said. "Our structure will be locally represented and maintained until rationalization takes place."
"We have a pan-European structure in place, and we expect to be one of the global providers," said Dan P. Riley, Bank of America's group executive vice president for global payments and wholesale operations.
BankAmerica completed year-2000 conversions last year, and is now focused on the euro. "From an international systems perspective, the euro is more complicated," Mr. Riley said.
BankAmerica's internal Global Banking System, in place since the early 1980s, runs in all 39 countries where the bank has a presence. "We are the only bank that runs off of one network," Mr. Riley said. He said the system can already accommodate multiple currencies, so the euro work amounts to an enhancement.
Not having to build an entirely new system, "we understand our costs are dramatically lower than our competitors'," said Margie Farber, executive vice president of commercial systems services at BankAmerica.
"We've had to look at the transition period from Jan. 1, 1999, to Jan. 1, 2002, and understand what our customers needed," Ms. Farber said. "We want to handle transactions in domestic currency and the euro, and that's the substance of our system changes."
BankAmerica has had a project management team of about 40 people focused on the euro for the past eight months at two facilities near London. The group reports to Mr. Riley and to Ms. Farber in San Francisco.
Another bank that has had a team in place for about a year is First Chicago NBD Corp. "Our first steps were to understand the implications of the euro for our different lines of business," said Michael Moore, First Chicago's global EMU coordinator, based in London.
The euro affects all payment systems and is a strategic issue for U.S. corporations "that they should be thinking about it along with risk management issues for their customers," Mr. Moore said.
Most of the changes, he contends, will be in cash management areas and in the way payments will be made. "The intent is to make the euro a valid currency on all our systems," Mr. Moore said.
In the new year, First Chicago expects to have direct access to the Target multinational settlement system, "and therefore we'll meet our customer needs," Mr. Moore said.
Looking ahead to the Jan. 4-5 conversion weekend next year, the Morgan Stanley investment bank is planning for its "single biggest logistic event," affecting 40,000 products and 250,000 positions, said Malcolm Bryant, EMU project director.
"The way firms will be impacted by EMU depends on the way in which their systems were configured in the first place," Mr. Bryant said. Morgan Stanley has 160 projects running in parallel. Mr. Bryant said the scale is unprecedented, though costs will come in a little lower than year-2000.
"On the U.S. and Asia side, we were woefully behind the curve in giving the euro any thought at all," said Thomas Perna, executive vice president at Bank of New York. "With $4 trillion in securities, many of which are non-U.S., we couldn't afford to take that position.
"Now we're going to be ready to start full-scale testing at the beginning of July," he said. "We've already done a good deal of core programming."
The bank has a presence in 28 countries, and handles American depositary receipts for stock issues in over 100 currencies. It is also a huge global custodian in the securities business.Bank of New York began to tackle the technology issue in the second half of 1996, concurrently with year-2000. Mr. Perna said, however, that the two are hardly comparable.
"Year-2000 is cut and dried, you know what to do," he said. "People didn't know what to do with the euro. People felt it wasn't going to happen, and then thought that it may happen. We've taken the approach that it will happen."