Nonbanking companies could soon become full members of the Swift financial messaging network, no longer reliant on financial institutions to sponsor them, an executive of the organization said this week.
The decision has not been ratified by the board of the global banking organization, said Lazaro Campos, the head of Swift’s banking division, “but it’s pretty much finalized.”
Discussions with the member banks have been under way for almost a year, he said, and the issue will be up for ratification at Swift’s shareholder meeting in June.
Mr. Campos discussed the plan while in New York for Swift’s annual operations forum for the Americas.
Under current rules, authorized in 2001, a nonfinancial corporation connects to SwiftNet through a Member Administered-Closed User Group (MA-CUG), sponsored by its bank. More than 100 companies have connected to the network this way.
Mr. Campos said the rules, originally designed to protect banks from disintermediation by their customers and to protect the system against fraud and money laundering, have proven unwieldy for large corporations with global financial needs.
He pointed to General Electric Co., which is in 21 different CUGs to connect with its worldwide network of banks. “They have had to go through the administrative process for many CUGs. Under the new arrangement, they wouldn’t have to do this.”
The only corporations eligible for direct membership would be those from the 31 countries that participate in the Financial Action Task Force, an intergovernmental group that develops policies to combat money laundering and terrorist financing, Mr. Campos said. “For the rest, MA-CUGs are still available. One does not preclude the other.”
Susan Feinberg, a senior analyst in the wholesale banking group at TowerGroup in Needham, Mass., a market research unit of MasterCard International, said the rule change would probably have more impact in Europe than in the United States, because there even small companies are more apt to have banking relationships in numerous countries.
The fact that Swift — a bank-owned cooperative formally known as the Society for Worldwide Interbank Financial Telecommunication — would open its membership to outside corporations shows that the organization is heeding corporate demand for real-time financial information, and has apparently overcome bankers’ fears that these companies would use the network to disintermediate the banks, Ms. Feinberg said.
She cited as an example of the complexity of corporate finance, and the need to pull information together from many bank sources, an announcement made last September at Swift’s annual Sibos convention in Copenhagen. There Microsoft Corp. announced that it would use SwiftNet to obtain daily cash balances from its 120 banks around the world, using a reporting system that it developed with the global transaction services division of Citigroup Inc.
In the future, Ms. Feinberg said, “banks will have to differentiate themselves on the basis of service quality” rather than how their corporate customers connect to the bank.
On Swift’s other initiatives, Mr. Campos said, the organization is working with The Clearing House Payments Co. LLC to make the two networks interoperable. The Clearing House is upgrading some of its systems to Internet protocol, which Swift adopted in 2004.
“It will be up to the institutions to decide which platform will be the primary” and which the backup, he said. But by connecting to both, the banks will be able to recover faster from natural disasters or terrorist attacks, he said. “The Clearing House is encouraging that.”
