For U.S. bankers seeking ways to deal with the increasing power of nonbanks in payment services, the international Swift network may hold some answers.
Perhaps more than any other payment system, and certainly on the broadest possible geographic scale, Swift is facing demands from nonfinancial corporations for direct access to what has become an essential utility for the timely exchange of vital financial information and transactions.
While the issue of corporate access to Swift remains very much in the debating stage, the bank-owned cooperative's leaders show every sign of wanting to confront it head-on.
Based on comments made last week in Boston at the organization's major annual conference, many Swift bankers are either agreeable or resigned to the likelihood that nonfinancial entities will get some form of membership status.
But Swift's leadership expresses a resolve to anticipate and manage the change on its own terms. Officials put great faith in the consensus-governance techniques that have made the group remarkably cohesive, considering it has 2,400 financial institution "owners" in 115 countries.
The 21-year-old cooperative -- formally the Society for Worldwide Interbank Financial Telecommunication -- opened up to investment management institutions in 1993 and has more than 4,000 "customers" overall, including securities firms, exchanges, and clearing associations.
Securities are the fastest growing category of Swift traffic, and nonbanks would also be interested in the network's electronic data interchange capabilities.
While recognizing the need for further change, Swift does not want to repeat the experience of the credit card infrastructure, which in recent years was taken advantage of by nonbanks that have built considerable market shares at traditional banks' expense.
Most opponents of corporate access do not want to be accused of protectionism.
They raise issues related to system integrity and risk control, and contend that most corporations would not want to suffer banking-like regulatory restrictions for full membership in Swift.
Supporters of corporate access -- including some major U.S. banks -- make the same point in arguing that even if granted Swift privileges, corporations will make limited, highly specialized use of the network so as not to act and be regulated like banks.
Swift currently transmits more than two million interbank messages a day. Although it is not a funds-settlement system like Fed Wire or Chips in the United States, funds transfers initiated over Swift exceed $2 trillion a day, according to the Belgium-based company's chief executive, Leonard Schrank.
In public statements on corporate membership, Swift directors and leaders of key country user groups generally strike diplomatic poses -- a sign that they are engaged in frank and above-board discussions behind the scenes.
"The possibility of corporates joining Swift continues to be discussed in the media, and there is an ongoing worldwide debate within the member banks on this issue," Swift board chairman Eric Chilton said in his opening remarks to 1,700 official Swift delegates from around the world, and a total attendance of 3,000, at the Boston meeting.
"'The focus is now on the facilities and support required by corporates to conduct their businesses around the world," Mr. Chilton said, confident that banks' efforts to meet those needs will lead to a viable resolution of the access questions.
Meanwhile, Mr. Chilton's own bank -- he is director of group payments strategy for Barclays Bank of London -- is sufficiently in favor of corporate participation to have been handing out a position paper in the Swift conference exhibition hall.
The paper noted "growing support" in Swift councils for "creation of a new category of Swift users [nonfinancial corporations], which would be able to exchange non-payments messages," typically wholesale foreign exchange and money market confirmations.
"Barclays supports the concept of inviting corporates in as Swift participants, provided that this does not confer voting rights nor give corporates access to payments messaging.
Barclays believes that corporate involvement will improve market efficiency for all wholesale market participants, and the ability to have an easily adapted interface will greatly improve banks' ability to communicate with clients," the British bank said.
Barclays, in fact, is "liberal" on international system-access questions, going so far as to say it "welcomes the disintermediation challenge."
The bank is a world leader in foreign exchange, global custody, depository, and related operational services, and sees the opening and globalization of markets as an opportunity to expand its specialties.
"Barclays would support corporate access to Swift," said Michael Teychenne, senior manager of the financial institutions group.
"Corporations don't want to send MT [message type] 100 and 200 [payment] messages . .. They are more interested in reconciliation, leaving banks to worry about settlement, scheduling, gateways to clearing systems, etc."
James P. Witkins, a former New York wholesale banker who is managing director-Europe for Barclays Global Services in London, said Europeans may be more open than Americans to corporate access for historical business reasons.
"In Europe, centralized corporate treasuries have always acted a lot like banks," he said. "We're used to it."
Indeed, one of the strongest pleas for corporate access came last year at the Swift conference -- known by the shorthand Sibos '93 -- from David Cureton, treasury services division manager at BP Finance. Stressing the need for trade confirmations, he said he wanted the ability to send and receive MT 300 Swift messages for reconciliations, adding, "We have no wish or need to send or receive Swift payment messages directly."
"Not everyone was convinced," reported Banking Technology, a London-based magazine, "but Cureton's speech received a respectful and sympathetic response. It was a sure sign of the changing mood at Swift."
U.S. bankers might be expected to be cautious about, if not opposed to, jumping on the corporate-participation bandwagon.
But according to Yahwar Shah, senior vice president and chief administrative officer of Chemical Bank's Geoserve unit, the U.S. community is somewhere in the middle ground -- not militantly opposed, yet not fully in the "liberal" camp, which is dominated by countries where distinctions between commercial and investment banks had long ago broken down.
Meanwhile the U.S. Swift steering committee is in the process of formulating a policy statement.
Like Barclays', it is expected to favor some form of limited participation.
"The key issue on which corporations expressed a desire was to send and receive FX [foreign exchange] confirmations via Swift," said Hyman Silkes. a Citibank vice president and Swift international board member.
The U.S. view, which has been aired at the Swift board, contrasts with some other Swift members' support of total corporate access. Still others say "absolutely not, under no circumstances, no corporates," Mr. Silkes said.
A recent report by Furash & Co., commissioned by the Washington-based Bankers Roundtable, may have left some U.S. payment-system bankers wary of further corporate incursions.
The report, "Banking's Role in Tomorrow's Payments System," portrayed nonbanks as parasites feeding on transaction networks and product innovations that banks had built and controlled.
"Nonbanks have proven that substantial profits and market share can be garnered by piggybacking on the payments system that banks provide," the report said.
"Don't assume Swift is a monopoly, but don't give away its franchise," Deborah Talbot, executive vice president of Chase Manhattan Bank, advised in a speech at the Sibos '94 meeting.
Standing in for her bank's president, Arthur Ryan, who had just resigned to join Prudential Insurance, Ms. Talbot said monopolistic complacency could lead Swift down the path of European telephone companies or the U.S. Postal Service, which were too slow to respond to market and technological changes.
"Swift also can't lean too far the other way and grant access to any and all new comers," said Ms. Talbot, raising the specter of what happened with credit cards.
She added that customer demands for efficient and effective payments, trades, and clearing and settlement mechanisms require an industry response, for which Swift can be the catalyst.
"If we don't step up, others will," Ms. Talbot said.
Possible rivals she mentioned included GE Information Services, Electronic Data Systems, and Ibos, a multinational banking consortium organized by EDS, Banco Santander, and Credit Commercial de France, among others. (In another speech, CCF executive Edouard-Francois de Lencquesaing denied that Ibos is a threat to Swift.)
In his address as Swift chairman, differentiated from his role at Barclays Bank, Mr. Chilton voiced a comfortable old certainty: that limiting membership to regulated credit institutions "is, itself, a major source of risk protection for other members."
"However, time and tide wait for no man," Mr. Chilton acknowledged. "The competitive marketplace continues to develop and raises new sources of uncertainty.
In order to optimize the benefit of automation and process reengineering, electronic links to bank customers will have to be achieved without compromising the access principles of payment systems."
Steven Marjanovic contributed to this article.
"Nonbanks have proven that substantial profits and market share can be garnered by piggybacking on the payments system that banks provide. Banks would do well to learn from this. If monetary value transfer and providing liquidity are becoming commoditized, then banks may well be better off standardizing payments systems more aggressively, preserving and leveraging their exclusive role, and focusing on the products and services that users want."
"Electronic links to bank customers will have to be achieved without compromising the access principles of payment systems. In many countries, electronic banking is very well developed, with direct links between banks and corporate customers for cash management reporting and controlled access to payment systems. Thus, corporates have terminals which are not dissimilar from banks' own back offices ... Reengineering the hank's processing could have the same benefit for the customer."
Barclays supports the concept of inviting corporates in as Swift participants, provided that this does not confer voting fights, nor give corporates access to payments messaging. There would also need to be confirmation that any regulatory/supervisory requirements had been met. If, for example, entry into Swift by corporates is by way of sponsorship from existing bank members, [there must be] ongoing supervision of the corporates' business conduct and financial integrity."