SWIFT, the message-switching network that revolutionized the wire transfer business when it debuted in the late 1970s, finds itself now on the threshold of the 21st century confronting a bit of an identity crisis. Should it remain simply a network providing status alerts on big money movements, or should it expand its product line to include services like security, electronic commerce, perhaps even clearing and settlement of micro-payments?
Processing Content
Even SIBOS, the annual SWIFT International Banking Operations Seminar, is displaying signs of change. The last time SWIFT was held in the United States, in 1982, it was at a Washington, DC, hotel, and featured a modest exhibit hall. Two months ago, SIBOS returned to the U.S., this time in San Francisco, "the epicenter of the e-world," as Jaap Kamp, SWIFT chairman of the board, put it in opening remarks to the gathering.
The SIBOS exhibit hall took up the space of about three city blocks, and was lavish, bordering on the extravagant, by U.S. banking exposition standards, with juice bars, bottomless champagne bars, even a larger than life slot machine at which attendees were urged to try their luck. (This reporter did, and won a watch.)
"It's really become a bit of a circus," said one American consultant who counted the September gathering as his fourth SIBOS.
Meanwhile, the meeting rooms were abuzz with conversations on the roles to be played by SWIFT and its member banks as the Internet and ecommerce become enmeshed with the payments business.
"Twenty-five years ago, SWIFT had a simple mission: move from paper and telex to electronic standardized messaging," said Kamp, a senior executive vice president of ABN Amro, the Amsterdam-based financial giant. "Our strengths were, and still are, the secure network, secure messaging, standards and operational excellence. And SWIFT's international cooperative neutrality made it the ideal service provider," he added. "The new e-world is a competitive one. SWIFT ought to be one of its drivers."
Kamp and others see hope in an alliance SWIFT is to launch early next year with Identrus LLC (see related story page 37, "Identrus Takes Identity Service Live.") Identrus dates to late 1998, when nine of the world's largest banks founded a global network to authenticate businesses online. The first of its now 35 bank members have just gone live with Identrus' identity service that allows banks to certify their corporate customers as trusted trading partners on the Internet.
Identrus gains access to SWIFT's 3,000 member banks, worldwide. SWIFT handles financial messages representing more than $5 trillion a day on behalf of these banks.
The collaboration proposed between itself and Identrus, TrustAct, would have SWIFT play a new role: exchanging trade documents. SWIFT's new Internet message format would extend to such documents the non- repudiation feature of SWIFT wires. With Identrus additionally providing digital signatures-which now enjoy the same legal status as physical signatures-TrustAct transactions would be legally binding.
"SWIFT and TrustAct give our banks, financial institutions and their customers a way to reap the enormous benefits of the Internet. Financial institutions and trading partners, especially in high-volume electronic marketplaces, need secure message delivery and convenient accessible records of their transactions as provided via TrustAct," said Identrus chief executive Guy Tallent, in announcing the collaboration during SIBOS. Said Leonard Shrank, SWIFT's chief executive: "Working with Identrus enables our members to generate new business opportunities in the 'e' world and puts them at the center of trust."
TrustAct is in testing now; live traffic over the system is expected to commence early next year.
SWIFT also has ties to Bolero, a global trade initiative focused on rendering trade documents electronically, which was launched last year. The Bolero system is a business-to-business platform that supports secure electronic transmission of business data and documents, from order processing up to (but not including) payments, for electronic marketplaces, serving, for example, the auto and metals industries. Barry Morse, Bolero's chief executive, is a former SWIFT staff executive who during his tenure at SWIFT drew up the Bolero game plan. Some of the largest banks participating in SWIFT are active in Bolero as well, including ABN Amro, Chase Manhattan, Citibank and Deutsche.
Exchanges are sponsored into Bolero through banks. So far, 23 banks are committed to Bolero, including seven of the 10 largest banks in the world, Morse reported during a SIBOS session.
Executives with exchanges that operate through Bolero say it offers the potential for tremendous savings. Gaju Sareen, CEO of mindtrac.com, a global tire exchange, says his 600 member companies have been able to slash as much as 22 days off the time it takes to complete a purchase- reducing it to just three days. But then it takes about two days to complete the payment process, using SWIFT. While that's better than in the old days-where check payments could take seven days, or more, to settle-Sareen thinks mindtrac.com can do better, and he used his appearance at SIBOS to push the banking industry for 24-hour turnaround on payments documentation. Speaking humorously, Sareen said that mindtrac without payment fulfillment is "just a dating service," and he called on banks to give more.
Several variations of Sareen's plea echoed throughout SIBOS.
"Banks may own the payments system today, but in the future that is likely to change," said James Hance, Bank of America's vice chairman and chief financial officer. If SWIFT wants to help banks maintain a position of prominence in the payments system, it needs to expand its horizons beyond large-dollar funds transfers and a two-day settlement process, Hance suggested. "SWIFT knows the world payment systems better than anyone else; it has the tools to support real-time, online commerce," he said. "There is a very large demand for SWIFT to handle very low-end payments, much as the ACH system does in the United States."
SWIFT, in fact, is one of 14 processing companies that responded to a bid for the contract to provide a network for a proposed international automated clearing house. The Worldwide Automated Transaction Clearing House (WATCH), the entity that plans to link all the ACHs worldwide, held its first general meeting at the recent SIBOS show.
NACHA, the U.S.-based national ACH association, has been appointed secretariat of WATCH, with Priscilla Taylor, NACHA's general counsel, as the WATCH point person. At SIBOS, NACHA staff manned a WATCH booth, even though NACHA was running its own electronic check conference at that time in New Orleans.
Taylor, during an interview with Bank Technology News, likened WATCH to a "global ACH," mostly because it's a batch processing system. The underlying technology for WATCH, however, must be completely different, she said. The U.S. ACH system, for example, is based on decades-old Cobol computer programs, Taylor noted. The new global system must be based on TCP/IP, the Internet-computing protocol, Taylor said.
As a financial messaging network, SWIFT is well suited to provide the WATCH technology infrastructure. But it is bidding against some mighty competitors, including Visa International, which in addition to card transactions uses its backbone network to support ACH exchanges in the U.S.
Also, there doesn't seem to be uniform agreement among SWIFT bankers on the need for WATCH. While many bankers urged SWIFT to expand its role in the payments arena, some in attendance at SIBOS suggested SWIFT stay clear of ACH-style systems, which have a long history with legacy computing and bureaucratic management.
"You can't take a standardized development approach in an environment that isn't stable," said Leslie Martin, general manager, global transactional services, Westpac Banking Corp. "It may be best if they take competing approaches," said Martin of SWIFT and WATCH.
SWIFT was brought to task by John Perry Barlow, a self-proclaimed "cognitive dissident," who is co-chair and founder of the Electronic Frontier Foundation, a San Francisco-based non-profit organization promoting individual freedom in cyberspace. He challenged SWIFT to come up with a digital cash scheme within one year that supports micro- payments on the Internet. "You need to expand the existing pipeline out to the edges," said Barlow, a respected commentator on Internet issues.
Eric Sepkes, chairman of CHAPS Ltd., the British equivalent of the U.S. CHIPS large-dollar funds transfer network, and director of payments infrastructure for Citibank, agreed. "We need to build a mechanism that matches the international world's need for one-to-one payments," Sepkes said, referring to the burgeoning demand for person-to-person (P-to-P) payments. The ACH and wire systems were built on the telex model, and that model is not suitable to the Internet world, he argued. "Retaining these systems will not change our cost structure whatsoever."
Sepkes is also pessimistic about SWIFT's developmental acumen in the era of "Internet time." It takes SWIFT about 2 and one-half years to develop and implement a new message format, Sepkes noted. An Internet company could probably create a new payment instrument in less than a year, he added. "These guys are laughing at you," Sepkes admonished his fellow bankers.
Yawah Shah, deputy chairman of SWIFT, rebuked that. Pointing to the Identrus agreement, he told attendees, "SWIFT can move fast when it has to."
And even some of Sepkes' fellow Citibankers seemed to disagree with his assessment. Ann Cairns, vice president and global e-solutions head at Citibank e-Business, who sat on a panel discussing "Commercial Payments in the e-World," said, "Our customers want us to provide payments in support of ecommerce, SWIFT can get us there."
Sue Webb, senior vice president and commerce solutions business executive at Chase Treasury Solutions, was similarly optimistic. "SWIFT is an outstanding example of what we bankers can do when we come together to build an infrastructure."
Steve Ellis, executive vice president in charge of the wholesale Internet services group at Wells Fargo Bank, warned that the role of banks and organizations such as SWIFT needs to broaden in the context of the Internet. "The payments infrastructure is about more than just moving information," he said. "This is going to require fundamental changes in many of these organizations."
Among the changes suggested by many was greater collaboration among perceived competitors. "Payments is a collaborative effort," said Jean- Marie Avadian, manager of strategic research at Societe Generale. Even the PayPals of the world "are discovering that they can't go it alone," he added, referring to PayPal Inc. of Palo Alto, CA, the leading light in the P-to-P sector.
Nearly everyone seems to agree that SWIFT and its member banks needs to pick up the pace of technology and product development.
If speed to market is a prerequisite to success, then WATCH also may have difficulty competing as a global Internet payments system. Taylor says the new network won't be ready to handle low-value (mostly recurring) payments until late in 2002. "It could be June 2002 if we get really lucky," she said. (Of course, the norm in technology implementations is that they fall behind schedule.)
Taylor insists that two years isn't a long time when it comes to putting together payment systems. "We're looking to build an entire payments system and to establish a settlement process. It's really a quick turnaround," she said. "When you're talking about moving money, you really have to make sure there are no glitches in the system."
And payment is the key difference between WATCH and SWIFT, as we know it today. WATCH will actually move funds and associated data between banks and across national borders-"straight-through processing" in the industry's vernacular-with settlement occurring through central banks, which ensures the transactions are irrevocable.
By contrast, SWIFT today is simply a messaging network. The movement of funds via SWIFT occurs through correspondent banking relationships. This staggered process explains the two-day settlement process referenced earlier.
If SWIFT wins the bid to build WATCH, it obviously will acquire the ability to move funds as well as messages on behalf of members and their clients. This, in turn, could prompt a change in the structure of SWIFT, positioning it as a pillar of ecommerce.
"SWIFT can be the infrastructure for the e-world," said Shah in remarks presented at the closing SIBOS session. "The destiny of SWIFT is in your hands. The race is on."
