It's about time for the back office to get connected, says Eric Sepkes, vice president & director of global FI strategy, Citibank (New York, assets: $1.14 trillion). But in the quest for efficiency, banks may have to cede certain functions to what he describes as "industry utilities."
The industry migration to SWIFTNet, an IP-based messaging standard, promises to make the formation of such industry utilities faster and easier. As a result, the flexible SWIFTNet standard can provide the industry with an opportunity to rethink even the most complex back-office processes. Even securities trading, which involves numerous financial intermediaries "all wishing to know the same information often simultaneously," could benefit by getting involved in real-time information transfer through a common network, says Sepkes, speaking at this week's SWIFT Sibos 2003 convention in Singapore.
The potential reshaping of the securities industry illustrates a common theme at this year's Sibos: Which back-office functions call for the creation of an industry utility?
Consider treasury services, where one of the main challenges has been creating connections to corporate clients. Most have idiosyncratic data transfer requirements, which are subject to change at the speed of business. So the question arises: Should banks form a "utility" for translating SWIFTNet messages to unique corporate standards? The logical alternative to the current environment would be a central utility that translates SWIFT-formatted payments to whatever a corporation requires. As a consequence, companies that change their requirements would be able to do so in one place, rather than have to involve every financial institution with which they do business.
Or consider the task of formatting nostro payments. Since everyone does the same thing, and nobody gains any particular advantage from that back-office chore, why should every bank purchase the exact same software package in order to do so?
In yet another area, Jaap Kamp, SWIFT's chairman of the Board, suggests another possible utility: an international registry for financial institutions. This is an idea first promulgated by the Wolfsburg Group, an anti-money laundering organization comprised of several leading international banks. Such a registry would provide a centralized repository for information on correspondent banks, due diligence information, and know-your-correspondent data on banks' board members, directors and owners. Linda McLaughlin-Moore, senior vice president at JPMorgan Treasury Services, thinks it's a "great idea," but is not without reservations, particularly on the quality of the information contained within such a repository. "Who's responsible if it's wrong?" she asks.
Aside from implementation questions, reasonable bankers differ about the strategic advisability of creating such central hubs. "If the center does everything, what do I do for my client?" asks Gilles Leflambe, executive vice president, Socit Gnrale.
However, the alternative strategy hasn't proven to be particularly successful as of late. "Historically, banks have spent a lot to gain competitive advantage," says Citibank's Sepkes. "You end up with very little competitive advantage because everyone's built the same thing."