IBM’s SWIFT Expert Describes Industry Transformation

Alec Nacamuli joined SWIFT (La Hulpe, Belgium) at its inception in 1973 and became executive vice president of the bank-owned cooperative. During his tenure, he headed up SWIFT's expansion into EBA netting, foreign exchange confirmation matching and other services in the securities markets. Now, he's an executive in IBM's (Armonk, N.Y.) global transaction management team, which focuses on payment and market infrastructure systems, applications, architectures and other related topics.

Nacamuli recently spoke with BS&T about two strategic transformations in the financial industry: the bank/corporate relationship and the consolidation of back offices at European banks.

The Bank/Corporate Relationship

Since 2001, corporations have been permitted to connect to SWIFT in a limited manner, using one or more of their banks as a gateway. But so far, only a relative handful of financial institutions have taken advantage of the opportunity to bring their corporate customers into member-administrated closed user groups, or MACUGs.

The uptake is likely to increase as soon as the banking community has completed its migration from the X.25 standard to SWIFT's secure IP network. "A fair amount of the banks are still going through, themselves, the migration to the new SWIFT IP network, SWIFTNet," says Nacamuli. "They did not want to get the corporates to connect to the MACUG via the old protocol and then, within six to eight months, have to move them again."

Instead, the strategy is to "get the bank onto SWIFTNet IP first," Nacamuli adds. "We are probably going to see progress when the SWIFTNet transition is done."

Once the MACUG has been established, banks will need to implement a system that receives payment instructions from their corporate clients. Such a system must be able to interpret several different formats -- EDI, ANSI, X.12, FedWire, CHIPS or proprietary formats -- and convert them into a single standard.

It's a complicated problem, and it's one that corporations have little interest in solving themselves. "They are tired of having to split up the payment in several batches -- home currency, foreign currency, low value, high value, etc.," says Nacamuli.

Instead, corporate treasurers want to send a mixed batch of payments to the bank, where "the bank looks at each payment and then, as a function of the service level agreements and the pricing that is has agreed with each one of these major corporates, it then chooses the appropriate route," says Nacamuli.

"Let's face it -- I don't think a corporate is particularly worried about whether the payment goes over SWIFT, or CHAPS, or FedWire, or CHIPS, or EBA or TARGET," he adds. "It's really up to the bank to sort it out."

European Back-Office Restructuring

At the same time that financial institutions are rethinking their corporate relationships, banks with a significant European presence have other opportunities for a wider enterprise transformation in the back office. That's because of several initiatives in the European Union that have made it easier for banks to standardize their cross-border payment operations.

Distributed back offices were a necessity when each country had its own Real-Time Gross Settlement [RTGS] system, clearinghouse, operating rules and standards. "Banks who operated in several countries tended to have payment back offices in each of the European countries in which they operated," explains Nacamuli.

"Now, we are beginning to see uniformity of that across Europe," Nacamuli says. "Harmonization of the payment clearing and settlement systems is taking place at the payment infrastructure level."

As a result, banks can consolidate their dispersed back offices into a single primary location -- usually in the home country of the parent organization. "If you're looking at aggregating four or five payment back offices into one, you're probably looking at something like a two-year project," estimates Nacamuli.