On the Money Newsletter: Autumn 2006
New Project Aims to Combine Fed, SWIFT Processing in One System
For banks using two separate systems to process Fedwire and SWIFT transactions in their U.S. offices, a simpler solution may be on the horizon.
In collaboration with SWIFT, BankServ has begun development of a new service that will combine Fed and SWIFT functionality into a single interface. And for many banks, the ability to send both segments of an international transaction over the SWIFT Network will help eliminate a time-consuming process in the back office.
Completing an international payment within the U.S. typically requires a Fedwire transfer to settle the transaction domestically, then a separate SWIFT message to notify the receiving institution's overseas office. Many banks do not have an automated link between their Fedwire and SWIFT systems, meaning items must be entered separately into each, taking up time and creating the potential for human error.
"Despite recent efforts by the banking industry to shift toward electronic methods of moving money, SWIFT and the Federal Reserve Bank remain on two separate systems," said Dave Kvederis, BankServ's president and CEO. "And unless a bank does a high volume of transactions on both, chances are, their systems aren’t integrated. Soon, they'll be able to use just one system and let us handle the integration."
Currently named SWIFT2Fed, the new offering will let the originating bank put a Fed transaction into a "wrapper" that allows it to be sent to BankServ over the SWIFTNet FileAct system. BankServ then "unwraps" it and settles the transaction with the Federal Reserve Bank while a SWIFT message is simultaneously delivered to the receiving bank.
The idea came about, Kvederis said, when BankServ and SWIFT learned that many overseas banks with offices in the United States send a high number of SWIFT messages but relatively few Fed transactions. Often times, such banks have automated SWIFT systems, but still use manual data entry or even telephone requests for Fed transactions because a high-end system would not be worth the expense.
"Once SWIFT2Fed comes online, though, a bank's existing SWIFT connection will be able to bear the same load as an automated connection to the Fed," Kvederis said. "It will finally be possible to integrate both sides of your international payments business at a reasonable cost, even if your transaction volume wouldn't have justified it before."
As an accredited service bureau for both SWIFT and the Federal Reserve, BankServ already offers a similar service through its cross-compatible TurboSwift and Global Funds Exchange (GFX) systems. But in order to take advantage of that feature, a bank needed to automate both its SWIFT and Fed connections. With SWIFT2Fed, only the SWIFT connection need be automated, and BankServ takes care of the rest.
"We expect SWIFT2Fed to make this type of automation practical where it wasn't before," said Mary Ellen Putnam, the head of BankServ’s international division. "It's one more way to spread the benefits of electronic payments to banks of all sizes that fill many different niches."