Major banks are adopting new standards and working with FinTechs to bring transparency, speed and value to the traditionally opaque world of cross-border payments.
The change has been driven by many factors, including a global demand for an enhanced cross-border payments experience and use of emerging technologies like block-chain, and has spurred the traditional banking industry to launch the SWIFT global payments innovation (gpi) initiative.
After going live in early 2017, SWIFT gpi is today the largest initiative in cross-border payments globally. More than 150 institutions around the world, representing nearly 80% of the cross-border flows over SWIFT, have embraced SWIFT gpi to introduce same day credits, transparency to fees and real-time tracking of payments, across 220 country corridors. More than USD 100 billion are sent over SWIFT gpi daily, and nearly 50% of these transactions are credited to end beneficiaries within 30 minutes, and some even in seconds. Almost 100% are credited within 24 hours, for those that take longer typically involve more complex foreign exchange conversions, compliance checks or regulatory authorisations.
Pete Kooner, Vice President, Head of Core Cash Product, Treasury Services, at J.P. Morgan Australia & New Zealand, says it is removing long-held pain points for customers.
“In today’s world everything is instant but international banking hasn’t changed much in the past 30 years – there’s a lot of catch-up that needs to be done,” he says. “SWIFT gpi will have great value for corporates – it will help international trade by improving supplier relationships with more reliable and uniform standards.”
The international payment process has traditionally been similar to booking a courier without knowing where the parcel is during the journey, when it will arrive, or even how much it will cost. It has been a legacy of the correspondent banking system: international payments make a labyrinthine journey through multiple banks – each with their own service and regulatory standards – before reaching their final destination.
SWIFT gpi has already addressed some of these challenges by removing underlying business process friction and enabling real-time tracking of payments status and charges - very similar to a courier tracker. The latter is being achieved through cloud-based tracking of a Unique End-to-end Transaction Reference (UETR) associated with each gpi payment. As gpi payments are faster and fully traceable, banks claim that traditional enquiry-related costs are also reducing by as much as 50%.
Innovative, emerging technologies like APIs and Distributed Ledger Technology (DLT) are being used and assessed as part of the initiative, and open innovation is being promoted via engagement of the global FinTech community in the creation of overlay services using gpi rails. In 2017, the first SWIFT gpi Industry Challenge was held inviting 30 member banks and FinTechs from around the world to co-create innovative overlay services leveraging the SWIFT gpi platform, and solving for incremental challenges faced by corporate treasurers.
A prime role for Australians FinTechs
FinTechs are also playing a key role in the new standard. Two Australian firms, Assembly Payments and CurrencyVue, were among five finalists in the above SWIFT gpi Industry Challenge held in Singapore in September 2017.
Simon Jones, co-founder at platform Assembly Payments (originally named Promisepay), says their pitch was a ‘request to pay’ service for corporations, which appears in their customers’ bank portal with attached invoice and company information.
“It would reduce the human error and the corporate that has initiated request can put a unique tracker on it so they know exactly when the other person has paid it so reconciliation is significantly improved,” he says.
Banks traditionally haven’t been keen to share such information across international borders but the transactions are completed using Assembly Payments’ open API technology and participants can control the information they share.
The closed system would also reduce fraud such as phishing scams because “you're not sending invoices via email so people know they’re paying via their bank internet portal – it's a nice tidy solution.”
SWIFT selected it as one of two winners in the challenge. Assembly Payments will receive up to 100,000 EUR to further develop the concept.
Australian FinTech CurrencyVue, which connects corporates’ ERP systems with banks and FX providers to automate manual processes and provide real time FX exposure visibility, also took part in the SWIFT gpi challenge.
CurrencyVue Founder and CEO Matt Tyrrell says it has already built the connections between systems, which banks can then white label. “That's why banks are talking to us.”
Its pitch was to use the SWIFT gpi tracker, which allows a bank to see where a payment is, to automatically update ERP systems such as Xero. It would eradicate the difficult process of unwinding a journal entry if a payment fails.
“One of the Australian banks was interested in what we were doing and we're discussing building a proof of concept for them. If we do that, we’ll be one of the first FinTechs to plug into the SWIFT gpi functionality and API.”
The future of SWIFT gpi
SWIFT gpi was launched in January 2017, focusing on business-to-business payments, helping corporates grow their international business, improving supplier relationships, and bolstering treasury efficiencies.
J.P. Morgan’s Kooner says the bank is running SWIFT gpi in the US and plans to roll it out globally. It also plans to provide its customers with the ability to check on the status of payments.
“Corporates will be able to log on and see that status themselves – they won’t have to call the bank.”
In time, corporates are also likely to have greater control over the correspondent bank pathway their payment travels, which will give them greater control over fees.
Moving forward, SWIFT gpi will allow banks to immediately stop a payment in the correspondent banking chain, and will enable gpi banks to track gpi payments along the full payments chain, even when the banks handling the transaction have not yet adopted the service.
In November 2018, a mandatory annual update to the SWIFT messaging standard will be implemented by the global banking community to make the UETR mandatory on all key payment messages in the SWIFT network. This will enable end-to-end tracking of all payments (gpi and non-gpi) across the SWIFT network, and allow for more innovative services and overlays to be developed over gpi rails.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
Published by BPAY Pty Ltd. BPAY is offered by over 150 Financial Institutions. Contact your Financial Institution to see if it offers BPAY and to get the terms and conditions. This is general advice – before using BPAY please review the terms and conditions and consider whether BPAY is appropriate for your personal circumstances.