Tuesday, 31 January 2023

Swift gpi cross-border payments go instant

5 min read

By Richard Hartung

Consumers today demand instant services and results, prompting banks to find solutions that will address those needs. With the help of the global payments innovation (gpi), banks can now provide consumers with faster payments

  • SWIFT gpi Instant capitalises on the 24/7 availability of instant payment systems such as FAST to enable payment settlement in the destination market
  • Banks connect with multiple networks
  • SWIFT and SCB are looking into distributed ledger technology (DLT) as a solution for payments

Be it in their personal or work lives, consumers expect instant information, messages and commerce. A person who has instant services in his/her personal life will go to work running treasury or corporate payments and expect the same speed for larger value transactions.

“You’re used to instant in your life – services, purchases off the net,” said Shirish Wadivkar, the Standard Chartered Bank’s (SCB) global head of transaction banking products. He stated, however, that there has been a blurring of boundaries.

Banks are having difficulties in moving at the same pace. “When it comes to the speed of money,” Wadivkar noted that “things slow down. The speed of money is 9 to 5.”

To solve this problem and provide faster payments, traceability and lower costs, solutions such as the Society for Worldwide Interbank Financial Telecommunication’s (SWIFT) global payments innovation (gpi) was launched in 2017.

  While it might appear that transactions still take a long time, noted Edward Haddad, Asia Pacific managing director for SWIFT, the reality is that gpi can send messages to the other side of the planet in two to three seconds.

SWIFT data shows that 40% of gpi payments reach beneficiaries within 5 minutes, 50% in less than 30 minutes and 90% within 24 hours. The perception that payments take longer, Haddad explained, is due to frictions such as regulatory requirements, batch processing, foreign exchange rates and documentation.

Seeing the benefits of gpi, banks have adopted it quickly and 70% of payments on SWIFT now use this new solution. Haddad added that banks are using gpi even though it exposes banks’ fees to their counterparties and has reduced their fee revenue.

Haddad considers China as SWIFT’s fastest growing market with volumes rising 30% to 40% per year, mostly via gpi. Their domestic payments business has been decimated by Alipay and Tencent, so they need to improve and join gpi to get a better service level. In addition to speed, Another benefit of gpi is that every payment can be traced, from the time it starts until it reaches the recipient, stated Wadivkar. Just as consumers can trace the items they buy on Lazada, corporates and banks can also track every transaction.


Integrating with domestic real-time networks

Following the launch of gpi and its adoption by more than 3,500 banks, Haddad declared that the next iteration is to link it to real-time networks around the world. Real-time networks are in an adjacent space, so it’s logical to connect. 

SWIFT announced in July 2019 the results of a global trial to integrate SWIFT gpi Instant, its  cross-border instant payments service, into Singapore’s domestic instant payment service, Fast And Secure Transfers (FAST).

The successful trial which involved 17 banks across seven countries – Australia, China, Canada, Luxembourg, The Netherlands, Singapore and Thailand – saw payments between all continents settled within 25 seconds; the fastest in just 13 seconds. This extends the speed and transparency of SWIFT gpi deeper into domestic markets, reaching a wider set of ultimate beneficiary accounts around the world.

SWIFT gpi Instant reuses existing cross-border and domestic payments infrastructure, with the aim of implementation costs and avoiding the complexities of adopting new cross-border infrastructure.

In this case, SWIFT gpi Instant capitalises on the 24/7 availability of instant payment systems such as FAST to enable payment settlement in the destination market, even outside normal business hours.

While connecting gpi to proprietary networks may seem straightforward, it can actually be difficult. According to Haddad, it’s not technology that’s challenging. What’s more difficult are the domestic rules such as cut-off values, documentation requirements, currency restrictions and screening. Many real-time networks also have a proprietary design, so they do not have the field lengths to capture needed information.

In Singapore, for example, Wadivkar noted that transactions from outside the country may not be subjected to the same scrutiny as domestic transactions and banks may need to take certain steps to deal with the risk.

In Australia, on the other hand, there’s the new payments platform (NPP) that SWIFT helped build. It features an expanded data format so banks have more information for screening. Haddad said that about 900,000 messages currently go across NPP every day, and he expects the number to rise to several million a day once the big four Australian banks are fully on the network, adding that interoperability and global standards are the key factors in facilitating these connections.

In addition, reusing existing gpi technology and infrastructure in the domestic real-time networks is beneficial since they have sunk costs. If a bank uses SWIFT, Wadivkar stated, the barriers to adoption fall away and the interoperability that gpi offers can help banks across all fast networks to connect.While it may seem that consumer usage of many of the newer domestic payments networks is growing slowly, Wadivkar noted that it is actually rising more rapidly than one might expect and may soon reach a tipping point.


Banks connect with multiple networks

Along with launching gpi, Haddad said SWIFT has evolved in other ways as well, and now sees itself as a platform that offers more services and works with a wider range of partners.

Wadivkar, however, pointed out that “it’s not a competition.” What’s important to the bank is to solve its clients’ problems regardless of which networks they use. If a client works with an alternative network such as Ripple, SCB will work with them, too.

“We’re open, not just to other banks, but to what could be seen as competition to banks,” Wadivkar stated. “If my clients and their counterparties have more utility connecting to WeChat, (because) the buyer or seller is on WeChat, I reduce the value of my account if I don’t connect. We will connect to relevant networks, not just bank-driven networks. It could be the Alipay or WeChat network. I help my clients do their transactions, even if it’s not over the traditional system.”

What the bank also does, Wadivkar noted, is create optionality that meets customers’ preferences, whether they prefer domestic payments networks, debit cards, credit cards or something else. “We allow for choice. Today, all that choice is moving to customers’ hands. The funding source is the account,” he said.

What matters is the customer’s “alias” – often a mobile phone now – and how many networks the alias can connect into.

What SCB is doing is using SWIFT as a platform to drive more services, and this is also when fraud prevention becomes a need.

“If you make payments fast,” he said by way of example, “you need fraud prevention fast. We launched stop and recall, which is instant. The SWIFT community is (also) building stuff like pre-validation.”

Whereas payments today are file and forget, pre-validation enables banks to make a query and receive full information about the intended recipient of a payment, which can reduce delays.


The future is account-to-account transfers

Looking ahead, Haddad and Wadivkar both expect that the way payments are made will change significantly over the next several years, mentioning that accounts will be independent sources of funds, especially with open banking. “It will become account-to-account transfer,” Haddad said. “That’s the biggest trend. Everything will be account to account.”

Wallets will also be the front end for consumers, who will be able to pay via mobile numbers or QR codes on domestic networks such as FAST or PayNow. With these changes, Wadivkar said that things that people don’t want to see, such as security, become important. On the other hand, SWIFT and SCB are looking into distributed ledger technology (DLT) as a solution for payments. The former has done proof of concept pilots, for example, and Haddad believes it has promise for smaller players. Wadivkar, pointed out that “eventually, the technology gets better. Five or six years from now, you’ll have a payment network with DLT built in it.”

Beyond these changes, Wadivkar declared that there will be disruption, saying that “every piece of technology touching the financial system has the power to disrupt a business.” By continually providing faster, cheaper and better services, he believes, the banks will stay ahead. 

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