30 minutes or less – the new standard for cross-border payments

March 2018

By the time you have finished reading this article, an international payment will have been made from one company to another via a bank

Even if you are a very fast reader and it takes you a few seconds to skim through, during that time, payments are being credited to end beneficiaries. How do we know this? The answer is quick and simple: it is now possible to fully track and prove the time it takes for a payment sent via a bank to get from end client A to end client B (e.g. from a company in Beijing to a company in Boston in less than 30 minutes).

This news is a big step forward for banking, payments and customers and is thanks to the SWIFT global payments initiative (gpi), the new payments standard for cross-border payments, which joins together all payment intermediaries via a cloud-hosted interface. It responds to the plethora of new ‘FinTech’ cross-border payment providers, whose main mantra is transparency and speed as till now ‘you don’t truly know how much it costs to send an international payment via a bank, and the payment typically takes four or five days to reach the customer’s account’. And that message was clearly resonating with today’s always-connected modern consumer.

The times, they are a changin’

Today that speed has been vastly improved and in a press release, out 28 February 2018, SWIFT proudly announced that in total over $100bn per day is being sent on SWIFT gpi, 46% of payments sent using SWIFT gpi are credited to the end beneficiary in less than 30 minutes; and overall, 92% of payments are received by the beneficiary within a day.

Such has been the journey of SWIFT gpi since it was conceived in December 2015 to improve experience in cross-border payments by increasing speed, transparency and traceability. The first phase, launched in February 2017, responds to “on demand” services, which is shifting treasurers’ expectations when it comes to the speed of payments. But to reconcile received and invoiced amounts more easily, corporates and financial institutions (FIs) also require greater visibility over a transaction’s fees, as well as foreign exchange (FX) rates used. Without this information, the true cost of a transaction can become obscured.

These pain points indeed prompted the creation of SWIFT gpi. By joining all payments intermediaries in one place and gaining improved visibility over transaction fees and FX rates used, this cuts down the time of credits reaching the beneficiary from several days to less than half an hour or, in some cases, minutes - even seconds. If received prior to receiving bank’s cut-off time, banks will credit funds on day of receipt.

And – although predominately bank-led – SWIFT gpi is designed with the corporate and FI client firmly in mind. Crucially, it allows the same-day processing (and availability) of funds – a development that should enable corporates and FIs to grow and become more efficient.

Furthermore, since November 2017, banks such as Deutsche Bank process all high-value commercial USD and EUR payments using SWIFT gpi. This should ease the corporate customers’ supply chain relationships when transacting in these currencies.

How does it work?

Taking a step back, phase one of SWIFT gpi focussed on payments sent and received by gpi-active financial institutions being made available on the same day (if instructed before the bank’s cut-off time). By connecting every intermediary in the payment chain via a cloud solution, SWIFT gpi grants each party visibility of a payment status, unaltered remittance information and the transaction costs. That can be updated by FIN Message or application programming interface (API) and accessed via a graphic user interface (GUI) – making it interoperable with a bank’s other back-office systems. Meanwhile, the SWIFT gpi Tracker, a cloud-based program, delivers greater traceability and transparency allowing banks to instantly check the status of payments.

Especially good news for corporates and FIs is that it reduces the time and costs spent on investigations, allowing them to speed up supply chain and reduce risk, track important payments and easily reconcile payments and invoices. For banks it reduces front office costs on customer calls, helps rapidly investigate non-receipt claims and offer new innovative services to customers.

The time is now

The 150 financial institutions that have signed up to SWIFT gpi will encompass three quarters of cross-border payments globally. While 40 banks have gone live, more can always be done – especially by those banks that have already implemented the initiative to demonstrate its benefits – and to share their experiences of the implementation phase.

In its latest press release, SWIFT also stated three bold ambitions for the service: 48 out of the 50 top banks on the SWIFT network have committed to using SWIFT gpi to send payments. In total 42 banks are live with a further 109 banks in the implementation phase; by the end of 2018, every bank who joins gpi will be able to trace every payment they send using SWIFT gpi across more than 10,000 banks on the SWIFT network and SWIFT gpi is on track to become the standard for all cross-border payments by the end of 2020.

To be introduced in November 2018, the initiative’s second phase, V2, primarily seeks to address some of the cost and inefficiency challenges suffered by financial institutions when processing cross-border payments. For instance, the Stop and Recall Payment service (gSRP) can stop an in-flight payment immediately – no matter where it is in the correspondent banking chain (so long as it has yet to reach the beneficiary bank). This capability should optimise the cancellation process for payments, and will introduce a market standard where none currently exists.

A third phase, V3, explores the potential to integrate distributed ledger technology (DLT) into SWIFT gpi payments. A proof of concept project has made progress on developing DLT for key industry requirements, including data confidentiality, governance, identification framework and scalability.

For now though, regardless of how banks achieve SWIFT gpi-readiness, as many banks as possible should move toward SWIFT gpi’s live operational mode during the first half of 2018. By doing so, they will be contributing to instilling SWIFT gpi’s position as the new standard for cross-border payments – a development that will help to cement the future of correspondent banking.

And perhaps it’s also time to reflect on how true industry collaboration has made clients’ lives easier.  

Commenting on the latest SWIFT press release, Christian Westerhaus, Global Head of Clearing Products in Cash Management at Deutsche Bank, said: “The initiative has been a huge collaborative achievement, and given that SWIFT gpi was only launched in February 2017 it goes to show that when the community comes together with a common purpose, they can seriously improve the speed, transparency and traceability of cross-border payments.”

Please click here to read the SWIFT gpi press release.

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