Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Swift dips into China with CIPS

Financial messaging provider Swift’s memorandum of understanding with China’s Cross-border Inter-Bank Payment System could greatly facilitate cross-border renminbi payments, as Stefania Palma discovers.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Daphne Huang embedded

It is undeniable that the use of renminbi for payments and transactions worldwide is growing. According to the latest data from financial messaging provider Swift, the renminbi is now the world’s fifth most popular currency for payments. And now that the International Monetary Fund has included the renminbi in its special drawing rights basket, usage could increase further. 

As the currency has become more internationalised, so Chinese regulators have had to provide the infrastructure to settle and coordinate cross-border renminbi payments. Hence the establishment in 2015 of the Cross-border Inter-Bank Payment System (CIPS), China’s renminbi payments and settlement system. 

Underwhelming start

At its launch however, CIPS left much to be desired in terms of meeting international clearing standards and in overcoming the Chinese-English language barrier in its messaging system. It was also only linked to 19 banks in China, meaning that an offshore entity wanting to clear renminbi had to either reach out to one of these 19 banks, go through the renminbi offshore clearing centres or use the correspondent banking model. 

But in March 2016, CIPS signed a memorandum of understanding (MOU) with Swift. The two companies started carrying out joint seminars just a week after the signing, and their partnership could go live by 2017. 

Although the collaboration is still fresh, it could unlock enormous potential for cross-border renminbi payments and settlements. China’s brand new clearing system is now linked to the most widely used messaging service in the world and has access to its global network. 

There are 2000 entities carrying out renminbi transactions via Swift and the firm has 400 customers in China. “We can help CIPS link up to our customers worldwide, who total 10,000,” says Daphne Huang, head of China at Swift.

“We want to help CIPS leverage Swift’s network and increase the number of partners more quickly. This will happen because a more standardised model will make people more comfortable using renminbi,” says Ms Huang. “We were a natural fit to facilitate renminbi adoption worldwide. We are able to promote CIPS among the financial community.” 

This collaboration could also help banks simplify the back-office work associated with cross-border renminbi payments. At the moment, every bank follows a different model. “We want to work with CIPS to improve market practices and create a set-up that banks can follow when it comes to back-office operations involving renminbi,” says Ms Huang. 

Language barriers

The biggest hurdle to overcome in standardising the system, however, is the language difference. “Solving the language issue in making and clearing renminbi payments is still a work in progress. It is not an easy issue to solve,” says Ms Huang. 

More generally, Swift and CIPS will need to work together to finalise a standardised model for offshore entities to clear renminbi. “We want to set legal and funding requirements, terms and conditions and messaging standards,” says Ms Huang.

While the Swift-CIPS collaboration bodes well, achieving the MOU was not easy at first given misunderstandings in China about Swift’s responsibilities. “In China there was confusion about Swift’s role. Some people see Swift and CIPS as competitors. But we manage a platform and are a network supplier. We do not do clearing, as in CIPS’s case,” says Ms Huang. “When we talked to CIPS, we said: ‘Why build your highway if the highway exists already? As of now it’s as if you are selling a car but nobody can drive it on the highway that’s already built’.”

Before the MOU, there were also preconceptions about Swift’s roots. “The perception of Swift was not positive before we started talks with the People’s Bank of China [the country's central bank]. A vast number of people thought we were driven by the US. Now they understand we are associated with Belgium,” says Ms Huang.

The partnership is very promising, so much so that Swift has already made plans to consolidate its presence in China. “Swift will increase resources in China by 20% to 30% by 2020 as our commitment to the country grows,” says Ms Huang. “This market is now a top priority among senior Swift management. Our target is for our China business to double in revenue by 2020.”

Was this article helpful?

Thank you for your feedback!