A transformation is happening in the world of payments

David Watson, head of strategy, SWIFT

It’s hard to imagine that once upon a time if you wanted to make an international payment, you’d have to fill a briefcase full of cash or bearer bonds, board a plane and deliver them by hand. That’s firmly a thing of the past, but as technology keeps improving and unlocking new possibilities, so too does customer demand, and today it’s higher than ever.

People, businesses and their financial institutions demand and expect a payments experience that is completely seamless, transparent, fast, frictionless and predictable, from point A to B.

That demand of course has been driven by digitalisation. We have access to richer, more real-time information than we’ve ever had in our lives, and it’s all at our fingertips with a few taps of a screen.

So when it comes to a task as crucial to our day-to-day lives as making and receiving payments, it’s natural that we also demand access to more data, more transparency, more certainty and of course, more speed.

New ways to pay

A by-product of this data revolution is the emergence of new ways to pay, and new business models which transform the user experience of making payments. So far, these have had the most significant impact on the way consumers pay for goods and services, but the cross-border payments world is now also coming into focus as an area for transformation.

Much of the innovation at the domestic level has been enabled by the ability to send payments in real or near real-time. Market infrastructures around the world have moved at pace to enable instant transactions between financial institutions in local markets, and this has precipitated a frictionless experience sending domestic payments.

It’s therefore been a driving force in the appetite to replicate that in the cross-border experience. After all, if I can make a payment from London to Manchester in a matter of seconds, then it’s natural to ask why not London to Sydney?

Inevitably, people also take these experiences and expectations into their business interactions too. So increasingly, businesses are asking themselves why can’t I pay an invoice as simply and easily as I pay for my weekly shopping?

A number of factors are at play. Cross-border payments have currencies to bridge, time zones to cross and sanctions, compliance and local market rules to adhere to. A closed loop system lacks the ubiquitous reach needed to be a practicable global solution. Rather, to achieve a truly frictionless and instant cross-border payments world takes a coalition of financial institutions working together.

Driven by SWIFT and its community, that coalition is shaping a new future of cross-border payments, one which will transform the way payments are made forever.

Our strategy responds

This transformation is already well underway. Over the past few years, the SWIFT community has been on a journey to radically improve the experience of sending cross-border payments with our SWIFT gpi initiative.

Today, thousands of financial institutions send hundreds of billions of dollars’ worth of cross-border payments a day through gpi, 70% of cross-border payments on SWIFT are gpi payments, and we know that nearly 100% of cross-border payments are credited with the beneficiary account within 24 hours. The foundations we’ve laid with gpi – end-to-end transparency, better quality payments data, final confirmation with the beneficiary – have set the foundations for us to take things to the next level.

Which is why over the next two years and beyond, we’re embarking on an exciting journey to further reinvent cross-border payments for our whole community of 11,000 financial institutions. Our vision is simple: We believe all transactions should be instant, frictionless and transparent, with end-to-end integrity and global reach. And the entire process should be driven by smart data, enabling the layering of mutualised services on top, which work for financial institutions today and tomorrow.

That means enabling completely seamless, frictionless and instant payments from one account to another, anywhere in the world. It’s an ambitious vision, but one which, with the support of our community, we have to deliver.

Reimagining cross-border transactions

To help us achieve it, we’re reconceptualising how transactions will work on our network. Our new platform approach will put the business transaction at the centre, leveraging good quality data up front, with end-to-end orchestration and fast settlement services.

Correspondent banking today traditionally relies on each bank to provide many of the basic services as part of a transaction, adding cost, complexity and friction. Our platform approach will strip much of that burden away, enabling common processing and mutualised services in areas such as fraud detection, data analytics and transaction tracking.

Running through every transaction on SWIFT will be the best quality data available. The introduction of ISO 20022 will be a game-changer, enabling richer data to be carried throughout the chain. It means financial institutions can process payments by pre-validating key information, minimise errors with seamless exception handling and automate many processes more easily.

Crucially though, it’s a model which works for everyone. An immutable copy of the transaction data will remain in the middle and financial institutions involved in the transaction can access it using whichever method they choose, whether that is traditional messaging or APIs.

A transformed experience for consumers and SMEs

With these building blocks in place, the potential to fundamentally transform the consumer experience of sending cross-border payments also becomes possible. We’re working with a group of financial institutions to enable a completely seamless, fast, transparent and predictable cross-border payments service for low-value payments.

Consumers will be able to make a payment directly from their bank account to any account anywhere in the world, with certainty and predictability. This is possible by leveraging tools within our platform model, but also through collaboration between financial institutions. This is significant not only for end users, but gives many financial institutions a powerful value proposition to recapture and grow their share in the booming consumer payments space as well.