Laying the foundation for faster global payments

Payments systems have evolved significantly over the past few years, with many domestic systems, as well as the European Payments Council’s (EPC's) Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) scheme, moving faster to address end-users’ rising expectations in terms of velocity, efficiency and transparency. Banks and other payment service providers (PSPs), meanwhile, have taken steps to strengthen compliance processes and increase security, which is another pressing concern for end-users as payments speed up.

The final piece in the puzzle in this respect is global reach – extending the service level of today’s crop of local domestic systems to payments travelling from one jurisdiction to another. This remains very much a work in progress, but the foundations are there in the form of Swift’s global payments innovation (gpi) initiative and the increasingly adopted ISO 20022 messaging standard.

Rolled out in January 2017, Swift gpi can process cross-border payments at speed, with 50% credited to the end beneficiary within 30 minutes, 40% processed within five minutes, and many processed entirely within seconds. The service also provides rich data – accessible by banks and corporates in real time – on the path and progress of the payment, as well as any fees incurred on the way.

Banks buy in 

This is a strong proposition, but it depends on a wide network of member banks to ensure effective global coverage. Progress is being made in this respect: the latest figures from Swift show that gpi has been adopted by more than 3500 financial institutions around the world (including all of the top 60 banking groups), with more than 55% of all cross-border payments now sent via the service, representing more than $300bn across almost 150 currencies and 1200 country corridors. With the main country corridors already covered, Swift is targeting 2020 as the date by which all of its 10,000 financial institutions will have adopted the gpi service.

Even as momentum for Swift gpi builds, however, one area that continues to pose a challenge is cut-off times. With cross-border payments often occurring across time zones, payments can be processed quickly by gpi only to arrive outside the cut-off time for the high-value payments system in the destination country – meaning it will not be credited to the beneficiary until the next day. To solve this issue, work is under way to connect gpi with domestic instant payments schemes, which run on a 24/7 basis – avoiding the issue of cut-off times altogether.

Maturing domestic schemes

Before we move too far forward in building a global network, however, it is important to ensure that domestic systems are at the right stage of maturity. Much progress has been made in this respect over recent years, with a number of flagship instant payments schemes already in operation.

The EPC’s SCT Inst, for example, is geared up to provide coverage for the whole of SEPA and currently delivers funds to beneficiary accounts with participating banks in any of the SEPA countries within a maximum of 10 seconds (despite sanctions screening and fraud detection) – and in many cases much faster. As with Swift gpi, the goal for SCT Inst over the coming months and years will be to drive uptake and reach critical mass. The much-anticipated increase of the scheme’s upper limit for a single payment (which currently stands at €15,000) will likely play a big part in driving adoption, particularly among large corporates accustomed to more sizeable transactions. For the time being, banks can help this process by agreeing bilaterally to accept larger payments between one another.

When SCT Inst was launched in November 2017, it could only be processed through a few national systems – along with EBA Clearing’s RT1 platform on a pan-European level. In November 2018, the European Central Bank established its Target Instant Payment Settlement service as another pan-European clearing and settlement mechanism aiming at a pan-European reach.

Encouragement in India

With driving adoption one of the key challenges for these programmes, it is heartening to see the progress of India’s Unified Payments Interface (UPI). Launched in April 2016 by the Reserve Bank of India and the National Payments Corporation of India, UPI uses an application programming interface-based platform to facilitate around-the-clock, instant, low-value payments and collections, including via mobile phones.

The scheme has gathered considerable momentum in its early years – transforming an otherwise cash-centric economy into a world of near-real-time electronic payments. Today, 143 banks in the country are using UPI – processing the equivalent of €19bn every month.

The burgeoning success of India’s UPI is just an initial step on the road to further innovation. But, like many other domestic payments services around the world, such as the Faster Payments Service in the UK, and Singapore’s Fast And Secure Transfers, the maximum payment limit will have to be raised if momentum is to keep building outside the consumer space.

In this respect, most domestic payments schemes still need time to develop and mature before we can begin truly looking at a globally interconnected payments network.

Meeting instant challenges

Bringing this same level of service into the cross-border space requires work from banks and other PSPs. Cross-border transactions are subject to a number of issues, such as sanctions and a high risk of fraud. Addressing these issues within the timeframe of instant service provision gives banks the considerable task of conducting the required checks – including stringent sanctions and embargo screening and the maintenance of compliance across multiple jurisdictions and formats – in an increasingly small time window, while keeping pace with new and advanced external threats.

With this in mind, banks are taking steps to implement new and more robust protective measures. In addition to training for employees to help identify suspicious behaviours from internal and external actors, further technological safeguards, such as the rise of 'strong' means of authentication, are being introduced. Though the concept is known by many names – 'two-factor authentication' in Asia, 'multiple-factor authentication' in the Americas, and 'strong customer authentication' in Europe – the underlying principle is the same. Authentication must rely on two or more types of identification – stemming from knowledge, possession and inherence. By requiring multiple means of authentication at any given time, banks make it far harder for would-be criminals to amass the necessary credentials to break into an account – thereby reducing the risk of cyber fraud.

As the pressure to meet these compliance standards intensifies, banks must also find a way to streamline their processes. The alternative – risking heavy fines and reputational damage – is simply not an option. So how can financial institutions enhance the performance of their systems to meet these compliance needs? The first step in this process is a 'safety first' mentality. This means that whenever there is any doubt – over, say, a possible sanctions hit that needs validating – the approach should be to reject the payment, since manual validation cannot be performed within the instant timeframe. At the same time, technological innovation, such as machine learning, artificial intelligence and robotic process automation (RPA), stands to help to simplify the task of carrying out these processes at speed.

RPA and AI technology can make a huge difference when it comes to carrying out compliance checks, for example, helping improve the efficiency, stability and, most importantly, the reliability of fraud, sanctions and embargo screening. For instance, banks can use robotic processes to automate the review of flagged payments during the screening process – applying learnt human logic to release or escalate the review accordingly. This kind of approach not only guarantees fewer issues due to human error, but also helps to free up employee capacity for the most complex cases of financial crime.

This is just one example of many operational efficiencies that banks and PSPs must look to cultivate in order to provide secure and compliant support for faster payments across international borders. As domestic instant payments systems bed in around the world, the next phase will be fostering interoperability, with Swift gpi the likely point of linkage. There is a long way to go before payments can flow seamlessly across borders as part of a global payments network, but the building blocks are steadily fitting into place.