Making cross-border payments seamless, convenient and fast

Harry Newman, head of banking at SWIFT

Payments between people and businesses at a domestic level have been getting faster and faster. Instant and real-time are the new norm domestically. But the historically ‘slower’ cross-border space is now catching up. Cross-border payments settled in a matter of seconds are now a reality.

Those familiar with the process of sending cross-border payments typically experience opacity and lack of clarity around cost and settlement time. Juxtaposed with the payments experience in domestic markets, where instant and real-time are the norm, there could not be more disparate experiences.

From London to Lagos, Sydney to Singapore, and many other markets around the world, payment market infrastructures enable consumers and businesses to pay each other in a matter of seconds. Take the following domestic example: you’re going to a concert with a friend, they agree to buy the tickets on their credit or debit card and ask you to transfer them your share of the cost.

They buy the tickets, the merchant gives them immediate confirmation that they’ve received the order, and the funds are debited from their account. In the meantime, you transfer your friend your share of the cost. Again, the money is immediately debited from your account and within minutes, the funds appear on your friend’s account. It’s a seamless end-to-end experience.

The challenges of cross-border

Replicating this experience in cross-border transactions is significantly more complex for a number of reasons.

Firstly, domestic ‘closed loop’ individual currency systems must be bridged; these systems solve for an exclusive community of participants, but are not scalable on a global level. Then add in the complexities presented by the world’s 180 currencies and just as many regulatory jurisdictions.

And of course, cross-border transactions are understandably subjected to more rigorous sanctions screening, anti-money laundering and fraud protections, typically because they involve very high value transactions.

As payments speed up, compliance processes must adapt too. How, for example, do you conduct  sanctions screening and AML/compliance checks on a cross-border transaction that settles in a few seconds?

All of these challenges must be, and are, being overcome. Users expect a fast, convenient and consistent experience regardless of the size of the transaction. That’s what SWIFT and its community are delivering.

The modernisation of payments

Over the past few years, the groundwork has been laid to make cross-border payments as seamless as domestic ones. One of the key enablers has been the progressive modernisation of the underlying technology that powers payments between banks and market infrastructures.

One key pillar is the industry migration to the new ISO 20022 messaging standard. By 2021, many of the world’s leading banks and market infrastructures will be sending payment messages using this new standard, enabling richer transaction data to pass between participants.

ISO 20022 will play a pivotal role in enabling seamless and instant cross-border payments for a number of reasons. Chiefly though, with enhanced and richer data, it will allow banks to optimise their compliance processes, achieve straight through processing and leverage tools which harness the power of rich data, such as machine learning and artificial intelligence. These will help to eliminate the burden of false positives in sanctions filters, for example, or spot simple mistakes such as missing account information, and ultimately smooth out the path of a payment, allowing it to be credited with the end beneficiary more quickly.

In addition, many market infrastructures around the world are upgrading their payment rails to support real-time domestic P2P and e-commerce payments. Over 60 are either live or in implementation mode, including all of the major markets. This provides a unique opportunity to speed up cross-border flows, as domestic infrastructures are crucial parts of handling the final leg of transactions and carrying them to the end beneficiary account.

The main driver has been SWIFT gpi. Through a simple combination of enhanced service levels, end-to-end tracking, transparency on fees and final confirmation of credit, the experience of sending cross-border payments has been revolutionised.

More than 55% of SWIFT cross-border payments are already being made via gpi, moving more than 40 trillion US dollars’ worth of payments a year across borders faster than ever before. Half of them are reaching end beneficiary customers within 30 minutes, and practically all within 24 hours.

Within two years, every cross-border payment will be a gpi payment.

The velocity at which gpi payment transactions can be made will only continue to increase as more banks move away from batch to real-time processing, customer expectations continue to grow and service levels continue to increase.

The next step in the journey is to bring together the power of SWIFT gpi and use it to unlock truly instant cross-border transactions: from originator to the end beneficiary.

Instant payments powered by SWIFT gpi

Over the past couple of years, we’ve been carrying out exactly that. Several global trials have demonstrated that we have the ability to deliver international payments, end to end in just a few seconds by combining gpi with domestic real-time systems.

By integrating gpi through banks into these systems, we can reuse existing cross-border and domestic payments infrastructure, minimising implementation costs and avoiding the complexities of adopting new infrastructure.

And, crucially, we can deliver the benefits of gpi, speed, up-front clarity on fees and FX, and, crucially, predictability on when an end beneficiary’s account will be credited, to all types of banks’ end customers, from large multi-nationals to SMEs, and from retail to e-commerce platforms.

The results have been hugely successful. Our trials with the New Payments Platform (NPP) in Australia delivered payments between Australia and China in 18 seconds. Meanwhile a trial with Singapore’s Fast And Secure Transfers (FAST), involving 17 banks across seven countries, saw the fastest payment in just 13 seconds and payments between all continents settled within 25 seconds.

And in Europe, a trial between the European Central Bank (ECB), SWIFT and a group of 19 banks using the TARGET Instant Payments Settlement (TIPS) platform have so far yielded speeds of 41 seconds on a payment sent from Singapore, cleared via Germany, and credited to the end beneficiary account.

This will continue to progress as we roll out our gpi instant payments service globally.

What will payments look like in the future?

Instant cross-border payments will fundamentally change the way international businesses transact with one another. As the economy continues to globalise and digitalise, payments will become commoditised, to the extent that the payment leg of the transaction will become totally seamless; almost invisible.

Funds will be able to flow from account to account, anywhere in the world, and in real-time, with fees, FX, compliance and KYC information all known in advance.

And payments will flow in a common language. The scourge of missing or incorrect payments data will be a thing of the past; with payments travelling using ISO 20022 on a domestic and cross-border level.

We’re entering a new era of international payments, and we’re excited to support our community on this journey.