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Mr Harry Newman, head of banking strategy, SWIFT

Whether we realise it or not, cross-border payments are an essential part of our lives. They’re the lifeblood of international trade, global economic growth, the smooth running of businesses and the remittances that sustain millions of people worldwide.

Even the G20 has made enhancing cross-border payments a key priority, which speaks volumes about their importance in the modern world. They matter for financial institutions that want to deliver a seamless experience to their customers, corporates that need to pay for goods and services overseas or expand their operations into new territories, and individuals looking to transfer money to family and friends abroad.

To meet the expectations of their customers, financial institutions need to be able to deliver these payments fast, efficiently and securely. “Our customers require transactions that are fast, secure and cost-effective,” says Nicolas Cailly, global head of payments & cash management at Societe Generale. “That’s why, together with SWIFT and the wider industry, we’re working to transform payments processing to provide a seamless customer experience from end to end.”

Indeed, SWIFT and its community are working hard on multiple fronts, aligned with a vision to enable instant, frictionless transactions from one account to any other, anywhere in the world. This year, for instance, SWIFT has transformed the speed and transparency of low-value payments with SWIFT Go, removed key frictions with a service to validate payments upfront, and delivered tools for banks to rapidly benefit from rich data in a multi-format environment. SWIFT has also been strongly engaged in experiments to integrate CBDCs and new digital assets into cross-border flows, as well as innovative proofs of concept demonstrating the real-time interlinking of MIs.

Where frictions arise today

Payments sent internationally encounter a number of sources of friction that can disrupt the flow and speed of the transaction. These can largely be broken down into four categories – processing compliance checks, local operating hours, fragmented or incorrect data and technology limitations.

There’s no doubt that compliance checks are essential for the payments industry – they’re the first line of defence in preventing money laundering, fraud and terrorism financing. But if a payment is incorrectly flagged as fraudulent or creates a false positive sanctions hit, it requires a manual investigation that can cause delays. And, if the bank responsible for carrying out that investigation is offline at the time, it could be hours before it’s resolved.

That’s where local operating hours come into the equation. The nature of international payments is that they move across continents, borders and regulatory jurisdictions. Even if a payment is sent first thing in the morning from one region, if it travels via another that’s offline at the time then it’s unlikely it will be processed immediately, leaving the end beneficiary waiting.

Fragmented data and incorrectly input information also plays a role. Data standards and formats vary between different jurisdictions, systems and message networks, making interoperability and automation challenging. We also know that many transactions that encounter friction are the result of avoidable errors too, like typos or incorrectly input beneficiary account details.

Harnessing the power of machine learning (ML) or AI can help eliminate some of these frictions but, in reality, not all existing systems are capable of such integrations. A number of existing systems rely on batch processing, lack the ability to monitor payments in real time and have a low data processing capacity – challenges that are compounded when different systems need to interact with each other.

As consumer behaviour trends shift from a largely domestic payments model to one that regularly sees individuals sending money abroad, the importance of a frictionless experience becomes clear.

Meeting customer needs

“At SWIFT, we’re on a mission to enable all banks within our community to deliver a fast, predictable and transparent payments service to their customers, with upfront information about how much a payment will cost and how long it will take to arrive,” says Harry Newman, SWIFT’s head of banking strategy. “Payments also need to be fully trackable, with the ability to see their progress every step of the way. As consumers, we all experience this level of service in other areas of life – when ordering food or tracking a delivery to our door – and it’s important that we keep up with customer expectations with cross-border payments too.”

That goal is certainly at the heart of SWIFT Go, which SWIFT launched in July. It supports banks in the rapidly growing market for low-value cross border payments sent by small businesses and consumers. The service enables fast, easy, predictable and competitively priced low-value international payments with full transparency on timing and costs, directly from their bank account. Take up of SWIFT Go has been strong, with more than 120 banks already signed up.

Also in July, Payment Pre-validation went live, which financial institutions can use to validate a payment before it is sent to ensure, for example, that the receiver’s account details are correct. This greatly reduces errors further down the line and helps overcome a major point of friction; today, for example, 34% of payment delays occur as a result of formatting issues such as incorrect beneficiary information.

If something does go wrong with a payment, it’s important to be able to fix it quickly and keep customers up to date on the status. That’s where Case Resolution comes in. The service allows financial institutions to automate exception and investigation handling, leading to faster resolution times, reduced costs and better customer service.

All of this accelerates a journey toward instant and frictionless payments that SWIFT and its community have been on since the launch of SWIFT gpi in 2017. That collaboration has proved incredibly successful. Today nearly half of the payments on the SWIFT network are credited to end beneficiaries within five minutes, almost two-thirds within 30 minutes, and most of those that remain reach their destination the same day.

Transforming the foundations

While these services will go a long way towards reducing friction, SWIFT is also driving more foundational changes as well. Facilitating industry-wide adoption of ISO 20022 for cross-border payments and reporting is a key example, and central to making transactions instant and frictionless.

The richer, more structured data enabled by ISO 20022 offers many benefits. It allows for increased straight-through processing, and richer data reduces the risk of false positives during sanctions screening so that payments are only held up when absolutely necessary. The global adoption of ISO 20022 is well underway, with the SWIFT community and many domestic market infrastructures set to begin making their transition in November 2022.

“While ISO 20022 provides the model for transmitting rich data, we’re going even further to enable our community to get the most out of it by transforming the SWIFT platform to deliver new transaction management capabilities,” says Newman. “We are re-imagining how our industry operates – moving beyond today’s message-centric model to one that centrally orchestrates interactions between banks and other transaction participants to minimise friction, optimise speed and provide end-to-end data integrity.”

The enhanced SWIFT platform will provide a set of common transaction processing services, such as pre-validation of essential data, anomaly detection, sanctions screening, transaction tracking, exception case management and more. “We are very excited by the opportunities these new features and SWIFT’s enhanced platform will offer,” says Ilze Prinsloo, Director, Corporate and investment Bank Division at Standard Bank. “They will unlock new opportunities to bring significant value to our global clients.”

Creating a frictionless future

This is an exciting time for payments big and small, as we head towards a frictionless future. “SWIFT’s platform strategy for instant and frictionless cross-border payments aligns with the experience we are creating for our customers, to drive the future of payments,” says Paul Camp, head of global treasury management for Wells Fargo.

Bringing together rich data and common processing via the SWIFT platform will improve end-to-end efficiency and reduce total costs. High quality data, along with advanced analytics and insights, will pave the way for financial institutions to offer new value-added services that further reduce friction and enhance the end-customer experience.

“Cross-border payments should be invisible and ubiquitous,” says Atul Bhuchar, group head of payments, DBS. “We’re on that journey, and SWIFT is making significant progress on its strategy to enable this for financial institutions around the world.”

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