Business payments are speeding up, and so is information about those payments. In the latest evolution of the payments landscape, a dozen banks worldwide have gone live with SWIFT’s global payments innovation (GPI) initiative, which provides corporate treasurers with more timely information about cross-border payments they make using the correspondent banking network.
“The focus here is to improve the cross-border payment experience the corporate treasurer gets from their banks,” said Wim Raymaekers, head of GPI at SWIFT, the global financial messaging network.
When a company does a cross-border wire transfer, the payment may travel through a chain of three, four, or even more banks before it reaches the bank of the company due to receive it, and each bank along the way can subtract a fee from the payment. Until now, companies have been left in the dark as to the progress of their cross-border payments.
Prior to GPI, “there was no view on a transaction,” Raymaekers said. If a payment made four stops along the way, “on SWIFT we would see four messages among the 40 million messages that are sent on the network each day,” he said. “We could not link them together.”
With GPI, not only can SWIFT see the payment’s movement from bank to bank, but “we can give to the buyer the confirmation the money is in the account,” Raymaekers said. The GPI tracker also records the fees that are deducted from the payment so that the company knows how much its counterparty actually received.
SWIFT’s initiative also promises faster availability of the payments being made. GPI users are guaranteed “same day” use of funds, with the proviso that because there are different time zones involved, the day specified is that of the receiving bank. “If you send a payment this afternoon to Japan, they’re sleeping,” Raymaekers noted. “It will not be within our day.”
From the perspective of corporates, sending payments via the correspondent banking network has involved delays, fees, and opacity, said Nasreen Quibria, founder of Q insights, a payments research and consulting company.
“What SWIFT GPI does is offer transparency on those fees as well as predictability of the payments, which is a huge benefit for corporations,” Quibria said. “This is something that treasurers have always sought.”
No New Messages
The initiative uses existing SWIFT messages and doesn’t entail any new message types. “We added new fields to existing messages and built a database in the cloud that banks can access via an API,” said Raymaekers, pictured at left. “The advantage of the decision to do it on the existing payment infrastructure is that we were able to deploy this very quickly.”
The 12 global banks that have gone live on GPI are among the nearly 100 banks that have signed up for the initiative.
With those banks live, SWIFT is seeing “hundreds of thousands of live GPI payments, across 60 country corridors,” such as China to the United States or Italy to Denmark, Raymaekers said. “We have another set of banks going live in the middle of the year, and it will build up like that.”
He said GPI also helps banks. For example, banks can go to the GPI tracker to determine where a payment is, allowing them to give their corporate customers feedback. “It improves the service that banks offer to their clients, and it also reduces the cost to banks of getting this information,” he said. It’s up to each bank to decide how to package the GPI services for its customers and what to charge for them. Raymaekers said some banks were considering adding a button to the portals used by corporate treasury customers that would let companies click to find out where their payments are.
“So the corporate can do self-help,” he said. “With the button, they can find out immediately.”
The features rolled out to date, such as the tracking of payments and fees, are just the initial phase of GPI.
Quibria said the first phase showed SWIFT keeping up with the competition, rather than breaking new ground. “All of the financial institutions have been exploring similar forms of technological capabilities, as far as being able to track a payment,” she said. “However, SWIFT is in a better place to implement them just because they have the infrastructure in place with many, many financial institutions around the world.”
The second phase of GPI is projected to give banks the ability to stop a payment immediately, no matter where it is in the correspondent banking network, and provide rich payment data along with the payment.
That enhanced data “will allow additional compliance checks and allow remittance details to flow through with the payments,” Quibria said. “That’s going to enable what corporates have been seeking for eons, which is straight-through processing.”
The third phase of GPI will examine the use of distributed ledger technology in cross-border payments. “Every financial institution has been exploring some form of blockchain technology, and of course SWIFT wants to remain competitive,” Quibria said.
While the banks will set the terms for GPI, she suggested the initial phase isn’t likely to involve significant fees for corporates, but predicted the second phase could be more expensive given what it will cost the banks. The second phase involves richer payment data, and “when you have so much data, it requires better technology and greater digital capacity,” Quibria said. “In order to have a modernized service, there are going to be capital costs.”
James Wester, research director for worldwide payment strategies at IDC Financial Insights, said SWIFT’s GPI was part of a much bigger shift, with more payment networks opening their doors, large corporates wanting more flexibility around payments, and banks seeing an opportunity to use payments to differentiate themselves with their corporate customers.
“The fact that we’re beginning to see corporate payments becoming an exciting place is almost odd,” Wester said. “I think it’s because corporates themselves are beginning to understand just how important payments are to their overall financial management.”