SWIFT gpi to gain further traction

By Monika Aminiova | 5 April 2018

Since SWIFT first announced global payments innovation (gpi) at SIBOS in 2015, more than 150 financial institutions have joined the platform, pushing more than US$100 billion daily across the system.

This support and traction has been driven by growing client expectations for enhanced speed and visibility along with broader regulatory changes that demand increased transparency.

But reaching SWIFT’s goal of establishing a standardised global payments service within the next four years is no mean feat. Crucial to achieving it is the development of a worldwide network of correspondent banks that use SWIFT gpi as a new standard.

Assessing the current global payments landscape

We are currently in the first phase of the initiative with the SWIFT gpi project.  All gpi payments are processed according to a set of rules outlined in the SWIFT gpi Rulebook, which introduces consistency into payment processing, in combination with information stored in gpi Tracker; a live payment tracking system that is already having a profound effect on payment status investigation.

Previously, it could take considerable time and effort simply to track a payment, with numerous banks involved in the transaction chain and different reference numbers used by each bank to identify the payment in their system. Now, however, the unique end-to-end transaction reference (UETR) number attached to every payment acts as a universal identification tag. With that, the full transactional payment details are stored in the gpi tracker and are accessible to any gpi compliant bank in the particular payment chain.

For banks, this means a significant reduction in costs spent tracing payments– in some cases by as much as 50%. Their clients receive answers to queries within hours rather than days.

While the tracker can currently only identify the payment location at SWIFT gpi enabled banks, a bigger change lies ahead. Later this year, all banks will be required to include the UETR number for all commercial payments; therefore even if a bank is not SWIFT gpi compliant, the payment chain will not “break”.

The SWIFT gpi tracker also creates pricing transparency. Each bank involved in processing a SWIFT gpi transaction must transmit information detailing total processing time and payment actions, such as deductions or FX conversions. In the case of an FX conversion, the bank will also be obliged to state the FX rate used. This creates new visibility over bank fees and processing time, as well as new incentives to enhance services as banks compete for business.

The exact level of transparency will still remain at the discretion of banks, but due to high client demand in combination with increased competition and further transparency obligations per European Commission regulatory requirements, European banks may well choose to be increasingly forthcoming with pricing information.

Transparency aside, we certainly expect radical improvement in transaction speed. Ultimately, clients will be able to expect same-day use of funds.

Continuing innovation

Phase two of SWIFT gpi is now under way.  A key planned enhancement is the ability to stop or even revoke a transaction before funds reach the beneficiary bank, via a SWIFT “Stop and Recall” payment message. Imagine the value for handling manual errors, double payments, and even fraud.

Another proposed enhancement will enable payers to attach documentation to the payment itself. The emitting bank will be able to upload documentation – such as invoices – to the Tracker, which can be downloaded by the beneficiary bank and passed on to the recipient client. This could completely revolutionise an otherwise cumbersome reconciliation process for corporate clients.

We expect further optimisation in the speed of cross-border transactions if SWIFT gpi ties into existing real-time payment platforms. Beyond added efficiency for a traditionally slow process, such linkages also allow banks to comply with the SWIFT gpi service level agreement requiring banks to process payments on a same-day value basis.

Strengthening the chain

Although seemingly within reach, SWIFT gpi depends completely on the capability of each institution in a correspondent banking chain. To harness and deliver the benefits to clients, banks need more than positive uptake – we need critical mass for transactions to be consistently tracked and credited along SWIFT gpi-enabled payment corridors.

Yet it is not just banks shaping the trajectory of the initiative. Fintechs will also play a part, either by directly influencing the core of payment processing or by building complementary services to SWIFT gpi. SWIFT has already started working with approximately 100 fintechs on an advisory basis to assess how these companies can best contribute. In the future, there may even be even scope for fintechs to become licensed as SWIFT gpi-compliant payment providers in their own right – meaning that the direction of SWIFT gpi could be further influenced by fintech client expectations and fintech business models, and ideally drive better bank-fintech collaboration for a better total client experience.

As one of the 21 leading banks involved in the project since 2015, BNY Mellon has worked closely on the initiative and already processing US dollar transactions through SWIFT gpi since November 2017, with euro and sterling transactions next in line.  At heart, the best strategy to achieve real market reach will be for all banks to speak the same SWIFT language. It is only by working together that we can ensure our clients can benefit from these new, exciting capabilities that are transforming cross-border payments.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development