Winston Churchill once said that a lie “gets halfway around the world before the truth has a chance to get its pants on.” If only cross-border payments could be so fast. Unfortunately in its current state, cross-border payments remain stuck in a period that seemingly predates Churchill; it’s almost “horse and buggy” compared to the rest of the advances of today. Why in a time of instant communications does it still take days for a payment to get to a customer or vendor?
Consumers of course have been benefiting for years from the rapid innovation that has made electronic payments easier and safer to use. PayPal, Apple Pay, Alipay, etc, have helped make payments faster and more transparent for consumers. But not so for corporates, whose needs are a bit more complex. Greater controls requirements, increased security, regulatory compliance, and doing business in multiple currencies often get in the way of the innovation and convenience that consumers have so far enjoyed.
SWIFT aims to help overcome these obstacles with a new plan called the Global Payments Innovation Initiative (GPII). Announced in December 2015, GPII aims to “enhance cross-border transactions” by leveraging SWIFT’s messaging platform. And as of late January 2016, SWIFT has signed up more than 45 banks to take part.
The impetus of the program, says Stanley Wachs, Global Head of Bank Engagement, Global Payments Innovation, is that the current correspondent bank model is under pressure. Particularly, cross border payments aren’t adequately meeting the needs of corporates, banks and even regulators. The current state of cross-border payments is basically slow, expensive and not very transparent; fees aren’t predictable, says Mr. Wachs.
Although SWIFT has 45-plus banks signed up, it’s starting off with a pilot program of 20 banks. Each of those banks will be required to have dedicated resources to help manage their part of the initiative. Banks will also have to adhere to a service level agreement rule book that will hold them to making payments same-day, transparent and predictable, able to be tracked end to end, and finally, able to transfer rich payment information. The GPII will be “designed to address end-customer needs, without compromising banks’ abilities to meet their compliance obligations, market, credit and liquidity risk requirements,” SWIFT says. It will also operate on SWIFT’s current platform and will be “open to any supervised financial institution that is a member of SWIFT and adheres to its business rules.”
Part of the innovation initiative will also include getting involved with distributed ledger technology trend. SWIFT also in December announced it has joined the Linux Foundation Distributed Ledger Initiative. SWIFT has recognized that there is a lot of potential for emerging technology, which also dovetails perfectly with the goal of real-time payments. Distributed ledger “shows great promise in the enterprise, SWIFT said in statement. For instance, it “allows securities to be settled in minutes instead of days. It can be used to help companies manage the flow of goods and related payments or enable manufacturers to share production logs with OEMs and regulators to reduce product recalls.”
“Following the pilot focused on cross-border payments for corporates, SWIFT aims to incorporate additional innovations and deploy new technologies as part of the global payments innovation initiative,” SWIFT says. “SWIFT will work together with the industry to define additional service level agreements that will cater to other client groups, including, but not limited to distributed ledger technology and blockchain, to further improve efficiencies in cross-border payments.”