International trade is a major component of revenue for most businesses in today’s global economy, but cross-border payments systems have failed to keep pace with modern standards.
Although reliable and essential, international payment transactions have not evolved rapidly enough to keep up with the changing needs of today’s corporate treasurer.
Traditionally, when a corporate treasurer sends a request for a cross-border transaction to a bank, they have no visibility of what actually happens with that request. Treasurers often liken this to a “black hole”; they have no view as to when payment finality occurs or its final costs. This can lead to problems with suppliers or end-customers, not to mention increasing financial risks resulting from payment delays or non-compliance with regulatory requirements.
Banks have varying fee structures, and several banks may be involved with one payment, making it very unclear how much money is going into the beneficiary’s account once foreign-exchange (FX) and other transaction fees have been cleared. Having fee information available upfront is beneficial for corporate treasurers, as this facilitates a more efficient reconciliation of payments and invoices. The speed of transfers also remains a bugbear for many corporates. The average payment delivery schedule may run between two to five days, sometimes longer. Until now, there has not been a payments-tracking mechanism in place that allows treasurers to track when a payment has been received by the seller or supplier. This lack of traceability causes cash-management challenges for corporate treasurers.
These issues are causing frustrations across the corporate-treasury community, and opening the door for innovative solutions and new technologies. Businesses and consumers are demanding not only faster settlement, but also improved customer service around their international transfers.
Closing the innovation gap.
Banks are rising to the challenge, particularly as cross-border payments undergo a once-in-a-generation change. They are working together for the benefit of their customers and introducing innovative thinking to existing business processes, all while working to significantly improve user experience. Recently, there have been visible improvements using existing rails, and as new technologies come to light and mature, we can expect that they will be explored, assessed and deployed when the time is right.
This is being driven by a number of factors. Firstly, the relationships between larger banks and smaller banks are changing, as they realise they need to collaborate with each other in order to provide the best service. Secondly, customers have come to expect greater transparency. When they send a payment, they want to monitor its progress and know when it has been received. Until now, this has not been a straightforward process: if a payment has to pass through multiple correspondents, the bank that initiated the payment may not have all of the relevant information for their corporate customer. Lastly, multinational corporations increasingly require the ability to settle cross-border transactions more quickly, trace payments and collections throughout their lifecycles, and have forward visibility of cross-border transaction fees.
The international banking community has therefore long been looking for a more efficient cross-border payments model that increases the speed and transparency of international payments.
Collaborative initiatives rise to the challenge.
Many start-ups often gain considerable attention with the promise that their innovative solutions to known problems using new technologies will transform the sector. While this is certainly welcome and necessary, many of these firms lack the regulatory oversight or international reach necessary for their products to achieve mass adoption.
To overcome these challenges, financial institutions are working together to meet the real-world needs of the industry, and are looking to collaborative initiatives. Leveraging their existing connections to broad numbers of institutions, utilities offer a natural route to developing effective, appropriate solutions that can be adopted across the industry. Put simply, collaboration is the cornerstone of innovation. Without it, the simplest of solutions might never come to pass.
The idea of bringing the industry together to address a common challenge is not new. Community platforms are used in a wide range of industries, and in some cases have grown to become systemically important in areas such as financial-crime compliance and know-your-customer initiatives. As neutral entities working for the benefit of their members, these platforms offer the ability to share ideas, best practices, policies and technologies in order to find solutions that can lead to industry adoption.
Making same-day payments a reality.
Recently, more than 110 leading transaction banks from Europe, Asia Pacific, Africa and the Americas signed up to a pioneering initiative that sets the new standard for cross-border payments. Developed by SWIFT in collaboration with these banks, the global payments innovation (gpi) service enables banks to offer their customers fast, transparent and traceable cross-border payments.
As a global member-owned cooperative, SWIFT holds a unique position in regards to its ability to engage with its ecosystem to drive innovation. SWIFT launched gpi with one goal in mind: bring the banking community together to improve the cross-border payments experience for their customers. Since launch, hundreds of thousands of gpi cross-border payments are being sent across the globe.
This commitment from banks around the world demonstrates the critical role utilities can play in bringing payments technology up to the standards expected in today’s modern, interconnected world. It’s this collaborative approach and willingness to work together that will help us innovate, evolve and manage the needs of our customers in an ever-changing industry landscape.