Easing the pain points
As innovative payments platforms begin to address end-user needs, banks and market infrastructures are firmly focused on future challenges
Wholesale payments have not benefitted from technology innovation to the same extent as many other business processes. In the Banking stream at Sibos 2017, much of the discussion focused on how the industry is coming together to propel payments into the digital age.
Two years on from the unveiling of SWIFT’s global payments innovation (gpi), the project has earned widespread industry support as a necessary step to address customer pain points in cross-border payments. The pace of widespread adoption will now depend on exploration of its potential by both banks and corporates.
“The level of transparency gpi brings to payments not only holds banks to account and makes sure they are delivering at every point in the value chain, but it also starts to become a risk mitigation tool for the corporate treasurer. It affords a level of interrogation of the payment process that never existed before,” said Paul Taylor, global head of corporate sales and head of EMEA sales for global transaction services at Bank of America Merrill Lynch (BAML).
Live since January 2017, SWIFT gpi aims to improve the speed, transparency and traceability of cross-border payments for the benefit of banks and their corporate and institutional clients. The first phase of gpi allows banks to provide corporate treasurers with a real-time ‘in-flight’ view of the status of their cross-border payments, including confirmations when payments have been credited to beneficiary accounts. Although in its early stages, over 120 banks globally, including many leading providers, have already signed up.
“This is a strategic priority for us. We have a lot of customers that are internationally active and they require services that can connect the dots across their supply chain. The more information we have on the payment streams, the better we can serve our clients and the gpi structure gives us the information we need,” says Soren Haugaard, global head of trade and supply chain finance at Danske Bank.
The second phase of gpi will allow banks to immediately stop a payment, at any stage in the transaction chain, to exchange rich payment data, including details necessary for compliance checks and to bring end-to-end processing intelligence at origination to further increase the speed and predictability of cross-border payments and improve the overall customer experience.
As gpi momentum gathers, evidence also builds of a number of pain points for end users arising from the pre-existing payments landscape. A current research project commissioned by the SWIFT Institute is expected to highlight dissatisfaction with the high costs, slow speed and lack of complete data that render existing cross-border payments services sub-optimal. Transition to new services and platforms is a complex and delicate matter. The first phase of gpi runs on existing infrastructure, for example, while also leveraging the cloud to deliver payment traceability. Many market participants are cautious about their own future path.
“If a lot of users don’t want any innovation, but they’re complaining about fees and speed and lack of data reconciliation capability then they’re unhappy users. Clearly at some point we are all going to digitise, but I think we need to look at the next steps as to how we can achieve change that really makes sense,” said Ruth Wandhöfer, global head of regulatory and market strategy at Citi Treasury & Trade Solutions.
Pain points in the payments transaction lifecycle were fleshed out in multiple sessions across the Banking stream of Sibos 2017, including one focused on the role of instant payments market infrastructures and correspondent banks in international payments. Leila Fourie, chief executive of the Australian Payments Network, summed up client expectations with reference to UK rock band Queen’s anthem to immediate gratification, ‘I want it all and I want it now’.
“That’s a wonderful expression of where customers are at now – they don’t just want it now but they want it all. Real-time payments on their own are not sufficient to sustain us as a financial services environment. We have to have real-time anti-fraud measures, and real-time end-to-end digital customer solutions,” said Fourie.
Australia is scheduled to move to real-time payments in the coming months, using a new infrastructure built, designed and operated by SWIFT that enables additional value-added services to be incorporated into the underlying platform.
“Real-time payments is today’s issue, but I see a world in the future where real-time anti-fraud measures, big data and artificial intelligence (AI) are crucial drivers. Those customers that want it all and want it now expect that we as payments processors or financial institutions will read and interpret the dynamics in the market using AI and integrate them into their payments,” Fourie explained.
Discussion of AI and blockchain has become a cornerstone of the Sibos agenda in recent years, but the path to practical application of such technology innovations to pressing industry problems has not always been clear. BAML’s Taylor suggested this year was different, with problems and solutions beginning to align to a greater extent.
“We’re seeing now that there is actually an interconnectedness and many of the problems may be solved by the technology. One of the most dangerous things we can do is to innovate alone – there is an underlying fear that we will come out with something which is not the standard that is applied across the industry. The more we can encourage dialogue, the stronger the outcomes will be,” said Taylor.
For some corporate treasurers, however, the future potential of new technologies must play second fiddle to the ongoing and immediate need to solve fundamental problems, such as the tracking of payments and improving oversight of liquidity. As always, Sibos offered the opportunity for corporates to discuss their challenges face-to-face with banking counterparts, albeit with the advent of gpi providing a more concrete vehicle for resolving their concerns.
Brooke Tilton, vice president of treasury operations at Viacom, owner of Nickelodeon and Paramount Pictures, expressed frustration at the time spent by her staff ascertaining whether funds have been received.
“When SWIFT started talking about a way to know if a payment was received by a vendor and to give us greater transparency into correspondent banking, we were really excited to be able to finally know if funds have been received. We spend an inordinate amount of time looking up payments and sending screenshots to people we’ve sent payments to,” she explained.
Although gpi offers corporates the prospect of more certainty and transparency regarding transfers effected via correspondent banking channels, Tilton and other treasurers suggested that domestic payment systems – for high- and low-value payments – also had room for improvement.
As with any initiative designed to address the challenges of a multi-legged, cross-border value chain, the success of gpi will depend on its adoption on a global basis. Bart Verweij, deputy treasurer at Booking.com, suggested gpi might be more widely used if it becomes mandatory from a certain date.
“The main problem with international payments is not when I’m paying from Europe to the US, but it’s when I’m paying from Europe to Zimbabwe or Kenya or other markets. If the last bank in the line hasn’t signed up, the payment gets stuck with the latest correspondent and I still don’t have the latest information. It’s extremely important that all the banks sign up and commit to gpi,” said Verweij.
Notwithstanding the question of adoption rate, the business case is growing for use of innovative, consensus-based platforms to address pain points in the payments process. Plans to integrate distributed ledger technology into gpi further suggest an evolving new paradigm in which banks build individual value propositions on the basis of common investments.
“We want to find ways that allow for an incremental improvement of the service over time. SWIFT gpi is the first step in what ultimately can be an incredibly powerful system that remains bank-centric and leverages the networks that are already in place. From a participation perspective, the investments are being made by the parties that are going to remain central to it over time,” said Michael Bellacosa, global head of payments at BNY Mellon Treasury Services.