How faster payments can connect 'islands of processing' between banks

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Interoperability has become a top priority in the minds of those advancing faster payments.

To serve that need, Swift has built on its decades of linking bank financial networks by connecting its member banks to domestic faster payments schemes.

Through its Global Payments Innovation cross-border payments service, Swift says it has methodically developed its answer to the question of interoperability. Ultimately, Swift would position itself as the key component in connecting all banks to the latest advancements in both B2B and retail payments technology.

"In a way, that is in the genes of Swift to look at interoperability," said Wim Raymaekers, head of banking market at Swift and director of the GPI program for the past five years. "Each of our 11,000 banks is an island of processing, with each bank, especially the bigger ones, having up to 200 application islands themselves. Creating a seamless conversation from one bank to another, to another, is something we have done over the last 40 years."

Swift launched GPI three years ago to formalize common messaging, standards and business policies to be the foundation of cross-border payments. By the end of 2018, GPI service was moving 55% of its cross-border payments, with most of them being credited within 30 minutes and fully settled in 24 hours.

When the Brussels-based financial telecommunications organization designed GPI, it did so with the vision of supporting efforts in various countries that were upgrading payment systems from ACH to real-time gross settlement processes and instant payment networks.

"That was the 'aha' moment for GPI," Raymaekers said. "How can we get an improved experience for the corporate treasurer, basically through ubiquity, as all of the banks in a country are connected to their payment infrastructure?"

Over the past three years, GPI has delivered a cloud-based information database on top of payments rails that can be accessed through APIs. In that way, GPI does not force a change in the payments rails or any extensive technology advancements to integrate. By design, GPI calls for all banks to use the same messaging standards, business practices and communication techniques, thus making the ability to add on new technology easier as a network of banks.

"Swift GPI is agnostic of the underlying rail," Raymaekers said. "We can track payments across Swift, domestic payments that use Swift as an underlying technology, as well as domestic systems that don't use Swift, like CHIPS (Clearing House Interbank Payments System) or Fedwire in the U.S."

Vying for interoperability

"As far as interoperability players, no one has been able to conquer this," said Erika Baumann, senior wholesale banking analyst for Aite Group.

Competitors have tried to position blockchain as the key element of interoperability, with providers like Ripple initially touting an alternative to the Swift network of bank connections and faster payments.

"We thought Ripple was going to leapfrog ahead and at least solve for the cross-border friction for non-Swift payments, but we have not seen that materialize," Baumann said.

Fintechs have the ability to create a warehouse of endpoints like a virtual switchboard, Baumann added, citing players like ACI Worldwide and others as holding key infrastructure roles.

Swift says its GPI platform can ultimately adapt to new advancements brought to the table by developers. And such transitions come easier when the banks are already connected with identical communications standards and processes.

Because of its track record in those areas, Swift remains "a leader in trying to unite regions" and GPI adds the needed transparency for a cross-border payment from start to finish, Baumann noted.

The current downside, Baumann added, is that Swift's GPI is still not connecting local schemes and only the member banks benefit. "Although the list of Swift banks is large and growing, we still have a major gap in cross-border B2B payments."

In a big step forward, about half of Swift's cross-border payments are settled within 30 minutes, but they are not connecting local schemes to one another and Swift still has to address those payments that are not up to that speed, Baumann added.

Test cases

Swift has conducted successful trials with the New Payments Platform in Australia, where it says it is delivering payments between Australia and China in 18 seconds. More recently, it completed a trial with 17 banks across Singapore on the Fast and Secure Transfers rails, offering payments in 13 seconds between continents and settlement at 25 seconds.

Another trial has been completed in Europe between Swift, the European Central Bank and a group of 19 banks using the Target Instant Payments Settlement platform. Twelve of those banks sent cross-border payments from nine countries, including the U.S., to five receiving banks in Europe.

In addition, Swift's continued efforts with advancing the ISO 20022 messaging standard, considered a key component of any faster payments scheme because it allows rich data to be transported right along with a transaction, indicate that interoperability is something within reach to embrace.

Swift is not viewing interoperability as strictly a B2B cross-border goal. Swift says its GPI service for corporations could be a working model for other types of businesses or merchants.

"In my recent briefings with Swift they talked about their plans for retail payments, which makes sense, especially given the rapid spotlight that has been set on bill payments in the last six months or so," Baumann said.

Such an integration creates an opportunity for other use cases, Raymaekers said.

"Arguably, the treasury staff at corporations are not working 24/7, as their operations are closed on weekends," he added. "But if you go to instant payments and get more into the retail space, or a parent needing to pay a child's university fees on a Saturday morning, faster payments opens those possibilities."

Consensus matters

Swift wants its members to be collaborators, driving the adoption of more seamless customer experiences and faster payments.

"You will notice that we don't say a word about technology in those things," Raymaekers added. "It is really important for GPI to build consensus and co-creation, with the heart of it being a rulebook that actually brings layers to work toward a certain behavior and commitment to providing a certain experience."

Swift continues to push GPI adoption, looking to have 10,000 banks in that network by the end of 2020. It estimates that $40 trillion in payments were sent last year through the GPI platform, with tracking across 55 networks and market infrastructures.

Overall, Swift connects more than 11,000 institutions in more than 200 countries and territories, with more than 3,500 banks now using GPI and accounting for 85% of Swift's total payments traffic.

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Faster payments Payment processing Cross border payments Network rules SWIFT