Swift's Pay Later API puts focus on merchant relationships

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As the e-commerce payments ecosystem rapidly changes, banks have to find a way to be part of that landscape. This is especially valuable to banks whose customers shop online and could benefit from a loan.

The Society for Worldwide Interbank Financial Telecommunication is giving banks a nudge in that direction by publishing a standard for Pay Later application programming interfaces. It's not a dramatic change for Swift, but it is one that brings domestic payment standards to the forefront of an organization best known for international B2B cross-border messaging for the global banking network.

The Pay Later API will enable banks to engage in digital lending and ease merchants' costly implementations when dealing with different coding for different banks.

"In the past we have focused on cross-border messaging standards and communication for banks, but as APIs start to take off in the banking industry for payment initiation, a similar standardization is needed there," said Stephen Lindsay, head of standards at Swift. "It will help avoid fragmentation and everyone doing their own thing, and merchants having to adapt to different setups at the banks."

Pay Later operates as an instant online payment option on the merchant's checkout page, offering customers traditional bank loan financing to pay for goods purchased online. In establishing the API standard, called the Transactional Finance API, Swift says it will facilitate widespread adoption of the new payment model by both merchants and banks around the world.

Consumers who choose Pay Later at the point of purchase will be given options of various loans offered through their banks. They can select and initiate a loan, as the funds are immediately credited to the merchant and the items delivered.

"The key thing is that if you use this service, you are directed to your own bank," Lindsay said. "The bank knows its customer and can offer an attractive loan, and the consumer is dealing with someone they know."

Making it easier for banks to adopt a new payment API has been a key part of Swift's Global Payments Innovation initiative to update legacy systems and get all member banks operating and communicating in the same manner.

"We are not quite there yet, but the connections between GPI and these technology advancements is coming," Lindsay said. "GPI is mostly standards for cross-border payments, but with instant payments this is all sort of connecting. You can easily imagine using something like Pay Later to make a cross-border payment."

As much as anything, the Pay Later API standard addresses the mounting changes facing banks with the dawn of open banking through the PSD2 directive in Europe, and the growing number of faster payments networks and APIs integrating with legacy rails.

The working group on the Pay Later API standard includes banks, merchants and technology providers. Its aim is to create conditions for a broad ecosystem of the Pay Later platform to reach scale.

By re-using business definitions from the established ISO 20022 messaging standard that it manages, Swift ensures the data specified in APIs is compatible with messages used to clear and settle instant payments.

Swift has long positioned the ISO 20022 messaging standard adoption as key for banks to handle cross-border transactions, communicate effectively, innovate and add technologies like the Pay Later API.

It has also aided Swift's major role in faster payment initiatives in Australia, the U.K. and throughout the Single Euro Payment Zone.

Some banks view the Pay Later API as the springboard to what Swift hopes will be further digital development.

"The launch of Pay Later API will support banks' transition into the world of digital platforms," Tony McLaughlin, managing director of Treasury and Trade Solutions at Citi, said in a statement issued through Swift.

"The API will enable banks to maintain the vital lending relationship, while driving growth of the global digital economy," McLaughlin added. "Citi believes that the introduction of this interface will provide the basis for future innovations in platform banking."

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