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The way forward for cross-border payments

25/09/2019

While cross-border payments are much easier than in the past thanks to digitalisation and regulation, there is still a lot of work to be done.

In a world filled with geopolitical risks, tighter margins and heavy compliance burdens, corporates have become much more vocal about their demands of greater transparency and speed. They want the same seamless, real time, data rich, affordable experience they receive from the tech behemoths such as Google and Amazon. 

A recent report from SWIFT and McKinsey entitled A Vision for the Future for Cross-Border Payments1underscores that corporates and other customers are driving the need for change. They are looking for reliable payments delivery, access to preferred payments methods and the ability to track exchange rates and schedule payments based on this information. Companies are also expecting that data incorporated in payments transactions can be linked into any ecosystem in which they participate. In the future, payments will be open-system based and embedded within corporate processes

Great strides have been made with SWIFT’s global payment innovation (gpi), a cloud-based initiative introduced in 2017 which allows banks and corporations to send cross-border payments more quickly than if they were using SWIFT's former network. It also permits the tracking of payments and monitoring of compliance with SLA (service-level agreement) contracts, both of which shine a greater light into the processes.

Currently over 250 banks send more than US$100 billion per day in cross-border payments, representing over 30% of SWIFT’s total cross-border payments traffic, according to the report. Separate figures from SWIFT show that nearly 50% of gpi payments are credited to end beneficiaries within 30 minutes, 40% in under five minutes, and almost 100% are credited within 24 hours. The aim is to make gpi a universal standard by 2020 for all 10,000 banks on SWIFT’s global network.  

At Societe Generale, we have always been among the front-runners in gpi, since the beginning seeing the strong necessity to better stick to corporates’ key expectations.

For instance, more recently, we have been one of the first banks offering access to the full information embedded in the gpi tracker to our corporate clients. The service is up and running in 11 geographies, in Europe and Asia.

 

Tipping the balance

Another major development within gpi has been on the market infrastructure side. In May, banks from France, Germany, Italy, Luxembourg, Russia and Spain joined with SWIFT to test real-time gpi cross-border payments through the Target Instant Payment Settlement (TIPS) system. The European Central Bank has been a driving force behind TIPS, which came onto the market last year and is available to both consumers and businesses across the 19 states in the eurozone, offering near real-time payments via smartphones, PCs and in-store payment points

The ECB joined forces with SWIFT to extend the reach of instant cross-border payments throughout the region. By settling the cross-border legs of payments through TIPS, banks can benefit from the instant crediting of accounts at ultimate beneficiary banks across Europe. The ability to do so, even when the final legs of payments have to be cleared on arrival within the destination country, is key to ensuring ubiquitous availability of real-time cross-border payments. One of the obstacles has been that during the final stages, these payments were sometimes delayed due to local clearing systems.

The European trial follows a similar arrangement successfully conducted by SWIFT last year with Australia’s domestic instant payment system, the New Payments Platform (NPP), and a group of banks from Australia, China, Singapore and Thailand. For the time being, there has been no such programme in the US as the country is not as advanced in instant payment schemes as its Asian and European counterparts.

Still, challenges remain to be overcome, especially when a currency conversion or a compliance related RFI has to be performed. 

 

Greater insights and depth of information

Another area of focus and work in progress is to create a more data-rich environment in the payment landscape. All eyes are on the migration to ISO 20022 starting in 2021. The open international standard defines key business processes and data, which is compatible with existing and emerging technologies. Unlike many of the legacy formats it replaces, ISO 20022 provides detailed, well-defined structures for key information – including all the parties involved in the payment, remittance information and payment purpose details. In principle and in the long-term, this migration should bring further operational efficiencies, with possibly more STP payments and fewer delays in the alert management process.

Although it is a major undertaking, consistent end-to-end data and procedures will result in greater operational efficiencies, faster automation of transactions and compliance processing as well as improved customer service. Corporates will be able to better manage reconciliations, credit risk and fraud mitigation while treasurers can possibly leverage the data to produce more accurate forecasts, working capital reports and enhance decision-making.

At the end of the day, major developments have facilitated and advanced the cross-border payment activities. There are still problem areas such as non-transferrable currencies or those that need central bank approval due to strict FX restrictions. However, again, SWIFT as well as industry players - such as correspondent banks - are working together to devise solutions and offer a better experience to end-beneficiaries.

 

Find out more about Societe Generale Wholesale Banking

 

1. SWIFT and McKinsey & Company, A vision for the future of cross-border payments, Report, October 2018