SIBOS 2024: top talking points from Beijing

Interlinking different payment initiatives

Speaking at SIBOS Beijing, Anne Fleur Felissent, Global Head of Sales, Cash Clearing Services, shared her insights into the benefits of interconnecting different cross-border payment initiatives. 

As part of the EU’s Instant Payments Regulation, all payments of up to €100,000 made within the Single Euro Payment Area (SEPA) must reach the beneficiary bank within 10 seconds.  “However, one of the main limitations with this domestic-focused scheme was that it did not apply to cross-border transactions outside of SEPA,” said Felissent. Efforts to remedy this imbalance are underway, she continued.

The European Payment Council (EPC) is introducing One-Leg Out (OLO) Instant Credit Transfer (OCT Inst), an entirely optional initiative designed to achieve interoperability for the provision and operation of the euro-leg of an international instant credit transfer agreed at an inter payment service provider (PSP) level within SEPA*.  

According to the EPC, OCT Inst empowers PSPs in the Euro-leg to use as best as possible the existing SEPA payment rails, including procedures, features and standards, which PSPs are already familiar with, such as the SEPA Instant Credit Transfer (SCT Inst) scheme and existing SEPA payment infrastructures*.  

Immediate cross-border payment schemes are also being developed elsewhere. High-profile examples here include the Immediate Cross Border Payments (IXB) initiative, which is being spearheaded by The Clearing House and EBA Clearing. 

Facilitating connectivity and interoperability between these different payment systems should be encouraged, said Felissent.

My view is that these different initiatives are complementary to each other, and they can co-exist if we manage to rely on the advantages of both to overcome the difficulties. Take OCT Inst, which is easy to implement for incoming payments and standardised. However, this standardisation is not end-to-end because of the out-leg. Co-existence with schemes such as IXB would help overcome this challenge by harmonising the framework end-to-end, said Felissent. 

Felissent conceded that while interlinking the different schemes will be operationally complex, the strategic benefits – namely better standardisation and reducing the need for multiple bilateral agreements – are compelling. 

As and when these linkages are built, the user experience will be further enhanced by relying on OCT Inst. “The benefits of interlinking are increased when relying on OCT Inst. Using the SEPA standard connected to the Switch infrastructure would avoid us having to redevelop specific formats for each and every initiative, thereby maximising our ability to achieve harmonisation with other jurisdictions,” she added.

Getting the most out of data

Accessing high quality data and analytics is essential to determine the most efficient payment routings. By increasing speed and reducing costs, providers can ultimately enhance the end customer’s experience.  

During SIBOS Beijing, Adrien Laniau, Head of Network, outlined how Swift products are helping to facilitate this. 

When choosing correspondent banking providers, Laniau said, firms need to meet five basic criteria to warrant selection.

Providers need to have competitive pricing, operational efficiency, resiliency, demonstrate trust and flexibility in case of crisis, and a willingness to provide regular market updates and information. Swift products help us measure and achieve the first three criteria, said Laniau.

Among the Swift products being used by Societe Generale include Swift Ref, Swift Watch, GPI, Payment Pre-Validation and Case Management. But how do these solutions actually make payments easier?

SwiftRef helps its users find the biggest clearing banks in a certain currency. A bank whose name often comes back with another bank’s standing settlement instruction (SSI) will most likely process many transactions book-to-book.  As a result, the cost of payments through that bank should be lower and the speed of processing faster. 

“SwiftWatch is a technical and powerful tool which really helps us in our negotiations. By knowing precisely the volume of flows we send and receive - as well as the breakdown between the different payment categories - we can base our negotiations on the most important items to get the best prices for us and our clients,” explained Laniau.

Meanwhile, GPI, which went live in 2017, gives financial institutions a better look-thru into the status of cross-border payments, thereby reducing the chances of delays. “GPI is a fantastic tool and helps us when a payment is stuck as it gives us better visibility into the cross-border payment transaction lifecycle and what is happening,” said Laniau. 

He continued: “We also have high hopes for Swift’s Payment Pre-Validation solution, a tool that allows the ordering bank to verify that payment details (account number, BIC code, purpose code, etc.) are correct before a transaction is made. This reduces the chances of payment fails, improves the velocity of payments and enhances overall security.” 

And finally, Case Management comprises of two products. The first is the Stop and Recall Service, which helps users stop a payment that has been made incorrectly or fraudulently, while Case Resolution is designed to quickly solve investigations relating to missing or incorrect payment information. “Around 2% to 5% of payments encounter frictions, costing the industry $2 billion every year. Once adopted by the whole market, Swift’s Case Management solution could be a major help in removing these remaining frictions,” he said.

The trade data revolution

While the payments industry is making solid progress on data and digitalisation, so too is trade finance, although there is still some catching up to do, according to experts at SIBOS Beijing. 

Today, the entire trade finance ecosystem, i.e. corporates, SMEs, banks, shipping companies, wants trade finance processes to be simpler, quicker, cheaper, secure, and well-risk managed. Embracing data and disruptive technologies will be a massive enabler to achieving these goals. 

As of today, less than 5% of the 4 billion paper transactions being exchanged in trade finance every year are actually digitalised. In fact, the end-to-end time required to process documents in a trade finance transaction is longer than the time taken to ship goods from one part of the world to another. 

Getting trade finance right will help SMEs and corporates optimise their working capital. 

We have so much data in trade finance which is coming from multiple sources and parties, and this information is not harmonised, nor is it normalised. The big challenge is ensuring that all of the parties in the value chain have access to this data, at the right moment in time, with the right level of access. If the industry is to leverage and make use of data, then everyone in the trade finance ecosystem has a role to play in the digitalisation effort. All stakeholders must be active participants in this big revolution, notably in the evolution needed in trade finance processes, said Marie-Laure Gastellu, Global Head of Trade Finance at Societe Generale. 

Progress is happening, however, particularly around digitalisation.
At Societe Generale, Gastellu said: “The bank has been investing heavily into technology in its back-office systems and is now using Artificial Intelligence (AI) tools to expedite compliance checks and speed up documentation checking. We are also leveraging data and digitalisation to improve client engagement by making it easier for them to communicate with us.”

As data and digitalisation gradually becomes more embedded in trade finance processes, efficiency benefits will continue to be realised, i.e. automation, lower risk of fraud, reduced delays, etc.  allowing for costs to come down, and ultimately making trade finance more accessible for corporates and SMEs. 

Standardisation is a key dimension in the acceleration of trade finance digitalisation.  Without   standards, it is difficult for parties in the trade value chain to share information smoothly, quickly and safely.  So, what exactly needs to happen?

There needs to be technical interoperability, whereby IT systems and software can communicate and exchange data with each other using a standard protocol and formats.  There must be semantic interoperability, so that the meaning of exchanged information is understandable and consistently interpreted by all parties involved. Business processes and procedures across different organisations must be aligned to ensure that transactions happen smoothly. And finally, there must be legal interoperability, where we have harmonised legal frameworks and regulations across jurisdictions to support the validity and enforceability of electronic documents and transactions, highlighted Gastellu.

On the regulatory side, inroads are being made, with more countries incorporating the Model Law on Electronic Transferable Records (MLETR), a UN framework supporting trade finance digitalisation, into their domestic legislation. Currently, 12 countries have adopted MLETR, accounting for 37% of global GDP**,  a figure that is only expected to increase.  

Through digitalisation and standardisation, trade finance will become more streamlined, faster, less costly, increasingly secure and better risk managed, making life easier for corporates and SMEs alike.

After a successful SIBOS in Beijing, the conference returns to Europe, with SIBOS 2025 taking place in Frankfurt between September 29 – October 2.

* European Payments Council – One Leg Out Instant Credit Transfer
** Emerald Capital – July 13, 2024- Global adoption of MLETR: Are we approaching the turning point for digital trade?