SWIFT’s global payments innovation initiative: a progress report

Sometime in the next few weeks – possibly before it marks the first anniversary of its launch last December – SWIFT will announce that the number of banks to have signed up for its global payments innovation (GPI) initiative has reached 100, ahead of the service going live early next year.

The initiative, briefly known as the general payments utility (GPU) initiative in its early days, was announced only weeks after the concept had been discussed at the Sibos 2015 conference in Singapore – perhaps in response to criticisms that SWIFT and its member banks have traditionally been slow to respond to corporates’ concerns. The GPI launched with a stated aim to improve correspondent banking and the cross-border payments experience by increasing the “speed, transparency and predictability” of payments.

The main weaknesses of traditional correspondent banking for banks’ corporate customers making cross-border payments have been slowness – a transaction can typically take several days; expense – as transactions typically involve multiple deductions; and a lack of transparency and predictability on both cost and time.

SWIFT announced at the time that the new service was “designed to address end-customer needs, without compromising banks’ abilities to meet their compliance obligations, market, credit and liquidity risk requirements”.

The GPI would operate on the financial messaging services provider’s global platform and participation was offered to any supervised financial institution that was a member of SWIFT and followed its business rules.

The main drivers of the GPI initiative are as follows:

• Corporates want the ability to pay with precision, according to their trading agreements, without having cash trapped in the payment cycle-and without the risk of penalties for late payments.
• Corporates ask for transparency around fees and deductions to work more efficiently, to avoid supplier disputes or reconciliation issues when payments are not received in full.
• Corporates ask for a positive confirmation that their supplier or counterparty was credited to improve the supply chain process and efficiency.

In response, the main features of the initiative include same day use of funds; transparency and predictability of fees; end-to-end payments tracking; and the transfer of rich payment information. The end-to-end tracking ability is being assisted by SWIFT’s development of a database in the cloud providing instant visibility on the status of a payment transaction, from the moment it is sent until it is confirmed – similar to tracking services provided by international shipping companies. The resulting benefits for corporates include growth in their international business, enhancement of supplier relationships and increased treasury efficiencies.

Part of the initiative is a service level agreement (SLA) rulebook created by SWIFT for smart collaboration between the participant banks. A central service called the Observer tracks adherence to the SLA for all initiative members. Banks can gain a global view of participating banks’ adherence to the GPI SLAs, enabling them to quickly identify areas of improvement and work together on better implementation of the SLA.

Ripple rivalry

In February this year, SWIFT began piloting the GPI with 21 banks, including Nordea, Citi, Bank of China and Intesa Sanpaolo, ahead of the service’s planned early 2017 go-live. During the pilot phase 15 global banks representing more than 30% of cross-border payments tested the GPI’s design and core functions, while a further 10 global banks made preparations for the launch.

SWIFT was able to announce at the Sibos 2016 conference in Geneva two weeks ago that the first phase of the pilot had been successfully completed and was also able to demonstrate the GPI tracker. The global reach of the initiative has also steadily extended; for example, Icici Bank and Axis Bank were the first from India to join the initiative in late July.

A workshop held at Sibos also outlined some of the planned further enhancements of the initiative. A rich remittance data service; a request for payments service; a request for cancellation service; and an international payment assistant are among the developments promised by SWIFT.

However, he financial messaging services provider is not the only one with an initiative to improve cross-border payments; fintech start-up Ripple is also working on its own and asserts that it can more than match the GPI for speed, compliance and payments transparency. According to its rival, the initiative adds relatively little to what SWIFT already provides, with antiquated infrastructure making real-time settlement a challenge.

Ripple created waves at Sibos, issuing a number of Tweets that suggested, for example, that its distributed financial technology could deliver a superior global payments service.

“SWIFT’s GPI initiative will continue to mandate its 140-character message for payment instructions; that much has not changed,” the firm stated. “Unfortunately, important data such as invoices are not permitted.

“The existing flaws caused by the serial process are not addressed. SWIFT has not actually innovated the core of this messaging system; GPII is an iteration of exactly what SWIFT provides today with a marginal increase in speed for availability of funds.”

However, as yet Ripple hasn’t achieved the same critical mass, attracting 15 global banks as members of a steering group on using its technology for cross-border payments against a figure of nearly 90 that to date have signed up for the GPI.

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