A quarter of all cross-border payments are now being executed over SWIFT gpi. Does this mean all is now well with cross-border payments?
With treasurers facing long cross-border payment times, a lack of payment tracking once in the system, inconsistency of bank data requirements across jurisdictions, and payment cancellation headaches, do the latest uptake figures for SWIFT’s global payments innovation (gpi) suggest all is now well?
SWIFT reports that gpi is being used by 165 banks, with 100 currencies and 350 country corridors in operation. This represents 80% of SWIFT’s cross-border payments traffic and includes 49 of the world’s top 50 banks.
To date, 50m gpi payments have been processed. In major corridors such as USA-China, gpi already accounts for more than 40% of total payment traffic.
The project, cited as the biggest shake-up in cross-border payments for 30 years, has taken 15 months to reach this stage. Intended to increase the speed, transparency and end-to-end tracking capability of payments, SWIFT says it is expecting gpi to become the standard for all cross-border payments made on the network by the end of 2020.
“It’s clear that the global payments industry needs to evolve in order to provide customers with a modern service that meets their expectations,” said Harry Newman, SWIFT’s Head of Banking in a statement. “With more than 25% of traffic and over US$100bn a day now flowing securely over gpi, it is rapidly becoming the new cross-border standard.”
SWIFT says the adoption and use of gpi has been driven by demand for a faster, more transparent cross-border payments service. Nearly 50% of gpi payments are completed and credited to end beneficiaries’ accounts in less than 30 minutes, with many taking seconds.
In March 2018 SWIFT announced the extension of its gpi Tracker to cover all payment instructions sent across the network. This enables gpi banks to track all their SWIFT payment instructions, giving them full visibility over all their payments activity.
Banks using the service are reported as having seen their enquiry costs fall by up to 50%. However, Treasury Today understands that unless a bank turns on this functionality for specific customers within their online portal, those customers must still request the tracker data; it is not an automatic feed.
The main threat to SWIFT’s gpi aims comes from Ripple, the largest distributed ledger technology (DLT) -based payments initiative. Ripple describes its offering as a real-time gross settlement system (RTGS), currency exchange and remittance network.
Ripple claims sub-second cross-border payments with automated best pricing from its network. Since Ripple payments are near-instant, its model removes credit and liquidity risk from the process, lowering costs to banks. Its claim is that since the network finds the best price for exchange and liquidity, pricing is optimised and customers are no longer locked in to the wide spreads currently reflected in the bank board rates.
The benefits for corporates seem clear in terms of price and speed. Corporates may also appreciate the elimination of settlement risk. Further, Ripple uses industry standard ISO and MT messaging. Because participants are both directly and multilaterally connected there is no loss of corporate data in the payment messages. Known fees and complete messages make for higher automated reconciliation rates.
Perhaps it is this threat that has driven SWIFT to explore DLT, with the launch in January this year of a blockchain proof of concept (PoC). Working with several of its gpi-signed correspondent banks, using a ‘sandbox’ approach and a private confidential ledger, it has set out to discover if blockchain has any benefits for banks’ real-time reconciliation of their Nostro accounts.
The 28 banks that carried out live tests reported that they were able to reconcile their accounts more efficiently, reducing the sums they need to hold in their various Nostro accounts around the world.
According to a recently published report by SWIFT, the PoC also showed that DLT could deliver the business functionalities and data richness required to support automated real-time liquidity monitoring and reconciliation. Indeed, amongst others, it enabled functions such as real-time event handling, transaction status updates, full audit trails and visibility of expected and available balances.
“Although the PoC demonstrated DLT could improve Nostro liquidity management and reconciliation processes, it also revealed that pre-requisites will have to be met before banks can enjoy the full benefits of switching to a DLT process”, said Damien Vanderveken, Head of Research and Development, SWIFT.
Pre-requisites include the need for all account servicers to migrate from batch to real-time liquidity reporting and processing, and the need for bank back office applications to be upgraded to feed the platform with real-time updates.
SWIFT says it can facilitate the necessary improvements in the Nostro process by helping its community migrate towards real-time liquidity reporting and processing through gpi. The re-use of the gpi unique end-to-end transaction reference, using its central payments tracker, will play a role in achieving this.
However, the PoC also revealed that there must be more progress within the DLT concept itself before it can comfortably be used within a systemically important global infrastructure such as SWIFT.
Work in progress
Notwithstanding the early-day issues, SWIFT’s Chief Platform Officer, Stephen Gilderdale, commented that it is a “strategic priority for SWIFT to work with new technologies like DLT and incorporate them into key solutions like gpi”.
Gilderdale added that new PoCs are under way as SWIFT continues its R&D efforts “to ensure that customers will be able to leverage their existing SWIFT infrastructure and connectivity to benefit from blockchain services, whether offered by SWIFT or by third parties, on a secure and trusted platform”.