Will Fortune Favor The SWIFT?

Can SWIFT, which provides financial messaging services worldwide, give financial technology startups a literal run for their money? We’re about to find out.

In an update yesterday (Feb. 10) in New York City, SWIFT executives provided details of the new, extended services it intends to bring to market over the next 18 months.

This move is otherwise known as the SWIFT global payments innovation initiative. Announced last December to much fanfare, this initiative is SWIFT’s acknowledgement that the status quo can no longer stand in a digital payments world increasingly crowded with options.

At least initially, said Stanley Wachs, global head of SWIFT’s bank engagement and global payments innovation, the initiative will focus on cross-border B2B transactions — a segment that dwarfs retail payments. The initiative, which will see the light of day through a pilot program launching early in 2016, represents an industry-wide collaboration.

There’s the acknowledgement, said Wachs, that cross-border payments as they now stand — where transactions can take several days to settle — are “under pressure” from alternative and competing technologies. In order to meet that challenge, cross-border fund flows must be “faster and better.”

The traditional international payments structure, Wachs added, has been marked by increased compliance cost and risk and, in fact, has “limited the business case” as it now stands.

Digital innovation and disruption have served as a “wakeup call” for many banks, Wachs said during his presentation, with alternatives offering “cheaper and faster payments services” available through avenues such as Western Union and PayPal, which, he noted, have been instrumental in leading P2P into an international transition and are now getting into B2B.

Such alternatives have made banks cognizant of pain points in their own day-to-day transactions. SWIFT’s global payments innovation initiative looks to uncover and promote a better payments experience tied to international transactions, focused on security, compliance and global reach. What lies ahead, stated Wachs, is a new set of business rules governed by an “open model.”

The current relationship between corporates and banks would gain improvement, Wachs believes, through the introduction of same-day use of funds, with global reach from the 45 banks that have signed on, which represent roughly 70 percent of the cross-border transactions that come from banks today.

Those banks working in sync will help to develop the SLA (service-level agreement) rule book, which will be a common guide for adherence from all members that has a customer focus and, as Wachs said, will “also have the corporate treasurer at the center of the model.”

One eventuality, said Wachs: SWIFT’s new technology and roadmap will extend to embrace P2P payments and consumer transactions.

The global payments innovation initiative will also contain a “vision group” with the goal of fostering even more collaboration between banks, with exploration, Wachs posited, of issues such as how to utilize blockchain, or distributed ledger technology in general, as payments trackers.

On top of same-day use of funds, Wachs said the cross-border experience made possible through this initiative would be heightened by a transparent fee structure, with an exact amount known and reconciled to the seller’s account straightaway — “reconciliation is easier,” Wachs added.

End-to-end payments tracking would entail banks sending confirmation to buyers that seller accounts have been credited, which will help lessen friction. Referring to remittance information, reconciliation will be improved by payment information through messages 140 characters long, at least initially.

The pilot program is slated to kick off over the Feb. 16–18 timeframe, with vision groups beginning to take shape in May, according to slides provided to reporters.