The SWIFT global payments innovation (gpi) initiative emerged at Sibos 2015 in Singapore. A year later, Susan Skerritt, Global Head of Institutional Cash Management, Head of Global Transaction Banking Americas and Chairwoman, CEO and President of Deutsche Bank Trust Company Americas at Deutsche Bank , discusses the latest developments in correspondent banking
For some time, there has been a realisation among banks that, despite providing global reach and security, the traditional correspondent banking model is under pressure. Can you provide some background?
Many things led to the review of the traditional model. Customer expectations, particularly the move towards real-time, and what was seen on the retail payments side, led correspondent banks to request more breadth to the offering. Individuals became accustomed to high levels of customer experience in transparency, convenience, speed and price and these things became a requirement on the commercial side. Additionally, regulatory and compliance measures have had the effect of increasing costs related to cross border payments and the cutting back of correspondent bank relationships. Finally, new and non-traditional providers have been stepping in with new solutions to offer products where there were perceived gaps.
Understanding these factors, banks knew that cross-border payments had to become more efficient, more transparent and less expensive. The strategic roadmap to rejuvenate correspondent banking was launched in January through the SWIFT global payments innovation (gpi) initiative with the vision of enhancing cross-border transactions by leveraging SWIFT’s messaging platform and global reach. Working across the industry, SWIFT has created a new service level agreement (SLA) rulebook, with opportunities for smart collaboration between banks to deliver on same-day availability of funds, transparency of fees and end-to-end payments tracking.
With 78 banks signed up as of September, SWIFT plans to roll out functionality on its existing platform in the first phase, and move onto the cloud in the second.
With these many new changes, what are the next steps in the medium term?
The community (SWIFT and the banks) now has a proof-of-concept established. Proof-of-value will be determined once gpi goes live in 2017 with the Cloud Solution.
A core element of gpi, the Cloud Solutions enable the tracking and tracing of current status information of payments. Deutsche Bank has incorporated its own Cash Inquiry App into the process, whereby corporate bank operations/Treasury can verify payment status.
These steps, which are just the beginning, represent the greatest innovation in the correspondent banking space for decades. However, we must think beyond efficiency. As an industry, we are working on several topics which are currently at ‘concept’ phase, including one to prevent fraudulent transactions. This is very topical given the number of high-profile cyber attacks we have witnessed this year.
Deutsche Bank is playing its part by heavily investing in cyber security, both within the Bank and in the field of payment technology. We are open about our focus on safety and soundness and our anti-money laundering (AML) practices. We are investing in transaction monitoring, sanctions monitoring and filtering, and our Know Your Customer (KYC) practices. We also communicate with clients on what they should think about in terms of their own technology investments so that together we can fight financial crime. We share information to increase the effectiveness of our AML practices. If we are better connected, we are better able to combat financial crime.
We are committed to making our industry more resilient in the correspondent banking space, that’s why we invest in ensuring the Bank is secure.
What’s next for this space? What do you see as tomorrow’s cross-border payments models?
The disruptive potential of distributed ledger technology (DLT) and Blockchain cannot be ignored. However, we already operate in a very efficient payments space. At Deutsche Bank, we currently achieve a straight-through-processing rate of 97% for both US dollar and euro.
We expect potential benefits of new technologies to manage costs and risks, as well as being more efficient in complying with KYC and due-diligence requirements. However, there are still key questions surrounding which entities can access the central bank money on that ledger, regulatory oversight, scalability of DLT and security, especially on high value payments.
The idea is to incorporate additional innovations and deploy new technologies to gpi, to prevent fraudulent transactions and ensure extensive remittance information. Whether DLTs are integrated in correspondent banking in the longer term is less clear. The SWIFT network may continue to be the most effective vehicle for certain transactions.
In a year, the industry will expect correspondent banks to have made progress toward the ultimate cloud-based solution and to have tested digital alternatives and identified ways to continue innovating in the payments space.
These are profound times for the correspondent banking industry with significant technology advancements and a changing risk and regulatory environment. However, the focus on our client relationships is still at the heart of Deutsche Bank’s strategy and this will continue to distinguish us in the years to come.
Global Head of Institutional Cash Management
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