October 2017

Leading global corporates are voicing their support for SWIFTgpi. flow outlines the progress of the initiative to date and how it will meet corporates’ expectations going forward

In the previous issue of flow, SWIFT’s Wim Raymaekers set out the genesis and rationale for its global payments innovation (gpi) initiative, in response to corporate treasurers’ concerns that they cannot see when their payments have reached beneficiaries or track their progress.i  Connecting all parties in the payment chain via a cloud solution, the SWIFTgpi architecture has, to date, attracted more than 100 banks from Europe, Asia Pacific, Africa and the Americas, all of which have committed to the initiative. Encouragingly, an ever-increasing number of banks are now going ‘live’ as the journey towards trackable real-time cross-border payments becomes reality.

The SWIFTgpi architecture has, to date, attracted more than 100 banks from Europe, Asia Pacific, Africa and the Americas

Critical mass

With the first roll-out phase successfully completed, the main focus for the rest of the year and moving into the first half of 2018, says Christian Westerhaus, Deutsche Bank’s Global Head of Clearing Products, Cash Management, is to make sure the banks that have signed up to the initiative move to live operational mode. “For the industry to be successful, it needs to become the new standard in correspondent banking, meaning we need to reach a critical mass of banks that are fully up and running.”

In this respect, most of the leading global banks have either gone live or are planning to do so in the first half of 2018. Deutsche Bank is going live for its SWIFTgpi services for both US dollars and euros in autumn 2017. “This is just the first step and more booking locations/currencies will follow throughout 2018,” confirms the bank’s Shahrokh Moinian, Global Head of Cash Products, Cash Management.

While treasurers are becoming more vocal in their support for gpi, they are also expecting banks to deliver. Increasingly inspired by experiences in their personal lives, such as booking a taxi service with Uber through the app, corporate treasurers now want banks to recreate this effortlessness in B2B payments. ii  In turn, this requires the financial institutions that have signed up for gpi to stick to the standards that SWIFT, together with the banking community, has helped to develop. This was certainly the message from six leading corporates with international operations – ABB, Nestle,

Roche, SBB, Swiss Re and Wurth – in an open letter dated 19 July 2017. In a joint statement they anticipate that “all of their cross-border payments will be end-to-end SWIFTgpi payments in the future.”

The concerns that have been raised by treasurers will be met by SWIFTgpi, says Moinian and without additional IT investment for corporates, as the initiative has been built on the current rails with a cloud-based service on top. Treasurers should see the benefits in four areas:

  • Transparency of fees. The tracker discloses to the beneficiary the fees deducted and, where applicable, the exchange rate imposed by participating correspondent banks for cross-border payments.
  • Payments tracking with real-time information on status of payments and improved predictability of payments.
  • Same day use of funds.
  • Unaltered remittance information.

"For the industry to be successful, it needs to become the new standard in correspondent banking."

Collective intelligence

“The more banks that come on board, the more transparent the whole thing is,” reflects Deutsche Bank’s Global Head of USD Cash Operations, Neil Brady. He continues: “It’s like a FedEx or UPS package, it only works if the technology exists in the relevant country.” Yes, investment on our part is required, and, says Brady, from an infrastructure perspective one of the biggest pieces of the puzzle is sorting out how the Unique End-to-End Transaction Reference (UETR) is carried and transmitted along the message path.

The SWIFT cloud-based tracker solution, based on a new communication channel accessible via API, has been available to live gpi member banks as of 22 May 2017.

By introducing this solution, the industry has effectively connected all parties of the payment chain end-to-end in the correspondent banking ecosystem. The whole point about the UETR is that each party in the payment chain will be able to confirm their position, making it possible for others in the chain to identify where the payment is in the lifecycle. While privacy protocols are in place, it will be possible to see where a payment has been held up, explains Brady. “We interact with the cloud-based ‘Tracker’ on a continual basis,” he adds.

Up until now, with outgoing payments the benefi ciary has to ask the business counterpart when the payment has been made, as there would be no indication on their account. The only response the remitter can make is that the payment has been debited from the account. In a SWIFTgpi environment, the remitter can inform the benefi ciary where the payment is and advise them to contact their local bank in the event of any query.

With incoming payments, the beneficiary has had to wait for the actual credit on their account to be able to plan ahead. But in a SWIFTgpi environment, the gpi members have committed to ensuring same-day use of funds.

Moreover, to date, corporates have considered intransparent deducts as a major pain-point, hampering their reconciliation efforts. In a SWIFTgpi environment, parties in the payment chain will benefit from information on the amount of deducts as well as the deducting party. “Better self-service functionality will reduce the number of enquiries,” notes Brady. In fact, there is huge potential to continually automate and improve. “Overall, the main benefits will be lower operational costs and less time spent on investigating claims of non-receipts, ultimately freeing up resources that could be deployed elsewhere,” he concludes.

The new standard

With bank-wide initiatives such as this one, the game-changer has been competitive players all working together to achieve a standard that benefits the whole industry. So does this leave any room for differentiation? Westerhaus believes that each bank “has to define its own positioning in the market.”

Reach is the key – and Westerhaus confirms that “Deutsche Bank considers SWIFTgpi to be the new standard provided to clients whenever available, based on SWIFTgpi regional reach”. It is up to individual banks to carve out their own distinctive premium services and digital user experience. By taking the pain and effort away from the client with better payment and account information services, this can motivate the client to do more business with its bank. “These developments will be particularly evident in cross-border payment experiences,” he says. Discussions with corporates are being held at various levels in the organisation to help the bank support them better as they digitise. Value chains, business models and client interaction are set for huge change in the coming years.

“We are in continuous exchange with our corporate community to align priorities,” adds Moinian. Regular discussions are taking place with our corporate clients to verify the validity and value-add of future SWIFTgpi advancements. Currently, we are discussing potential developments of Stop & Recall payments and International Payment Assistant Service, elements which form part of Version 2 (digital transformation phase). V2 goes live in November 2018, in line with the annual Standards releases, and will also incorporate the gpi Cover Service to track the MT202COV under the same end-to-end reference as the related MT103.

"Deutsche Bank considers SWIFTgpi to be the new standard provided to clients whenever available based on SWIFTgpi regional reach."

Going forward

It is clear that the technological advancements that come with SWIFTgpi will help support the digitalisation of corporates, resulting in a different user experience. In Version 3, that innovative technology will be explored even further. Indeed, a number of banks have already taken part in the recently launched Proof of Concept for Nostro Reconciliation, utilising a private permissioned blockchain (distributed ledger technology – DLT) in a closed user group environment. Deutsche Bank is part of the validation group.

This is important because, with the pace of technological change, no industry can afford to rest on its laurels. There have been many examples where other industries have been displaced by such change. A prime one is Kodak, which missed the digital photography revolution when its historical business model was threatened.

However, the introduction of new technology has to be carried out in a tried and tested environment and it needs to be ubiquitous. Recently there has been a lot of hype around DLT and how it could potentially replace the correspondent banking model altogether. But can DLT really re-draw the cross-border payments landscape where the most important aspect is reach? Westerhaus reflects: “Even the best technology is limited without reach.”

He does not believe that the current correspondent banking model, which remains the cornerstone for global trade, can simply be replaced by DLT overnight.

The current model has a proven track record in terms of stability, trust and reach.

“However, that is not to say it cannot be further optimised with faster execution across the network and payment chain,” he adds. “This is ultimately what the initiative aims to achieve. The real beauty of SWIFTgpi is that it combines the solid established network and innovative technology.”


i See Deutsche Bank’s flow H1 2017 at https://cld.bz/KjqWuuo/62
ii See http://bit.ly/2veGkQp at swift.com

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