Sending payments across borders takes high levels of collaboration, communication, and trust.
As reported on Finextra in September, Swift is developing a new platform that it hopes will take the next step towards enabling instant, frictionless cross-border, account-to-account payments. The importance of technology in the evolution of cross-border payments, along with more details on the Swift platform, were discussed at today's Swift Community Update - Focus on Europe.
Setting the scene for the discussion, Nicolas Dykmans, head of EMEA technology and platform at Swift, noted that in the remote working environment triggered around the world by the Covid-19 pandemic, the importance of the chief information officer in firms had been particularly highlighted.
"The relationship between the CIO and the business needs to be close, in order to enable strategic decision-making around technology," Dykmans commented.
He quoted from the Harvey Nash / KPMG CIO Survey 2020, which found that there has also been a temporary increase in IT spend in 2020, possibly as a result of the pandemic. While this may not last, 43% of CIOs still expect a budget increase in 2021. Dykmans noted that middleware is entering a renewal phase, for example. The survey also found:
- 47% of CIOs say the pandemic has accelerated digital transformation, driven by remote working.
- 53% increased their use of cloud following the onset of the pandemic.
- 35% see cloud/infrastructure projects as their priorities for 2021.
Against this backdrop, the new Swift platform will aim to apply new technologies to the industry co-operative's scale and reach, in order to move towards frictionless, instant transactions around the world, while also opening up new market segments for banks.
As Stephen Lindsay, platform evolution - business lead at Swift commented, the new platform builds upon the four pillars of the new Swift strategy:
- Frictionless payments;
- Smarter securities;
- Richer data, enabled by ISO 20022; and
- Open state-of-the-art platform.
Frictionless payments require complete and correct data as early as possible in the transaction lifecycle, as roughly 10% of international payments get held up somewhere along the line, breaking straight-through processing. Ensuring correct and complete data upfront tackles this.
In order to get that richer data, Lindsay noted that Swift needs to continue plans to facilitate ISO 20022 adoption and the interoperability between systems through this. With ISO 20022 in use in domestic markets, rich ISO 20022 messages can go cross-border. He acknowledges that not every bank in the market can immediately move over to the new standard, so the Swift platform has been designed to provide interoperability between the MT and ISO 20022 standards for the duration of the transition period. This ensures that every market participant can connect to everyone else, but also that early adopters of ISO 20022 can take advantage of the new standard.
Evolution to transaction management
Starting with a messaging solution some 40 years ago, Swift's core remit of standard, secure, available messaging with integrity and community reach remained largely unchanged until 2017. Then, the innovation of the unique end-to-end transaction reference (UETR) enabled participants to look at a payments transaction as a whole. By enabling functionality such as service level agreements, message tracking and stop and recall, this innovation highlighted where friction points were in the payments process. It is this that the next evolution, which Swift calls transaction management, is built upon.
Enabled by the new Swift platform, transaction management targets the following:
- Frictionless payments. Ensuring the accuracy and unaltered rich data across a transaction.
- Instant processing. End-to-end orchestration and built in value added services.
- SMEs and consumers. An enhanced user experience through tighter SLAs and quality assurance.
End-to-end processing using a centralised solution enables the Swift platform to offer orchestrated mutualised processing services. Release 1 - which will go live in November 2022 - will include many new innovations, including support for multi-channel/format, transaction orchestration and tracking, transaction enrichment (the 'golden copy' approach to data management), pre-validation, tighter SLAs for low value payments. Other functionality with be evolved from existing solutions, including transaction screening and payment controls, case management and stop and recall, gpi customer and FI transfers, and more.
Beyond that, phases two and three are also mapped out, bringing in third party solutions and innovations such as a global alias address book, mobile app toolkit, dynamic invoice validation, and much more.
The view from the community
As well as a deep dive into the new Swift platform, the session also featured the views of payments and cash management experts from a range of institutions. For Serge Munten, Chairperson at NMG Luxembourg (ALMUS), mutualisation is key to future efficiencies in payments:
"ISO 20022 actually multiplied the amount of data banks need to provide to each other, creating a challenge for processing," Munten said. "Mutualisation helps here, and with mutualisation tools like the Swift platform, we have the opportunity to create cost efficient banks with frictionless infrastructures."
Krzysztof Hoffman, head of payments at Aion, noted that tools such as APIs and cloud solutions give banks a good advantage in the market, making it much faster to release new services, and be more flexible and efficient.
"Swift should facilitate the technology transition around the cloud/API environment with their footprint integration, to ensure even faster development of new solutions," Hoffman suggested.
Niklas Lemberg, industry engagement - cash management product services at Nordea agreed:
"This is the moment for Swift to leverage its cooperative status," Lemberg explained. "There's so much going on, and the banking industry is going to need a bit of help because we are not only working with independent projects and applications, but also handling a jigsaw puzzle of initiatives. Swift has the ability and competence to be a leader in that world, which is where we want to see it playing a role."
With the Swift platform targeting interoperability based on the ISO 20022 standard, the cooperative looks well set to offer the support requested.