Exploring the significant work Swift has undertaken to reinvigorate the evolution of its comprehensive platform, Finextra compiled key insights from Swift leaders and experts from the payments industry during Sibos 2021 to better understand the cooperative’s strategy for this year and beyond.

During the conference’s opening plenary, Yawar Shah, chairman of the Swift board set out the strategic alignment of the network in this post-Covid-19 environment.

“Innovation is at an all-time high in the financial services industry, and there is a profound sense of excitement because there are a number of forces at work. There is tremendous demand in the marketplace for what we do across payments and securities processing. The world changed in many ways because of Covid-19, and in our industry one of the lasting impacts is a quantum shift to digital.”

He furthered that private equity and venture capital is pouring into this space, while mergers and acquisitions are taking place at a blistering pace as established firms buy new capabilities, and new startups scale. Shah continued that this incredibly vibrant ecosystem is full of opportunity for banks and Swift.

“Swift is committed to enabling a bank-centric ecosystem in cross border account-to-account transaction management, providing best in class backend infrastructure so all of you can provide best in class services to your customers.”

Following Shah’s introduction, Swift CEO Javier Pérez-Tasso took the stage, first observing that the pandemic accelerated change across the business environment, especially financial services.

“The industry as a whole has not only maintained business as usual, but has also built great momentum on its own transformation. The industry has been on a massive digital journey and now bears a much bigger sense of purpose and responsibility, because a lot of this innovation is about the efficiency and transparency of financial services, inclusivity, reaching the unbanked, climate and sustainability, and of course, diversity and inclusion.”

He argued that the industry narrative, which typically presented a type of “hero-versus-villain” dynamic for incumbents having to overcome the constraints of legacy systems while fintechs leveraged new technologies to power fully digital services, as a thing of the past. Rather, that incumbent players across payments and securities have now stepped up to the plate with new services that offer much greater customer experience, increased speed, and transparency.

Pérez-Tasso explained that Swift Go is a clear example of the network’s ability to help banks become even more competitive, and the delivery of Swift’s API driven transaction manager next year is only going to reinforce this progress.

“Once the transaction manager is in full force, when we promise instant, we will really deliver instant,” he said, noting that it will also include data services such as sanction screening, anomaly detection, data analytics, tracking and exception management.  

“It is also worth mentioning that the transaction manager will be currency agnostic, so that if CBDCs or stablecoins are adopted by the industry, we can adapt facilitating interoperability between token based and account based networks. And down the line, by creating the platform of platforms, strategic partners who are innovating in different segments can plug-in, to introduce new forms of value across the ecosystem.”

Where the Swift platform’s evolution shines

During the Swift roundtable on day two of Sibos, titled ‘Platform evolution: Enabling industry transformation,’ Joanne Strobel, head of technical solutions, global payment services, Wells Fargo Bank, told the panel that the possibility of moving to a proactive rather than a reactive, end-to-end client experience for cross border payments excites her most.

Moving from the message based delivery framework used today, to transaction orchestration, will enable Swift’s new platform to apply rules and mutual services to transactions and enables proactive management of that end to end experience.

Strobel explained that Swift’s platform will also be able to support a better end-to-end, cross border payment experience with the potential to validate upfront. “This means the payment will be processed in a frictionless manner in the destination country by the beneficiary's bank, with upfront validation before that payment is delivered to the beneficiary's bank, thereby minimising the occurrence of costly exceptions.”

In addition to being able to provide a better end-to-end client experience, frictionless payments also help member banks to be more efficient as a community. Strobel stated that these include the minimisation of costly exceptions and investigations, enabling banks to better compete from a cost perspective with new entrants and closed loop networks, and enabling member banks to leverage the Swift network with more controlled payment orchestration capability.

Further, as it is backed by the rich structured data of ISO 20022, banks are given more opportunities to provide value added products and services to their clients.

“What excites me the very most of all, and what I see as the biggest new opportunity for the industry related to Swift’s new platform, is the potential for integration with a variety of networks, rails and third parties leveraging the rich ISO 20022 format and the transaction orchestration within the new platform to manage that interoperability. I’m also pleased about the rules of engagement for these rails and networks via a single, central, framework that provides transparency to manage that end-to-end experience regardless of settlement rail.”

Strobel’s comments resonated with Paula Roels, head of Swift and market infrastructures, Deutsche Bank, who is a “big fan” of Swift’s transaction management platform.

“Not only because of the potential which it’s going to bring to us long term, but more importantly, because we need this transaction manager.”

Roels argued that the transaction manager will be vital to the wider industry for end-to-end transaction orchestration to ensure transparency and immutability of data, with the start of the migration to ISO 20022.

“We need the transaction manager to enable interoperability amongst the Swift community by bridging the different formats and channels, which are all supported during the coexistence period (namely the MT and ISO 20022 formats).”

The transaction manager will assist so significantly because it will eliminate the most critical pain point of data truncation, which is currently the weakest link in payment chains.

Roels added that we also should not underestimate the transaction manager as a powerful catalyst for innovation: “it will provide the opportunity to build new services for clients, with rich end-to-end transaction data as the base without dependency on the entire Swift community to move at the same pace.”

This was echoed by Craig Ramsey, head of real-time payments, banking, ACI Worldwide who stated that the transaction manager will help build the seamless, frictionless, secure, payment flows that the entire industry wants to experience.

Rather than viewing Swift offerings as competition, Ramsey believes that these firms should consider the services as additional layers of validation and security in payments.

“It provides additional layers of validation that can be done alongside in-house bank checks and processes, to ensure that that we are providing payments into the Swift network that will be going to reach their destination, will meet customer obligations, and will arrive absolutely on time, and as fast as possible.”

A new standard for a new era

On the industry’s migration to the ISO 20022 standard, Shah explained that the approach goes far beyond merely being a compliance exercise. “There's tremendous strategic value for banks in moving to ISO 20022. Rich data enables higher levels of automation, creating opportunities to cut cost, reduce risks, and grow revenues. They range from operation cost reductions to savings and collateral and capital, to broadening the range of services available to customers.”

Swift is building capabilities to facilitate the industry’s decision to migrate to ISO 20022 with services to translate between ISO 20022 messages and the current MT standard. That way, early adopters of the standard can immediately realise its benefits, while those that need to take more time to transition can go at their own pace.

Roels, who has long been a key voice in the ISO 20022 space explained how the standard is making payments better and why it is needed in the new era.

“What the industry is experiencing right now, is that the lack of granular and structured data leads to breaking automation so, non-straight-through processing (STP). This is causing cost-intensive labour, repairs, delays and investigations which is not only a pain for banks, but more importantly for the end client.”

The biggest challenge for corporates is still the lack of standardisation in the banking community. Relevant, rich, structured data is a prerequisite for seamless transaction processing throughout the entire value chain, but the various interpretations of MT messaging means that this is impossible on the current standard.

Thankfully, the rich information intrinsic to ISO 20022 will “naturally result in operational efficiencies, cost of processing, the decrease of operational risk and the lowering of cost for all actors involved.”

“Additionally it will provide new opportunities for services such as real-time treasury, payments tracking, customer data analytics, and smart routing. It will also empower the next level of digitalisation by facilitating deeper integration of payments into customers’ purchases and workflows, sync up the new platform-based businesses, payments will be seamless and embedded into your processes. The standard in its end state will facilitate payment instrument agnostic clearing and settlement.”

Strobel noted that the US market is a particularly fertile ground for ISO 20022 to improve the financial landscape. Not only does the structured data present the opportunity to leverage better technologies like machine learning and artificial intelligence, but has the ability to significantly change the way payments are done in the US. “In 2018, cheque payments accounted for around 8.3% by number and for 26.6% by value of non-cash payments in the US. There is still really big value going through the cheque payment system.”

Strobel added that the reason cheque volume has decreased while cheque value has increased because businesses still use cheque payments to pay one another, typically because invoice information can travel with the payment and allow for easier reconciliation.

“The rich, structured data of ISO 20022 has the potential to solve this business problem of having the invoice information travel with the payment, potentially moving these payments from paper to electronic.”

Also, instant and frictionless payments have become “table stakes” as a result of the domestic, real-time, faster payments platforms, and clients now expect the same experience they have with these systems when they are sending their payments cross border.

“If cross border correspondent payment solutions can’t achieve this, I do think we run the risk of disintermediation. With the richer structure data we'll get with ISO 20022, combined with the rules and mutualised services Swift’s new platform can bring to cross border payments, I think we're positioning ourselves to meet client expectations of instant cross border, in a frictionless ubiquitous, efficient manner.”

How should banks prepare for the transition?

Ramsey offered guidance around what banks must, should and could be doing to transition to ISO 20022 in a timely fashion: “If you’re only beginning thinking about strategy, I urge you to engage your suppliers, your vendors as soon as possible.”

He noted that they will all have their strategy for transition in place, and should be receptive to engagement around how to plan and execute strategy in a way that works for all parties.

Also, firms must consider how they plan to use ISO 20022 data, how their payments ecosystem is structured, and how the cloud plays into the strategy to evolve payment products – rather than simply focusing on how to operate technical software.

“That’s very much a key for how payments hubs will evolve into the future and the Swift platform is a key element of that.”

Roels expressed that she sincerely hopes most banks have their ISO 20022 projects firmly in place already, warning that “if your internal project has not yet started, be aware, the soup is already cooking.”

“Once the soup starts boiling over it becomes pretty messy – it won’t only impact your kitchen! My advice would be to define your target operating model, consider a tactical plan B, reach out to your Swift account manager to understand the mandatory requirements coming your way, and understand the approach and limitation of your market infrastructure.”

“The only thing I would add,” noted Strobel, “Would be to understand, educate, plan, test, and execute…Employ a project discipline to move forward, and then test, test, test, to ensure that you have your end-to-end testing finalised to avoid surprises when you finally execute.”

Pérez-Tasso acknowledged that Swift is asking a lot from its member institutions, from adopting APIs and new services to upgrading back office infrastructures to new standards. But he added that it is not just a tick-the-box exercise, it is a joined-up vision with many different components, and the whole is going to be greater than the sum of its parts.

“We are transforming the foundations for the whole industry for decades to come.”

"It is really motivating to work on building that future together, because this is much more than a vision; it is becoming the new reality.”