For more than 40 years, SWIFT has collaborated with its network to identify industry-wide challenges and develop solutions for the benefit of the entire global financial system. Tom Zschach, Swift’s chief innovation officer, speaks to Finextra Research about how innovation remains central to the co-operative’s new strategy, and how state-of-the-art technologies will help it deliver on its vision.

Swift’s strategy boldly asserts that it will retool cross-border infrastructure to fundamentally transform payments and securities processing, enabling the world’s financial institutions to deliver instant and frictionless end-to-end transactions.

Zschach explains that not only is innovation tied to Swift’s future success, “it is in fact the key enabler for us to be able to implement our new strategy.”

Innovation as competitive differentiator

A decade from today, Zschach argues that the financial services industry will be intimately entwined with every person’s life and it is this ecosystem that Swift must prepare for. The benefits that will be seen on the side of customers and businesses will be immense, he explains, because as the entire economy goes digital, payments and money itself are the natural next step.

The trend toward embedded finance, whereby services are seamlessly inserted in other products to create a type of cross-pollination between brands and systems, is poised to shape the entire system into a significantly more accessible and inclusive ecosystem for all users.

“I think this goal of accelerating the innovation surrounding how payments are made and encouraging the ease of moving values around the globe is key to achieving the goal of building the most inclusive economy possible,” he said. “The one thing we know is that in order to achieve this inclusivity we can’t do it alone. We know that innovation happens across the board and it only makes sense for us to cast a wide net in terms of our approach to partners.”

To that end, Zschach adds that SWIFT’s innovation strategy focuses on building in collaboration with its community of financial institutions, tech giants and smaller fintechs.

Is the innovation innovative enough?

Describing its ‘Innovation Portfolio’ as very balanced, strategically aligned, and looking across different time horizons for implementation, Zschach particularly notes that SWIFT is “making good progress in the areas of artificial intelligence and machine learning across financial services.”

“While many players will talk about AI and ML from an ultra-high-level, 20,000 foot perspective, if you want to boil down the significance of these technologies, the true value lies in their ability to predict and capture business insights into the future, instead of a backwards-looking analysis approach.”

As already mentioned, Swift is uniquely positioned to be able to capitalise on these specific technologies given its near unparalleled data assets which are already governed by stringent privacy controls, protections and regulatory frameworks.

“We also benefit from having a network effect of reach and breadth which means we can add context to data that wouldn’t be available across other pockets or areas of the marketplace.”

Circling back to the centrality of collaboration, Zschach adds that the co-operative is also working with banks and other financial institutions to explore creative ways to crowdsource knowledge and capture insights from its community, to improve existing models with precision, richness and granularity.

Putting data front and centre

The transition to ISO 20022 plays a central part in data-based innovation, and Zschach argues that the standards published by the co-operative symbolise a transformational change in the way network participants can extract rich data.

“In parallel to ISO 20022 migration, the upgrading of multiple domestic payment systems allows for the unification of data sets, opening up opportunities for automation, efficiency, and even the creation of new services that could be driven by AI and machine learning.”

Swift sees the value offered by AI and ML particularly in the context of predictive technologies. Zschach says the co-operative plans to use tools that predict and identify anomalies to deliver the goals spelled out in the new strategy itself.

“This might be related to improving customer experience and insights, or perhaps related to removing friction in the payments process by predicting where things may go wrong or whether a payment is fraudulent. The opportunities to innovate in this area with the community are almost unlimited.”

He adds that Swift has started on the cloud adoption journey and is being diligent in terms of the work being done, technology selections being made, and business processes being followed in order to migrate onto the cloud smoothly.

Keeping a close eye on resilience

Noting the strategy’s two-year implementation timeline, Zschach explains that Swift is positioning itself to bring certain innovation-related benefits sooner to build early stage momentum. Naturally, certain things have been pushed further out in order to keep each stage strategically aligned and maintain stability across the market.

The fact remains that the co-operative is one of the largest payment networks in the world, and any misstep could have ramifications for the global payments landscape. With this in mind, while a strategy focusing on innovation is refreshing, it undoubtedly imbues a sense of concern about how much innovation is truly safe to undertake in one fell swoop.

Zschach explains the balance is carefully curated and is largely influenced by how well the network can leverage and collaborate with its partners through opportunity assessments.

“While we’ll always have to keep assessing things, we’re not really looking to run science experiments – we innovate responsibly with strong focus on risk and control. Demand will outstrip supply, so we are going to be diligent in terms of selecting where we explore, in order to support and accelerate the winners.”

Zschach concludes that Swift will continue considering all partnership opportunities and believes “there is a place for fintech as part of its innovation. We need to figure out how they can benefit the entire ecosystem.”