International payments are fundamental to global trade and business as we know it today. Without an effective cross-border transfer system, companies and their banking partners risk losing significant capital. Yet for decades, the daily challenges of managing cross-border payments have plagued us. Delays, hidden fees, failed transfers, limited access and a lack of transparency along the chain have all contributed to making international transfers problematic and sometimes expensive, slowing business and hampering relationships.
In 2020, at the request of the G20, the Financial Stability Board created a roadmap to improve cross-border payments, with key objectives such as improving data quality, measures to coordinate regulatory frameworks and the search for new and existing payment infrastructures. Yet problems remain and many banks and businesses continue to struggle.
At Bank of the West, a subsidiary of BNP Paribas headquartered in San Francisco, we joined SWIFT Global Payments Innovation (gpi) to help address the most pressing challenges. The multi-year SWIFT gpi initiative has been rolled out in stages by the global banking community with one goal: to improve the cross-border payments experience for senders and receivers. With greater end-to-end transparency, improved speed and the flexibility to cancel payments mid-stream, this new service is a sought-after advancement in the global payments landscape.
Meeting a global need
Banks have long facilitated cross-border payments for their customers to allow international trade and business to flourish, but the process has often been too cumbersome, slow and opaque. “Historically, customers sent their cross-border payments through a black box, without understanding the total cost or when the funds would be credited to the recipient,” says Larry Feinberg, head of digital payments for corporate and business banking. at West Bank. “Improvements to the cross-border payment experience are long overdue.”
Banks and their customers have long been subject to high costs and delays in transfers. This is partly because multiple parties – banks, market infrastructures and corporates – are required to clear and settle each cross-border payment.
In the face of these obstacles, pressure has intensified for increased transparency and a more streamlined cross-border payments system that minimizes the number of intermediaries involved. This pressure has only been exacerbated by the exponential growth of cross-border trade, huge technological innovations and global events – all of which point to a clear need for faster payment solutions with better data around them.
Cross-border payment issues
Delays in recipients receiving funds are not only an annoyance; they can lead to several complications, including legal risk, according to Meghan Birmingham, head of banking transactions for business and corporate banking at Bank of the West. “Clients face legal and reputational risks when their suppliers aren’t paid on time,” she says. “Punctuality and payment confirmation are essential deliverables for our clients.”
Cross-border payments often lack the security offered by domestic payments. These delays can be particularly costly for high-value payments, including mergers and acquisitions transactions, where speed is critical. Without the ability to track statuses in real time and confidently confirm receipt of funds, we face several hurdles. Transaction costs can also be significant, especially for treasurers who process a high volume of cross-border payments. Fees can be high, and there’s often a lack of transparency around them, which can cause friction between businesses and providers. Intermediary fees deducted along the payment chain can be unexpected and lead to incomplete payments. On top of that, currency exchange rates can be notoriously difficult to predict and can fluctuate unexpectedly, further compounding the problems.
Improvements to the cross-border payment experience are long overdue
The issue of transparency also goes beyond fees. In most industries, treasurers turn to their bank for information on the status of their cross-border payments. While banks are indeed well placed to handle these requests – using direct messaging with other SWIFT member institutions – this need for transparency places a significant burden on customer service teams.
Lack of communication along the value chain can increase costs for banks and their customers, while undermining businesses’ cash flow forecasts and ultimately straining relationships between suppliers and business partners. The challenges are many and it is essential to meet them as soon as possible.
The SWIFT Tracker
SWIFT gpi’s goal is to solve these long-standing problems and open the door to smoother and more transparent cross-border payments. To realize this potential, all participating banks must align with their goals and adopt new multilateral agreements that define the business rules governing gpi services.
At Bank of the West, we are committed to doing just that. Rules are key to improving payment speed, increasing fee transparency, enabling end-to-end tracking, and helping to ensure that payment information remains unchanged throughout the payment chain. SWIFT Tracker, a cloud-based solution to connect all parts of the value chain, is at the heart of this transformation of cross-border payments.
This innovative technology significantly improves the speed, transparency and traceability of cross-border transactions. This was helped in part by focusing specifically on MT103 – a standardized SWIFT payment message used for cross-border wire transfers. The message includes all transaction details, including date, amount, currency, sender and receiver, to help senders and receivers more easily track payments and better manage their progress.
The key principles
SWIFT gpi has four key objectives. The first is to make the funds available the same day, provided they are received by the cut-off time specified by the beneficiary bank. According to SWIFT, almost 50% of gpi payments are credited to end recipients within 30 minutes, 40% within five minutes and almost 100% within 24 hours. This makes the median processing time less than two hours (affected by various factors including geographic location and the online opening hours of the banks involved). It also depends on the number of parties involved; on average, cross-border SWIFT payments require only one intermediary between sender and receiver, making the process much faster and more efficient.
The second objective is to ensure that end-to-end payment tracking and confirmation is readily available throughout the process and with every transaction. Since the end of 2020, it is mandatory for all gpi banks to provide a final confirmation of payment for each MT103 message sent on the SWIFT network.
This means that customers and banks can see if a payment has been credited to the final recipient, or if it has been rejected or transferred outside the network. The introduction of a new Single End-to-End Transaction Reference (UETR) makes the tracking experience very intuitive – just like how today’s packages are tracked in real time and updated with locations, timestamps and delivery details. At Bank of the West, we can connect to the Tracker to check payment status, which helps us improve cash management. It also helps us identify issues and implement better service level agreements as well as see other gpi banks’ compliance with these SLAs.
In addition to this, the gpi tracker aims to improve transparency around fees throughout the payment chain, including any deductions on payment amounts and applicable exchange rates. It also aims to ensure the integrity of data provided by customers regarding their payments, providing insight into the purpose of transactions.
As a further benefit, customers can also use the Stop and Recall service to electronically recall transactions immediately if an error has occurred or fraud is suspected, simplifying the reversal process. This can be done regardless of where the payment is in the chain, as the callback request – initiated with the original UETR transaction reference – is directed to the bank that is currently in possession of the funds. This is all made possible by the ability to track payments in real time, allowing quick and easy access to cancellation data through multiple channels.
Harvest the potential
Through collaboration with member banks and corporates, the SWIFT gpi program aims to remove long-standing friction points for cross-border payments while further extending connectivity between different markets. By integrating data-rich ISO 20022 messaging standards, the technology opens the door to more value-added services for customers, making the status of a payment visible from when it is sent to when it is received by the bank. recipient. It also allows customers to view real-time status and charge information without having to rely on the bank’s customer service team to investigate late payments and charges.
“SWIFT gpi delivers essential information to customers when they need it, immediately,” Feinberg said. “The insights provided by gpi aren’t just transformational – they’re necessary.” The pandemic has shown the value of international collaboration, and this must also extend to the banking and corporate world. It is solutions like these that we need if global trade and business is to continue to thrive in the face of future challenges.