SWIFT - the provider of the world’s main international payments network - is upping its game in the face of competition from financial technology firms keen to revolutionise the way money is moved around the world.
The member-owned cooperative in January 2017 launched SWIFT Global Payments Innovation (GPI) - a major upgrade to its system that makes commercial cross-border payments faster and easier to track.
While it can take days for money to be transferred around the world using its regular system, GPI sees nearly half of all payments processed within 30 minutes, and just over 90% within 24 hours.
SWIFT GPI’s cloud-based system also enables banks and their corporate customers to track the status of payments in real-time, like a parcel.
While HSBC New Zealand started using GPI last month, the system is yet to be broadly rolled out across banks in New Zealand.
ANZ and BNZ will be the first Australian-owned banks to launch the system locally later this year.
With a quarter of SWIFT’s cross-border payment traffic already going through GPI, it is set to be the standard for all cross-border payments made on the network by the end of 2020.
SWIFT says GPI is the “most transformational change” the cross-border payments system has seen in 30 years.
Scale and established networks hard to beat
Speaking to interest.co.nz, SWIFT’s head of Oceania Bill Doran explains, “We’re not ripping up the rails that exist today, which work well.”
Rather SWIFT is focussed on “improving the rails.”
The move comes as fintechs, like Ripple, try to get banks to use their infrastructure to process cross-border payments.
Ripple uses blockchain technology to connect the various parties involved in a cross-border payment. Like SWIFT GPI, it promises speed and real-time traceability of funds.
The key difference is that Ripple gives banks the opportunity to use a digital token, XRP, as a source of liquidity so they don’t have to pre-fund nostro accounts (accounts banks have with foreign banks to hold foreign currency).
XRP is traded like other cryptocurrencies. It currently has a market capitalisation of US$23 billion, only behind Bitcoin, which has a market cap of US$115 billion, and Ethereum, which has one of US$52 billion.
Standard Chartered, Google Ventures and Santander are among Ripple (the company’s) investors. It has more than 100 customers, with the likes of Westpac, American Express and MoneyGram trialling its technology.
Doran believes the fundamental hurdle Ripple faces is gaining scale.
“I can’t see how you’re suddenly going to get all the major banks in the world to implement a brand new blockchain-based solution with all the costs that’ll go with that, just to compete with something they already have that has some limitations that are being addressed,” he says.
“If you’re addressing the pain points, the need for that alternative may disappear.”
Blockchain not the silver bullet
Doran says the various blockchain solutions banks and fintechs are working on to help streamline parts of the cross-border payments process could operate alongside SWIFT GPI, but ultimately won’t replace it.
SWIFT, along with ANZ, Bank of New York Mellon, BNP Paribas, DBS, Royal Bank of Canada and Wells Fargo recently trialled a blockchain product focusing on the reconciliation part of cross-border payments. Interest.co.nz talked to ANZ NZ’s head of transaction banking Reuben Tucker about this in February.
However publishing the final results of the “real-time nostro proof of concept” in March, SWIFT concluded that while the tech meets the “business requirements” it set out to achieve, the system upgrades banks would have to make to use it are too major.
Doran confirms the proof of concept is “a great use-case, but the banks are not ready and the technology itself is not at the level it needs to be to be scalable and to address all of the issues that would need to be addressed to make banks ready.”
Despite this project taking two years, including 34 banks and according to SWIFT being one of the most ambitious of its kind, Doran says other similar use cases are likely to hit the same roadblocks.
“If the banking industry tells us it’s time to upgrade our technology to blockchain… we’re owned by them, so we’ll do that. They’ll force us to do that… We’re ready to make that change, but we don’t think change makes sense at the moment.
“All it’s going to do is add a massive cost to the industry.”
As for the competition SWIFT faces more broadly, Doran says: “We think there’s room for multiple players - as there has been for a long time - and that there’s various ecosystems that will service various customer needs.
“But the wholesale cross-border payments business - I don’t think is being challenged by blockchain at the moment. Although there’s a lot of hype in the media, I don’t think the reality matches that.”
Bill Doran will be a keynote speaker at Payments New Zealand's conference on June 26 and 27.
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