Fintech Insights

Cross-border Payments on Track with SWIFT gpi

Luc Belpaire

January 24, 2019

Banks are not known for being the fastest-changing entities. With huge shifts in the way that business is conducted, and the way that people make and receive payments, banks have often found themselves playing catch-up to fast-emerging fintech and payment service providers.

But banks are fighting back and proving that they too can drive innovation and rapid change. SWIFT global payments innovation (gpi) initiative is a flagship not only for SWIFT but also the wider transaction banking industry.

Even two years ago, the prospect of same-day (let alone instant), traceable cross-border payments was considered unrealistic and “too hard” to be a priority. Today, more than half (55 percent) of SWIFT’s cross-border flows are SWIFT gpi payments, with universal adoption among SWIFT members due by the end of 2020*. According to FIS’ recent payments report “Modernizing Corporate Payments and Bank Connectivity in the Digital Age,” 46 percent of corporate treasury and finance practitioners plan to adopt SWIFT gpi for faster cross-border payments.

While part of the value proposition of SWIFT gpi is the speed of payments – 50 percent are now credited to the beneficiary within 30 minutes – the bigger benefit for many treasurers is its traceability*. SWIFT gpi introduces a unique end-to-end transaction reference (UETR), which is attached to every transaction to enable both payers and payees to track payment status.

Crucially, the UETR does not need to be allocated by the bank, a major requirement for SWIFT gpi based on corporate input. Otherwise, this would need to be sent back to the corporate customer and reconciled with the existing system reference, creating an additional processing step. Instead, it can be allocated directly by the treasury management solution or payment factory and then passed throughout the transaction life cycle. This gives treasurers far greater visibility over transactions and greater control over liquidity and risk as a result.

Banks are competing to offer payment tracking capabilities to their customers through their proprietary systems. However, corporates that work with multiple banks, and connect bank information directly with their treasury and payment systems, such as through SWIFT, host-to-host and API solutions, are unlikely to want to access a separate system to trace payments and collections. Instead, treasurers want to integrate either complete (or more likely selected) status information directly into their internal systems and access this information via a dashboard. Pilot projects between leading banks and FIS are now complete. For example, LVMH has been an early adopter of SWIFT gpi with Trax, and now benefits from end-to-end payments tracking through Trax without the need to upgrade its systems.

The ability to track payments, associated fees and exchange rates within the payment factory or treasury management solutions delivers huge time and resource savings for treasurers and finance managers, and indeed their banks. Many treasurers report that they have multiple people dedicated to manual payment queries and investigations, which delivers little value. Those who make large business-critical flows are paying far earlier than required to allow for unpredictable or delayed settlement, which can have substantial working capital implications. Similarly, treasurers expecting large incoming cross-border flows are also holding large working capital buffers in case of payment delay.

In contrast, end-to-end payment tracking creates clarity for both payer and payee and allows both to manage liquidity far more precisely. No longer are cross-border payments a black box, but each element, including status, payment fees and FX charges are now visible and reconcilable.

*Source – "2018: A year of great gains for SWIFT gpi,” SWIFT