Cross-border payments have already become quick and transparent, with far less friction preventing them from arriving at their destination on time – but there’s still room for improvement. We look at what a brighter payments future could look like, and how the financial community can build it together.
Cross-border payments have come a long way. Thanks to recent improvements, they’re now faster than ever, with more transparency and less friction. But there’s still more progress to make – so what about the future? Could there be a world in which instant payments flow seamlessly through interconnected systems, and where payments are embedded almost invisibly into the customer experience?
From instant payments to central bank digital currencies (CBDCs), a range of new and emerging digital developments have the potential to transform the face of the cross-border landscape, alongside the industry-wide transition to ISO 20022. But change doesn't happen on its own – and we’re working closely with the financial community to build a brighter payments future for all.
Let's take a closer look at what that future could look like and the work ongoing to get there.
Drivers of change
“In recent years, we’ve brought major improvements to cross-border payments made across our network, with end-to-end tracking, transparency on fees and FX rates, and the ability for transactions to complete in minutes or seconds. But the world of payments continues to evolve, and so do we,” says Thierry Chilosi, Chief Strategy Officer at Swift.
The G20 has outlined a roadmap to improve the speed, cost, transparency, choice and accessibility of cross-border payments, and new developments are coming thick and fast to help realise these goals. So, what’s driving these changes?
- Heightened competition: The core payments space is seeing greater competition at all levels, from alternative providers and fintechs to large, established players.
- Building connections: Domestic market infrastructures are increasingly looking to connect and interoperate with each other. This is leading to explorations of new ways to settle payments, from CBDCs to instant payments.
- Front-end innovation: Significant development is also taking place on the front end, including the rise of new apps and ecommerce platforms.
In response to these drivers, banks are evolving their offerings too together with Swift.
Firstly, we’re helping financial institutions constantly improve their efficiency by working towards a world in which every payment is pre-validated, frictionless and instant. A Payment Pre-validation service, for example, reduces the risk that transactions will need to be returned or repaired by allowing banks to check key information – such as whether a specific account exists, or whether a purpose code is needed in a particular country – before a payment is sent. And Swift Go is improving the cross-border payment experience for consumers and small and medium-sized enterprises (SMEs), by facilitating quick, easy and predictable transfers that can be sent directly from an end-customer’s bank account.
The global move to ISO 20022, meanwhile, is more than just a mandatory exercise. Instead, it's a key factor in driving innovation and building a frictionless future – offering new opportunities and the chance to enhance services all along a transaction's lifecycle.
Where interoperability is concerned, we have a major role to play in connecting market infrastructures, enabling CBDCs to work alongside existing infrastructure, and avoiding the risk of fragmentation. Recent experiments have made major progress on this front, successfully demonstrating how CBDCs can be linked with existing RTGS payment systems.
And where the third driver is concerned, we’re working to help banks provide innovative services in the front-end and embed their services into the ecommerce transaction experience. One notable example is SWIFT gpi. “We’ve created ways to embed the data from gpi in our front-end systems,” explained John Hunter, Executive Vice President, Payments and Transaction Service at Wells Fargo Global Treasury Management. “We’ve created services where clients can get that data and feed it into their ERPs and do things like auto reconciliation. What a huge difference that service has made.”
Benefits across the community
With seamless, transparent payments fully embedded into the customer journey, the payments experience itself will essentially become invisible – creating a brighter financial future for all. This landscape will also include diverse providers, competitive services and a high degree of interoperability. But how will this benefit consumers, corporates and banks?
For consumers and SMEs, the most significant improvements will be found in achieving greater transparency, cost-efficiency and ease of use. For SMEs, better structured information will mean that incoming payments can be reconciled more easily. Businesses will therefore be able to use the funds they receive to pay their suppliers faster, instead of having to wait for payments to clear before moving onto their next project.
For larger corporates and their treasury teams, cash and liquidity continues to be the overriding consideration. Wholesale payments have already been sped up, with more transparency over their status and progress through the transaction lifecycle – so the next big opportunity lies in improving liquidity management.
With interest rates rising and economic conditions presenting a significant challenge, companies need to pinpoint how much cash is available for making investments. Here, we’re working with our community to bring corporate customers more visibility over their account balances and statements in real time using APIs. Other priorities for large corporates include digitisation and automation, fraud and compliance, and ESG.
For banks, meanwhile, our roadmap presents a way to meet the evolving needs of our end customers, both today and in the future. “There’s a huge opportunity for banks to work together to reinvent the way that payments operate across the financial infrastructure,” says Hunter. “There are hundreds of things we can do if we can get our services frictionless, if we can create interoperability and build value-added services that sit on top of the network.”
So how can we make sure the measures we're taking to improve payments today are robust enough to meet the industry’s needs in the years to come?
ISO 20022 will be key when it comes to building the strong foundation needed for a richer and more interlinked payments future. And our work on interoperability and innovation will also play a crucial role in creating the connective tissue that will hold these new services together, while also enabling the adoption of value-added services.
Today’s technology allows us to move money in real time and in many different ways. But to achieve true real-time cross-border payments, we'll need to do more than that – and ISO 20022 will allow us to remove some of the current frictional barriers that stand in the way. With the introduction of this standard, the correspondent banking model will be able to evolve alongside technological advancements and as new players enter the market.
Building the future together
These developments won't happen in isolation. Individual banks, countries and the industry as a whole all need to make changes and embrace innovation to realise a better payments future.
“Our large network and active community has a critical role to play in helping to achieve a more cohesive and interconnected payments future,” adds Swift’s Chilosi. “We’re closely in touch with our community, with a continuing focus on harnessing our collective strength through collaboration and co-creation.”
“This creates not just momentum and a willingness to embrace change, but also a commitment from our members to adopt the solutions that we have developed together,” he continues. “This approach will ultimately enable customers, businesses, banks and the industry as a whole to benefit from secure, accessible and frictionless transactions today and in the future.”
As Bruno Mellado, Global Head of Payments and Receivables in Cash Management at BNP Paribas observes: “We have a once-in-a-lifetime opportunity to revolutionise the way that payments are done. There's a blueprint put together by Swift that says how we can get there. It's up to us to make sure we can make the necessary investments to improve things.”
This article was originally published in The Banker in February 2023.