It’s quite remarkable to consider that though we live in a technological age where contactless transactions, robotics, artificial intelligence, virtual reality and GPS are the norm, that large, corporate cross-border payments rely on an archaic system which has remained largely unchanged for decades.
Indeed, the expression ‘Pay & Pray’ has become something of a ubiquity in treasury offices the world over. Top finance professionals pacing between their four walls, thumbnails chewed to the base waiting for the arrival of a notification declaring a successful payment.
That corporates have been subjected to such a lack of transparency coupled with punishing waits for monies to clear has been a smear on the payments landscape, but times are changing. In January 2017, SWIFT gpi was rolled out and to say it has proved popular would be something of an understatement.
The evolution of SWIFT gpi
SWIFT, or to use its sexier name; Society for Worldwide Interbank Financial Telecommunications will be no stranger to many treasurers charged with processing international payments. The platform has drawn various criticisms, particularly in recent years, with grievances including the system being too slow, too expensive, not secure enough, and lacking transparency. SWIFT have been quick to respond to these accusations, and justifiably so, given the infrastructure supports almost instantaneous transfer of messages and data. A standard payment message takes seconds to travel to the various SWIFT members, so why the hold-up, and where is it happening? SWIFT gpi addresses these concerns directly by shining a torch across the banking chain, illuminating the entire path of a payment for the first time. It achieves full visibility of the payments process for corporates and the banks themselves, end-to-end, including the clarification of costs and the drastic reduction of payment processing times.
Such a revolutionary enhancement of the cross-border payments environment goes someway to explaining the jaw-slackening statistics SWIFT gpi boasts. Since its January 2017 debut, over 160 banks have committed to its implementation, including 48 from the top 50. It already covers over 200 countries, is represented in over 78% of cross-border SWIFT payments when factoring in the banks in support of gpi and has facilitated over 16 million payments, with an average of around 160k payments daily. Not a bad set of numbers, especially when, as of February 2018, 42.51% of these payments were declared ‘complete’ within 30 minutes.
The value the SWIFT gpi tracker provides for corporates
Having digested the numbers presented above, one might wonder why the value of the SWIFT gpi tracker requires further elaboration. The reason is simple; not all corporates have grasped the potential applications of it yet, and for that reason alone, it is very much worthwhile explaining what these figures mean in real-terms for the modern corporate; especially with the SWIFT gpi for corporates pilot currently underway at this very moment.
Visibility – Compounding the stress of initiating a cross-border payment is the knowledge that the money doesn’t just travel from one account to another. Typically, such a payment will be processed by three, maybe four separate banks. During which time the risk of fraud, human error, security breaches, and various other friction points are all possible.
When initiating a cross-border payment through SWIFT gpi, the instructing party (at this moment, responsibility is with the instructing bank) is required to tag the payment with a unique end-to-end transaction reference number (UETR). They are then able to use this number to track the payment at all stages from it leaving the initiator’s account, to it landing in the receiver’s. Think of when you order a product from an online vendor and the courier service allows you to track delivery using a code emailed or texted to you. It’s exactly the same principle but applied to international payments. A once ‘black box’ has an industrial strength beam shone into it allowing every element contained within to be clearly seen. Imagine being able to give your suppliers and payable receivers complete certainty on where their funds are, when they will arrive, and exactly how much they will receive.
This newly acquired visibility presents another compelling benefit for corporates; a much more competitive international banking landscape. Treasurers will quickly begin to learn which banks in the chain are the slowest, the cheapest, and which implement the most hidden charges. They will be able to change banks accordingly, as too will the banks their own practices and services levels to remain competitive with their peers.
Speed – Cross-border corporate payments have always been famously, excruciatingly slow. Often the reason for this has been that banks within the chain have held onto the money for internal operational reasons, such as liquidity management or compliance checking, before passing it on. This has led to payments taking hours, even days to process. For the initiating and receiving party there has been little they could do, the process shrouded as it was, in darkness.
With the SWIFT gpi tracker exposing the journey payments make, banks can no longer hold onto monies unnecessarily. Indeed, it is now a time for SWIFT gpi SLAs to be in place which dictate the maximum length of time a bank can hold onto a payment, providing access to an “observer” to serve as a leaderboard for the best and worst. It is this that primarily accounts for the drastic acceleration of payments many of which take minutes to complete, some even seconds.
Better forecasting – Not knowing when a payment is going to complete presents obvious forecasting problems for both the initiating and receiving parties. Key decision-making is slowed, urgent payments are delayed, and a real-time overview of current finances is next to impossible. With payments processing within minutes through SWIFT gpi, these corporate pain-points are all but eradicated. Of course, it’s not ideal if your payment is delayed by a day or two, which could still be the case for some gpi payments – but having knowledge of this delay in real-time provides treasury teams opportunities to seek alternative financing and positioning of their cash.
GPI Fridays
Have you watched any of our SWIFT gpi explainer videos? Listen to SWIFT gpi specialists James Higgins & Andy Howarth explain the benefits of SWIFT gpi for Corporates.