Swift fortifies its tech for a turbulent market

The financial services and payments industries are aggressively trying to replace older systems with sleeker technology, but Swift has a separate goal in mind with the Global Payments Innovation system, or GPI.

Swift's strategy is a balancing act. The Society for Worldwide Interbank Financial Telecommunication already faces numerous challenges — its network being exploited by fraudsters and threatened by blockchain fintechs like Ripple — but it doesn't see those as a failing of its core technology. Swift's plans for the years ahead are focused on evolving its aging network, rather than rebuilding it from the ground up.

At the heart of this objective is GPI, which enables the network to adapt to modern demands without a major overhaul of legacy systems.

GPI brought global banks onto the same page in following Swift standards, deploying similar processes and internal practices, linking new technology where needed and making it all far easier to accept cloud-based and API upgrades. If all of Swift's banks use GPI to operate in a similar manner, they can advance technologically at the same time as well.

GPI updates the policies and procedures around a messaging system that goes back to the Interbank File Transfer established in 1992, which has undergone various automation advancements, but is now at the point where GPI directs trillions of dollars among 10,000 institutions.

In the past two years, Swift has solidified common controls at the banks to restrict access, detect fraud, keep customers informed of security steps and start moving transactions at a faster clip — but without throwing out the system it has maintained for so long.

"We concluded the bank-to-bank rails were not actually broken," said Harry Newman, head of banking at Swift. "The problem of sending financial messages to every bank in the world quickly and securely was solved years ago, and the issue wasn't the banks' systems."

Many technology companies and new entrants into correspondent banking chains were "getting it wrong" in thinking they had to invent new rails, according to Swift.

"They think that is the problem area and it is not," Newman said. "The problem area is when you stitch this together (with new tech) when exchanging transactions with other banks globally."

All of this must also survive a change in leadership. Swift's CEO, Gottfried Liebbrandt, has announced plans to step down in June, and the organization has not yet announced a successor.

Old network, new tricks
"The biggest pain points for cross-border payments center around what happens in the time between when the payment is initiated and when it settles," said Erika Baumann, senior wholesale banking analyst for Aite Group. "Uncertainty in the settlement date can be confusing for the client, and fees and rates can fluctuate and may be unknown until sometime after the payment is received."

It also is common for remittance information to be missing key data, which makes it difficult to auto-apply the payment. The core benefits of GPI aim to solve these pain points, Baumann added.

Real-time tracking and standardized remittance information have been vital in the process.

"Swift GPI is a proven technology solution that has solved one of the biggest ongoing challenges in payments and has proven to be a critical evolution of corresponding banking," Baumann said.

The GPI can continue to evolve, as Swift added a pre-validation service to the system in December.

Earlier in the year, GPI added a customer credit transfer so the bank can alert a beneficiary that money has been credited to their account. That addition came at about the same time Swift reported GPI was catching on to the tune of more than $100 billion in Swift GPI payment messages sent daily. Most of those transactions moved within minutes; some within seconds.

Crowded market
Despite these advancements, Swift has to contend with rivals such as Ripple, which markets its blockchain technology as a way to quickly and securely move funds across borders at a lower cost.

In the process, Ripple has forged relationships with nearly 100 banks, its most significant being a blockchain collaboration with Santander this year. The Spanish bank created a cross-border transfer service, One Pay FX, using the fintech's RippleNet and XCurrent for real-time messaging and settlement.

Separately, Payments Canada, Bank of Canada and the R3 blockchain consortium have launched Project Jasper, advising bankers to proceed cautiously with blockchain projects and study all of the pros and cons of moving toward a distributed ledger process in place of current legacy systems that still operate well.

Swift's strategy is more in line with Jasper's cautious approach.

"We still have an open mind about blockchain, and it is something we have in our labs and various proofs of concept on, but we don't have one for payments," Swift's Newman said. "We do not think it is industry ready for a global network just yet; and let's be blunt, it may never be."

Blockchains work well when the asset itself, such as a cryptocurrency, is on the blockchain, Newman added. "If you are not doing that, it sort of ties itself up in knots," he said. "You are trying to make this work and it results in a lot of work and costs."

Instead, Swift intends to solve the problems of speed and transparency, as well as improving global service through the cloud and APIs as a key part of the GPI system, Newman added.

"That is industry-ready for a wholesale product," he said. "It allows us to add and deliver the services we need to deliver."

A deeper dive into GPI illustrates that the system can provide competitive advantages for banks using the system. Its new software — GPI Observer Analytics, focused on transaction routing intelligence — seeks to lower costs and increase the transparency and speed of payments. It does so through identifying and optimizing existing end-to-end payment routings, with insights on market practices and benchmarks.

"Using correspondent banking as a tool that can analyze market behaviors is certainly a differentiator, as is accessing unique data for improved competitive analysis and identification of new business opportunities," Aite's Baumann said.

That's the kind of feedback Swift will want to hear from GPI users, and a pitch it can make to the other banks it is hoping to attract to the system in 2019 as it pushes for full adoption by the end of 2020.

New year's resolution
Currently, the GPI service handles more than half of Swift's cross-border transactions. Member banks use the system to send hundreds of billions of dollars in payments daily.

This momentum has Swift optimistic about its future prospects, even if it doesn't have a new CEO at the helm to lead its strategy.

"The full community is full speed ahead on GPI and the personnel changes are not a prime consideration," Newman said. "The board of Swift, on a number of occasions, has stated that we will continue to do this and do it as swiftly as possible."

Swift will concentrate on global adoption, adding services that reduce friction and keeping an eye on the ultimate payments goal that would further advance the fact that many Swift payments already occur in a few minutes or sooner.

"We feel that cross-border instant payments are entirely possible," Newman said. "It's not a technology issue, it is a legislative issue regarding the destination country."

To remedy that, Swift expects to make integrations in the future that help GPI deliver faster payments. For example, Swift integrates GPI with Australia's New Payments Platform the local instant payments solution. The integration allows banks in China and Singapore to send instant payments and credit their clients in a matter of seconds.

"This is a very attractive integration and it is the one thing we will be exploring more in the future," Newman said.