Shaking up the cross-border payment experience

An examination of how SWIFT’s innovative new global payments system could transform cross-border payments and make delays a thing of the past, writes Bank of the West


International payments are fundamental to global trade and business as we know it today. Without an efficient cross-border transfer system, businesses and their banking partners stand to lose significant capital. Yet for decades, the day-to-day challenges of managing cross-border payments have plagued us. Delays, hidden fees, failed transfers, limited access and a lack of transparency throughout the chain have all contributed to making international transfers problematic and at times costly, slowing business and hindering relations.

In 2020, under the request of the G20, the Financial Stability Board created a roadmap to improve cross-border payments, with key targets including increased data quality, steps to coordinate regulatory frameworks and research into new and existing payment infrastructure. Yet issues still remain, and many banks and corporates continue to struggle.

At Bank of the West – a subsidiary of BNP Paribas headquartered in San Francisco – we’ve signed up to SWIFT global payments innovation (gpi) to help alleviate the most pressing of these challenges. The multi-year SWIFT gpi initiative has been rolled out in stages by the global banking community with one goal: to improve the cross-border payments experience for both senders and recipients. Thanks to greater end-to-end transparency, improved speed and the flexibility to cancel payments en route, this new service is a sought-after advancement in the global payments landscape.

Addressing a global need
Banks have long facilitated cross-border payments for their clients to enable international trade and business to thrive, but the process has often been overly cumbersome, slow and opaque. “Historically, clients have sent their cross-border payments through a black box, with no understanding of the full cost or the point at which funds would be credited to the recipient,” says Larry Feinberg, Head of Digital Payments for Corporate and Commercial Banking at Bank of the West. “Improvements to the cross-border payment experience are long overdue.”

Both banks and their clients have for a long time been subject to high costs and delays in transfers. This is partly due to the fact there are multiple parties – banks, market infrastructures and corporate businesses – required for the clearing and settlement of every cross-border payment.

Faced with these hurdles, pressure has been mounting for heightened transparency and a more streamlined cross-border payments system that minimises the number of intermediaries involved. This pressure has only been exacerbated by the exponential growth in cross-border trade, huge technological innovations and global events – all of which point to a clear need for faster payment solutions with better data around them.

Cross-border payment issues
Delays in recipients receiving the funds aren’t just an annoyance; they can lead to several complications, not least legal risk, according to Meghan Birmingham, Head of Transaction Banking for Corporate and Commercial Banking at Bank of the West. “Clients face legal and reputational risk when their vendors are not paid on time,” she says. “Timeliness and payment confirmation are critical deliverables for our clients.”

Cross-border payments often lack the certainty provided with domestic payments. Those delays can be especially costly for high-value payments, not least merger and acquisition transactions, where speed is critical. Without the ability to track statuses in real time and confidently confirm receipt of funds, we’re faced with several hurdles. Transaction costs can also be significant, especially for treasurers dealing with a high volume of cross-border payments. Fees can be high, and there’s often a lack of transparency around them, which can cause friction between corporates and suppliers. Intermediary fees deducted along the payments chain may be unexpected and lead to incomplete payments. In addition to this, exchange rates can be notoriously difficult to predict and can fluctuate unexpectedly, further adding to the problems.

Improvements to the cross-border payment experience are long overdue

The issue of transparency extends beyond just fees, too. In most industries, treasurers look to their bank to provide insights into the status of their cross-border payments. While banks are indeed well positioned to handle these inquiries – employing direct messaging with other SWIFT member institutions – this need for transparency places a significant burden on client service teams.

The lack of communication across the value chain can raise further costs for banks and their clients, while undermining corporate cash flow forecasts and ultimately straining relationships between suppliers and business partners. The challenges are multiple, and addressing them sooner rather than later is key.

The SWIFT Tracker
The aim of SWIFT gpi is to address these long-standing issues and to open the door to smoother, more transparent cross-border payments. Realising this potential requires all participating banks to be aligned in their goals and to adopt new, multilateral agreements that outline the business rules governing gpi services.

At Bank of the West, we have committed to doing exactly that. The rules are key to improving payment speed, increasing transparency around fees, enabling end-to-end tracking and helping to ensure remittance information remains unaltered throughout the payment chain. Fundamental to this transformation in cross-border payments is the SWIFT Tracker, a cloud-based solution for connecting all parties in the value chain.

This innovative technology enables significant enhancements in the speed, transparency and traceability of cross-border transactions. That’s helped in part by specifically focusing on the MT103 – a standardised SWIFT payment message used for cross-border wire transfers. The message includes all details about the transaction, including the date, amount, currency, sender and recipient, to help senders and recipients trace payments more easily and better manage their progress.

The key tenets
SWIFT gpi has four key goals. The first is making funds available the same day, provided they’re received before the recipient bank’s stated cut-off time. According to SWIFT, nearly 50 percent of gpi payments are credited to end recipients within 30 minutes, 40 percent in fewer than five minutes, and almost 100 percent within 24 hours. That makes the median processing time less than two hours (affected by various factors, including geographical location and the online hours of the relevant banks). It also depends on the number of parties involved; on average, cross-border SWIFT payments require only one intermediary between the sender and the recipient, making the process significantly quicker and more efficient.

The second goal is to ensure end-to-end payment tracking and confirmation is readily available throughout the process and with every transaction. Since the end of 2020, it has been obligatory for all gpi banks to provide final confirmation of payment for every MT103 message sent on the SWIFT network.

This means both clients and banks are able to see if a payment has been credited to the end recipient, or if it has been rejected or transferred outside of the network. The introduction of a new, unique end-to-end transaction reference (UETR) makes the tracking experience highly intuitive – much like how today’s parcels are tracked in real time and updated with locations, time stamps and delivery details. At Bank of the West we’re able to log in to the Tracker to check the payment status, which helps us improve liquidity management. It also helps us identify problem areas and to implement better service-level agreements as well as to see other gpi banks’ adherence to those SLAs.

In addition to this, the gpi tracker aims to improve transparency around fees throughout the payment chain, including any deductions against payment amounts and applicable exchange rates. It also aims to ensure the integrity of data provided by clients regarding their payments, providing insight into the purpose of the transactions.

As a further benefit, clients are also able to use the Stop and Recall service to electronically recall transactions immediately if an error has occurred or if fraud is suspected, streamlining the cancellation process. This can be done regardless of what stage the payment is at in the chain, as the recall request – initiated with the original UETR transaction reference – is directed to whichever bank is currently in possession of the funds. All of this is made possible by the ability to track payments in real time, allowing quick, easy access to cancellation data via multiple channels.

Harvesting the potential
Through collaboration with member banks and corporates, the SWIFT gpi program aims to remove friction points that have long persisted for cross-border payments while further extending connectivity between different markets. By integrating data-rich ISO 20022 messaging standards, the technology opens the door to more value-added services for clients, making a payment’s status visible from the time it’s sent until the moment it is received by the recipient bank. It also enables clients to view real-time status and fee information without having to rely on the bank’s client services team to investigate payment delays and fees.

“SWIFT gpi brings essential information to customers when they need it – immediately,” says Feinberg. “The information provided by gpi is not only transformational – it’s necessary.” The pandemic has shown the value of international collaboration, and that must extend to the banking and corporate world, too. It’s solutions like these we need if global trade and business are to continue to thrive in the face of future challenges.