Payments
are the lifeblood of an economy. They form a critical
part of the financial value chain for companies.

But the
basic correspondent banking mechanism for cross-border payments has remained
unchanged for decades. As these transactions are routed through multiple banks,
each with different systems and processing times, companies
have long struggled to track cross-border payments.

In recent
years, the technological revolution sweeping through the financial sector is
transforming the area of cross-border payments also. OpenGov spoke to Mr Atul
Bhuchar, ‎Group Payments Product Head, Global Transaction Services at DBS
and Mr Michael
Moon, SWIFT’s
‎Head of Payments Markets, Asia
Pacific, to learn more about these innovations.

The pain points

We asked Mr Bhuchar about the primary pain
points for customers when it comes to international payments.

He replied that the biggest concerns are
related to the velocity of payments and the information-richness of the payment
messages.  Customers demand frictionless
payments, as well as information-richness of the messages, because it is not
just about the movement of funds, but also the movement of information. Another
crucial area is transparency.

Finally, there is the issue of cost
efficiencies. Financial institutions are exploring how they can make payments
more cost-efficient for their clients, whether by leveraging economies of
scale, straight-through-processing, or utilising digital, electronic channels.

Mr Bhuchar said that today customers are
expecting instant fulfilment, just as they would get in say, an online search.

“You don’t have to wait for a cut-off time,
you don’t have to wait to check whether it’s a banking holiday. This instant
fulfilment is typically what customers have now started to expect when it comes
to banking and payments too,” he explained.

Mr Moon added that the real problem is
cross-border payments is not a technology problem. In payment networks like
SWIFT, a payment instruction can reach the opposite end of the world in
seconds. The real issue is business process frictions.

Through its gpi
platform, SWIFT is specifically targeting those frictions, standing in the way
of same day payments, end-to-end tracking ability, and transparency on fees.

Instant payments and instant collections
are rapidly becoming a reality when it comes to domestic payments, as evidence
by PayNow in Singapore, the Unified Payment Interface in India or PromptPay in
Thailand. The ability to use virtual proxy addresses for account numbers, such
as mobile numbers or the person’s identity card number or the company
identifier, to make electronic payments, is reshaping payments in the domestic
area.

Still when it comes to cross-border
payments, the general expectation is that it will take a couple of days. The
challenge is to change that.

Altering
the status quo

Mr Moon said that the most valuable thing
in payments network is reach. SWIFT reaches 11,000 institutions globally,
including 3000 in Asia-Pacific and 700 in south east Asia.

Reach provides network and scale benefits.
It can help in driving down costs of providing services. SWIFT provides the financial
messaging services at a few cents on average per message to customers in our
network.

Now the gpi network is helping accelerate
the velocity of payments.

Worldwide there are over 150 banks that are
live on gpi, and around 150,000
payments a day worth USD 100 billion between banks that are live on gpi.
The time taken for payments completion has come down from days to minutes or
even seconds. In fact, for around half the payments, funds are credited to the
end-customer in less than 30 minutes or less.

Benefits
to the customers

DBS was one of the first few banks globally
to adopt SWIFT’s global payments innovation (gpi) initiative to improve
cross-border payments. Today, DBS’ business clients in Singapore and Hong Kong can
track their cross-border payments in real time, so they can manage their cash
better and eventually provide a better service for their customers.

DBS conducted a deep dive into the customer
journey and found multiple benefits of the gpi value proposition. One is
improving the clients’ working capital efficiency. Secondly, it enabled
improved cash forecasting.

Mr Moon described the benefits to the
end-customer, “For a small exporter in Thailand, this could reduce their need
to rely on working capital and the costs associated with that, because they are
getting money faster and they have the confidence and the certainty that money
is coming in. They can forecast and know when money is coming in. They can then
apply those funds towards extending and growing their business in the region as
well.”

The third benefit was in terms of the
supply chain. As money moved faster and frictionless across the chain, DBS’
clients were able to develop and leverage better relationships across the
supply chain. It resulted in both lower operational cost and increased
productivity for clients.

“Because earlier if the beneficiary did not
receive the payment, they would have to spend time to call the bank to find out
the status of the payment. The remitting bank would then have to check with the
nostro bank, the nostro bank would then have to check with the beneficiary
banks’ nostro bank and eventually the beneficiary bank. All of this resulted in
friction, by adding time and effort,” Mr Bhuchar explained.

Now customers don’t have to call the
contact centre. They can go online 24/7 and check the status of their payment.

And last but not the least, SWIFT gpi
enables the transfer of rich payment data along with the payment, with the data
on the underlying invoices or contracts for the payment. This simplifies the
reconciliation for DBS customers’ suppliers. Earlier this would require manual
intervention and numerous e-mail exchanges to know the payment-details.

Benefits
to the bank

From a DBS standpoint, it helped to improve
the customer service model too.

Mr Bhuchar said, “Earlier the customer
query would typically have to go through this hop, skip and jump across
different banks. Now with the gpi tracker, our customer service teams can just
immediately check the status for a gpi transaction and advise the client.”

“And equally importantly, we can encourage
the client to go digital by logging onto our online banking platform, IDEAL,”
he added.

Mr Moon added that gpi provides an agreed
common set of service outcomes, in terms of same day payments, end-to-end
tracking, transparency and information. Banks can then layer their own
innovations on top of this underlying service.

He provided examples of banks demonstrating
creativity with the way they use gpi. Banks in China are using the mobile
platform to provide status outcomes to customers on completed payments. The
information richness feature is being used by some banks to carry information
related to student payments. For instance, a Chinese student studying abroad in
the US or the UK or Australia, can carry information related to the particular
study purpose with the payment message, all the way to the end educational
institution or university/college.

A
‘WhatsApp moment’

However, the above discussed benefits
remained limited to the gpi network. A recent announcement from SWIFT could
change that, greatly expanding the benefits of gpi and motivating more banks to
join the platform.

SWIFT is going to extend
its gpi Tracker to cover all payment instructions sent across the network,
through the mandatory
annual Standards MT Release in November 2018.

The Tracker, available since May 2017,
enables banks that have signed up to SWIFT
gpi to track their gpi payments in real-time. The Tracker can
be updated by FIN message
or via API. It can be accessed via a graphic user interface (GUI) and also via
API calls to allow the service to be embedded in other back-office systems. But
until now, the Tracker was only available for transfers within the gpi network.

From November onwards, a unique end-to-end
transaction reference (UETR) will be included in all payment instructions
carried between all 11,000 customers on SWIFT across more than 200 countries
and territories.

“What that lets us do is to introduce what
we refer to as universal, real-time payment tracking. The tracker will cover
all payments whether they are gpi or not,” said Mr Moon.

Mr Bhuchar called this a potential ‘WhatsApp
moment’ for cross-border payments. Once WhatsApp became really popular, if a
person was not on WhatsApp, they would miss out on the benefits of being able
to communicate much more cost-effectively. It’s the network effect, which is
most highly evident in social media platforms, where the higher the number of
participants, the greater the benefits for everyone.

“The end customers are now making sure that
there is pressure on banks to get on to the platform. What SWIFT has done with
the planned November release is a quantum leap, which we are very delighted
with. Because it’s shaping the future of cross-border payments as we speak.”