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EXCLUSIVE - Moving towards faster, transparent and trackable cross-border payments

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.”

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