BankingCorporate to Bank RelationshipsImplementing SWIFT gpi for an effortless payment environment

Implementing SWIFT gpi for an effortless payment environment

SWIFT gpi is tipped to become the universal cross-border payment standard, writes Paula Roels, Deutsche Bank.

Given the advantages it creates for corporate treasurers, SWIFT’s global payments innovation (SWIFT gpi) is tipped to become the universal cross-border payment standard. But, before it can, a critical mass of banks must be routing payments via SWIFT gpi. Reflecting on the Bank’s implementation journey, Paula Roels, Head of Market Infrastructure & Industry Initiatives, Cash Management, Deutsche Bank, makes the case for becoming SWIFT gpi-ready.

Following a year-long trial, financial institutions (FIs) have been implementing SWIFT gpi since its go-live date in January 2017. The industry-wide payment standard, which uses a cloud-based solution that connects all intermediaries in a payment chain, brings significant breakthroughs for the corporate treasurer: greater transparency over transaction fees, the foreign exchange (FX) rates used and, crucially, the same-day availability of funds.

For SWIFT gpi to reach its fullest potential, however, a critical mass of FIs must use the standard for cross-border payments – making a near ubiquitous uptake essential. In this respect, the larger global correspondent banking providers such as Deutsche Bank can also play a part in creating awareness around the initiative, especially in terms of the changes that are necessary with the SWIFT Standard Release in November 2018. Deutsche Bank urges those banks committed to becoming SWIFT gpi-ready in the future to press on with their implementation phases – and join the 150+ member banks (at the time of writing). Only then can the banking community truly demonstrate the initiative’s value.

Delivering payment innovation via SWIFT gpi

Certainly, SWIFT gpi answers the calls from corporate treasurers – and FIs alike – for innovation in the cross-border payment experience. Among the most common frustrations is that, in some jurisdictions, funds can take several days (in some cases, up to a week) to be credited. Understandably, such delays – sometimes caused by compliance requirements or the availability of correspondents in certain countries – are no longer consistent with treasurers’ expectations, especially in the age of “on-demand” services.

Transaction fees are a significant pain point, too. Typically, banks charge for cross-border payment processing by deducting fees from the original transaction amount, which can impede the corporate treasurer’s payment reconciliation process. What’s more, FX charges can be shrouded by long, opaque transaction chains – leaving the treasurer in the dark over a given transaction’s true cost.

Thankfully, SWIFT gpi helps to address these challenges. Since February 2017, the initiative’s first phase (V1) has been granting corporates the same-day availability of funds, if a payment is received before the bank’s cut-off time. Though the cloud solution can only be accessed by an FI in the payment chain, SWIFT gpi also affords corporates greater visibility over: the transaction deductions and FX rates applied; end-to-end payment tracking and confirmation; and unaltered, complete remittance information.

Though they are (by design) secondary, SWIFT gpi also brings benefits for FIs. Foremost, by leveraging SWIFT gpi to enhance their offering, banks can hope to improve existing client relationships – and attract new ones. Second, SWIFT’s cloud-based platform allows banks to improve payment settlement speeds, transparency and traceability without compromising either their compliance functions or their market, credit and liquidity risk requirements. And third, due to the improved claim management processes that V1 has introduced, banks can expect to decrease their operation costs for claim of non-receipt investigations.

This is all thanks to the SWIFT gpi Tracker, which has been available to gpi-ready banks since May 2017. Not dissimilar to a shipment tracking service offered by a logistics provider, the Tracker grants banks greater oversight of a payment’s status. As aforementioned, the bank can then relay updates to the beneficiary or sender. Facilitating tracking capabilities is the use of unique end-to-end transaction references (UETRs), which allow each party in the chain to not only easily identify a payment, but to confirm its status.

Further innovations that address the costs and inefficiencies of cross-border payments come in the second and third phases (V2 and V3, respectively). Set to be introduced in November 2018, V2 introduces the Stop and Recall Payment service (gSRP), which enables the ability to stop transactions in-flight, and the gpi COVER service (gCOV), which bolsters tracking capabilities and helps banks to ensure the same-day availability of funds. V3, meanwhile, will explore the ways that distributed ledger technology (DLT) can be leveraged for reconciling banks’ nostro databases.

Putting SWIFT gpi into practice

Given its far-reaching potential, it’s promising that 150+ banks will go live with SWIFT gpi sooner or later – including the 40 or more institutions that are already live.. The 150 financial institutions that have signed up for gpi will encompass three quarters of cross-border payments traffic.  However, more can be done – especially by those banks that have already implemented the initiative to demonstrate its benefits – and to share their experiences of the implementation phase.

Of course, the timelines and project scope of many implementation phases will be determined by the available budget and resources – particularly for smaller, regional institutions. That said, following its own roll-out phase, Deutsche Bank has devised an approach that can be replicated regardless of an organisation’s individual characteristics:

  • Customer workshops can help for a number of reasons: they uncover ways that SWIFT gpi can be leveraged to provide add-on services, while case studies can help to build the internal business proposal.
  • When it comes to building a sound business case for implementing SWIFT gpi, institutions should focus on the longer term goals of protecting banks’ revenues in an increasingly competitive payment industry, rather than on short term revenue generation.
  • Should the proposal be successful, the creation of a cross-departmental (and multi-regional) internal working group can help to refine the implementation strategy. By melding the feedback from clients, internal stakeholders and technology vendors, the bank can hope to answer the following questions regarding its SWIFT gpi rollout: “Where (and in which currencies), and using which technologies?”
  • Following SWIFT’s sign-off on the implementation agreement, the bank must alter its internal processes (if necessary) – and ensure that they are congruent with SWIFT’s specifications. This is in preparation for the testing phase: once SWIFT has checked the bank’s internal systems are compliant, the bank can conduct community scripted tests with other gpi banks, as well as live penny testing with a selected control group.

Once these tests are passed, the bank enters a controlled live usage stage, during which it can undertake a subset of live SWIFT gpi payments.

The time is now

For global banks, building the business case to invest in and implement SWIFT gpi may not be quite so challenging: correspondent banking and cross-border payments are key parts of their business. Smaller banks, however, may need to look to their service providers to enable their payments for SWIFT gpi. Regardless of how banks achieve SWIFT gpi-readiness, as many banks as possible should move toward SWIFT gpi’s live operational mode during the first half of 2018. By doing so, they will be contributing to instilling SWIFT gpi’s position as the new standard for cross-border payments.

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