Swift aims to improve correspondent banking for customers
by Kylene Casanova
An initiative that aims to increase the speed, transparency and predictability of cross-border payments has been announced by the bank-owned consortium Swift. A pilot for the project will get underway in early 2016 and will initially cover B2B payments, within the frameworks of multilateral service level agreements between member banks.
The initiative will provide the following services for corporates:
- same-day use of funds;
- transparency and predictability of fees;
- end-to-end payments tracking; and
- transfer of rich payment information.
According to Swift CEO Gottfried Leibbrandt, this is a critical step in cross-border payments innovation, while Wim Raymaekers, head of Swift's banking markets, said: “As part of the initiative we will continue to develop new and enhanced services, utilising Swift's Innotribe initiative to further engage the fintech community and explore the application of innovations such as real-time payment status tracking, the use of peer-to-peer messaging and blockchain technology.”
Rough ride ahead
Correspondent banking, the process of using banking relationships to enact cash transactions across national borders, is known for being slow, inefficient and costly for banks and businesses. Banks face the challenge of different national payments systems with their own local regulations and practices as well as the lack of a global standard, despite the progress made in introducing the ISO 20022 payments standards. What's more, the correspondent banking model is coming under intense pressure as third-party non-banks have entered the market. Ripple Labs, for example, plus its partnership with Earthport, have introduced third-party platforms that can streamline and improve the service levels and costs of critical steps in the correspondent banking infrastructure, such as message routing and settlement. This is a serious potential disrupter in the correspondent banking market, although there is also potential for third-party services to work in tandem, complementing banking models.
However, a report in the Economist (June 2014), states that banks may have ended as many as a third of their correspondent relationships already, while a PwC survey found that compliance is causing many banks to exit correspondent banking.
Initiative greeted with scepticism
Some initial reactions to the news that Swift is aiming to improve correspondent banking services have been varied, with some commentators in the fintech community voicing scepticism that Swift is not engaging more with innovative payments technology. Other commentators are in turn sceptical about the hype surrounding new payments innovators, saying there is still no viable, cost- and time-effective alternative that doesn't require excessive documentation, other than the traditional bank-initiated wire transfer.
CTMFile take: the next few years are likely to be interesting in terms of correspondent banking. Corporate treasurers and CFOs should stay up-to-date with developments, which are likely to come thick and fast. Those who make sure they are aware of potential new providers and improvements to existing bank services will benefit.
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