Businesses looking for ways to transfer money internationally will come across many different methods for cross-border transactions – from blockchain technology to the more traditional online transfers.
However, one of the biggest networks for global financial transactions is SWIFT – Society For Worldwide Interbank Financial Telecommunication. Recently, the 46-year-old organisation updated its service to provide more benefits to its members with its SWIFT global payments innovation (gpi).
How Is SWIFT GPI An Improvement?
SWIFT is famous for being one of the oldest and most reliable international payment message and sending services, with 11,000 members serving 220 countries. However, in 2016, the organisation launched its gpi service, which has gained so many supporters that it accounts for 55 per cent of its international traffic, sending hundreds of billions every day.
The reason why so many of its members have adopted its new process is due to its faster speed – with payments made in minutes, or even seconds – and better transparency. It boasts that half of all gpi payments are made within half an hour, and nearly all are completed in 24 hours wherever they are in the world.
This enhanced speed has benefits for everyone involved in the transaction, as chief marketing officer at SWIFT Luc Meurant said: “For banks, it helps to reduce the capital requirements needed to support international payments, while for [a] bank’s end customers it frees up cash and enables goods to move faster.”
He added that gpi has “dramatically enhanced the customer experience”.
Another advantage of gpi is it provides tracking capability with its unique end-to-end transaction reference (UETR) code, which allows corporates to trace their payments throughout the whole procedure. Last year, this function was extended to all of SWIFT’s members, as part of its SR 2018 guidelines, enabling them to gain full knowledge over where their money resided at all times.
This is part of SWIFT’s intention to get universal gpi adoption by the end of 2020, so all its members can benefit from real-time cross-border payments and gain a direct connection into its database, making it easier to monitor all of their transactions. By allowing access to its directory, they will be able to choose the best payment routing methods making the process even more efficient.
Are Fintech Companies A Threat To Banks?
Since the financial crisis of 2008, there has been a huge growth in Fintech (financial technology) companies due to the gap traditional monetary institutions left in the market during the recession.
Over the last 11 years, we have become much more used to using technology in financial activity, particularly in Britain. In fact, 63 per cent of newcomers have taken 14 per cent of total banking and payment revenues, which is significantly larger than the US’s figure of 3.5 per cent, according to Forbes.
Julian Skan, Accenture Strategy managing director for banking and capital markets, told the news provider: “Ten years after the financial crisis, the banking industry is experiencing a level of competitive intensity and disruption that’s much greater than what’s been seen before.”
Banks have been forced to react to stay relevant to customers, with Mr Skan adding they can “no longer rest on their laurels.”
However, traditional financial institutions might not be redundant yet, as the Britain’s top five banks – Barclays, HSBC, Lloyds, the Royal Bank of Scotland, and Santander UK – still make up 80% of the country’s retail banking market, while payment specialists do control more than 50% of overseas payments specifically, based on a report by International Money Transfers.
This is not to say Fintech firms are not putting banks in jeopardy though, as Reuters previously reported: “Britain’s banks may be overstating their ability to stop Fintech firms stealing customers and eating into profits.”
Could Blockchain Technology Or Ripple Replace SWIFT In The Future?
Blockchain technology allows digital information to be distributed but not copied – which differs from the SWIFT system – and involves cryptocurrency, which has no intrinsic value or physical form. It was devised for the likes of Bitcoin, and provides a fast and cheap service to send money between currencies.
Californian company Ripple uses this blockchain and cryptocurrency technology, cutting out the middle-man in transactions. This differs again from SWIFT, which sees the money travel through several banks before reaching the correct account.
By only connecting the end banks in the chain, no other institution sees the details, not only making the blockchain process much faster, but also more secure. While this poses a risk to SWIFT, it still remains the largest network for international payments and financial messaging – handling over $100 billion (£76.6 billion) every single day through SWIFT gpi alone. So, it has the credibility, reliability and now – spurred on by the growing threat of Ripple’s product suite of super-fast payment solutions – the efficiency to thrive in the cross-border money transfer market.