Disruption and Collaboration in cross-border payments Bill Doran - PowerPoint PPT Presentation

Disruption and Collaboration in cross-border payments Bill Doran Head of Oceania SWIFT June 27 th 2018

SWIFT is an industry-owned, not-for-profit cooperative providing financial messaging services to the global finance industry 11,000 Financial institutions, Market Infrastructures & Corporates 3,000 of which are in Asia Pacific 200+ Countries & territories

Unique value proposition 7bn + 12% 3 days ‘MT’ messages Annual growth Approximate annual value ‘MT’ Payment in 2017 world GDP through SWIFT Traffic (2017) network Secure Resilient Fast Always available Seconds for a message to be sent anywhere in the world Economies Cents Domestic Cost per message Provider of domestic market of Scale infrastructures: RTGS, bulk and real-time payments Single window to the world Continual price reductions

SWIFT is a critical service supplier for New Zealand ESAS NZClear SBI Domestic 18 participants using 35 participants using 9 participants using Infrastructures SWIFT to connect SWIFT to connect directly SWIFT to connect directly to ESAS to NZClear directly to SBI 9.5 Million 31 Trillion Cross-Border Payments sent or received in $ NZD sent or received in Payments 2017 2017 38 65% $30 Bn $1.2 Tn Statistics SWIFT 65% Payments Settled through Cleared and settled users in NZ 32% Securities ESAS every day through SBI in 2017 3% Treasury

Is Correspondent Banking about to be disrupted? 5

“Disruption” Correspondent Banking In the 1990 ’s, Clayton Christensen coined the term To truly disrupt correspondent banking business “disruptive technology” model, any alternative is going to need: Later replaced the term with “ disruptive innovation” .  Reach : bank accounts in all countries & currencies He recognising that:  Settlement : a viable Nostro/Vostro alternative  Technology is an enabler, but  Regulatory support : regulators know and trust the  new Business Model is the key current system  Cost : cost to implement is justified by cost savings e.g. Uber competes with taxi industry but doesn’t  Customers : provides superior service for own cars. AirBNB competes with hotel industry customers without owning property. (not yet) Correspondent Banking Disruption? Cross-border payments competition?  6

There is a lot of competition in cross-border payments End customer End customer (retail, SME, corp) Correspondent Banking disintermediation (retail, SME, corp) Transfer Agent Transfer Agent Payment Payment Service Service Provider Provider Local bank Local bank ACH/RTGS ACH/RTGS Regional/Global Regional/Global Transaction Transaction Bank Bank Correspondent Banking 7

How is competition and the threat of disruption improving the cross-border payments experience for banks and their customers? 8

The system works very well but it is not frictionless payment Regional banks fees compliance reconciliation friction FX documents liquidity 9

“global payments innovation”

So what is SWIFTgpi ? Addresses customer pain points How is it achieved?   Banks : all subscribing banks must Speed of payments conform to a new business and technical  End-to-end payments tracking SLA for processing of cross-border payments  Transparency of fees  SWIFT : has built 3 new cloud-based  Remittance information central services: gpi Tracker, gpi Directory and gpi Observer Providing the platform for continuous improvement and innovation

So how have we built a new platform that allows for continuous improvement and innovation? 12

Step 1: start with the core service New SLA adopted by subscribers:  Faster, same day use of funds  Transparency of fees  End-to-end payments tracking  Remittance information unaltered New central services delivered by SWIFT:  Tracker, Directory and Observer

Key element: Introduction of a unique end-to-end tracking number A unique end-to-end tracking number is included in the header of the MT 103 and carried across the payments route up until the beneficiary bank MT 103 MT 103 Ordering Beneficiary PEFIJPJT SWUBDEFF SDEBFRPP Customer Customer

SWIFT gpi May - confidential

Step 2: focus on improvements that reduce costs for banks OR provides value added services that banks’ customers are willing to pay for Cost reduction enhancements:  API access to central Tracker (customer enquiries)  Stop and recall payments  Integration with Corporates’ TMS/ERP UETR #123  International Payment Assistance (pre-validation) New SLA adopted by subscribers:  Faster, same day use of funds  Transparency of fees  End-to-end payments tracking  Remittance information unaltered New central services delivered by SWIFT:  Tracker, Directory and Observer

Major cost reductions reported by banks who have integrated payments tracking into their customer channels using the gpi Tracker API  40+ banks with gpi APIs live or in implementation Tracker  13+ with live portal integration Update / Update Confirmation APIs Confirmation gpi connector Payments Payments Beneficiary Back-end Front-end applications applications

Step 3: facilitate open access and innovation Bringing together banks and FinTech FinTech engagement: Facilitate Overlay services (FinTechs or Banks)  Request to Pay (Assembly Payments)  A/R forecasting (AccessPay) Cost reduction enhancements:  API access to central Tracker (customer enquiries)  Stop and recall payments  Integration with Corporates’ TMS/ERP UETR #123  International Payment Assistance (pre validation) New SLA adopted by subscribers:  Faster, same day use of funds  Transparency of fees  End-to-end payments tracking  Remittance information unaltered New central services delivered by SWIFT:  Tracker, Directory and Observer

Introduction – SWIFT gpi Industry Challenge Workshop, 13 th -14 th September 2017 40 30 5 2 Bankers Global FinTechs gpi banks Intensive Days Co-creating Overlays Over SWIFT gpi rails Innovative solutions to core problems SWIFT gpi Industry Challenge - Workshop Highlights - September 2017 Confidential

Step 4: explore and embrace new technology (where it makes sense) Example: Explore new technology (DLT/Blockchain, AI, APIs, etc.)  DLT Proof of Concept for Nostro reconciliation & liquidity management Bringing together banks and FinTech FinTech engagement: Facilitate Overlay services (FinTechs or Banks)  Request to Pay (Assembly Payments)  A/R forecasting (AccessPay) Cost reduction enhancements:  API access to central Tracker (customer enquiries)  Stop and recall payments  Integration with Corporates’ TMS/ERP UETR #123  International Payment Assistance (pre validation) New SLA adopted by subscribers:  Faster, same day use of funds  Transparency of fees  End-to-end payments tracking  Remittance information unaltered New central services delivered by SWIFT:  Tracker, Directory and Observer

New Technology Exploration – broader than gpi Artificial Blockchain / API’s Intelligence DLT Fraud detection Drive Standardisation SWIFT footprint integration Expose more SWIFT Reference Data products Sandbox for 3rd Payment message Parties Allow third parties to pre-validation and expose their products Thought leadership repairs Development tools POC’s (Proxy Voting, SSI, Nostro)

SWIFT’s DLT Proof of Concept Can DLT help financial institutions optimise the real-time liquidity of their Nostro accounts and reduce the significant operational costs associated with reconciliation? https://www.swift.com/news-events/news/swift-completes- landmark-dlt-proof-of-concept 22

SWIFT’s landmark DLT PoC the outcome DLT could deliver The PoC demonstrated Further work still reconciliation and significant progress needed before DLT can liquidity management be deployed at scale in DLT business benefits Major back-office Further adoption of APIs changes within banks a and ISO20022 data models pre-requisite (e.g. batch will support easier to real-time) integration for banks 23

So how successful is SWIFT gpi ? 24

Unparalleled growth in adoption, traffic and corridors 180 200+ 80+% Very large community banks committed to implement, countries covered SWIFT cross-border payments 49 top 50 banks signed represented 60 35+ Mio 25+% 450+ Millions live payments banks live payments sent as gpi since go cross-border MT103 country corridors 32 top 50 banks live 400K payments/day sent as gpi  Nearly 50% of SWIFT gpi payments are credited to end beneficiaries within 30 minutes Delivering  More than 100 billion USD are being sent daily via gpi real value  Significant drop in bank enquiry costs by as much as 50%  Positive reactions from corporates SWIFT gpi – June 2018 25