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Twelve transaction banks are now live with Swift’s new global payments innovation (gpi) service. The launch marks a “major milestone” in innovating cross-border payments, the company says, albeit the service does not incorporate blockchain technology.

After months of testing, global transaction network Swift has announced that its new gpi service has opened for live payments between 12 banks across 60 countries, with many more set to adopt the service in May.

Almost 100 banks have signed up to join the initiative, which will be rolled out in phases. Implemented directly through each bank, the first phase focuses on business-to-business payments to help corporates grow their international business, improve supplier relationships and achieve greater treasury efficiencies. Features include transparency and predictability of fees, end-to-end payment tracking, as well as a guarantee of payment settlement within a single day.

“The design principle is to bring benefits to the corporate treasurer and to bring them immediately,” Wim Raymaekers, Swift’s head of gpi, tells GTR. He highlights the tracker as one of the key, innovative improvements enabling banks to provide corporate treasurers with a real-time end-to-end status on their payments.

While new features of the first phase will be added in May, the second phase will be implemented later this year and next year, and includes digital features to further transform the payments experience, such as a rich payment data service.

 

To blockchain or not to blockchain?

But not all are equally impressed with Swift’s new service. Critics have pointed to the fact that the gpi does not integrate blockchain or distributed ledger technology (DLT), which in the industry is seen as the future of cross-border payments, with a large number of consortiums and initiatives already exploring the technology around the globe.

In a statement released last year, Ripple, a provider of DLT services, notes that Swift’s gpi initiative “does not address the antiquated infrastructure that makes real-time settlement a constant challenge”, adding that the initiative merely makes a minor adjustment to its current settlement requirements. “We believe the future requires more than an SLA [service-level agreement] update,” it says.

While Ripple considers Swift’s new one-day settlement an improvement from the three to five days a payment can take today, it argues that the gpi in its current form “cannot keep up with consumers’ and businesses’ expectation for on-demand payments”.

But according to Swift’s Raymaekers, not integrating DLT in the first phase was “a conscious decision”.

“There was a very strong call amongst banks for action to deliver value today. Blockchain or DLT, we believe, is not ready for wholesale payments yet. Banks across the world do not have a DLT protocol ready for usage, it’s not within their back office systems. Our technology is. That’s why we said, let’s use that because it’s available, and build on top of that,” he says.

However, Swift doesn’t undermine the potential of blockchain technology, and it could well be the next step for innovation of its services. The company launched a proof of concept (PoC) in January to explore the potential of using DLT and other technologies for real-time nostro account reconciliation, which forms part of the gpi’s third phase.

The PoC is expected to be completed this year. Added to this comes the implementation of the technology – should the PoC be successful – which could take several years.

“We did not want to wait a couple of years to do something,” Raymaekers says. “Our strategy was to deliver value today, and explore new technologies in parallel. That’s a pragmatic and strategic way to go about it. You cannot just rip out what banks have today and put something in that is not proven.”

Even if the gpi service doesn’t offer real-time settlement, Raymaekers says the real issue isn’t as much about time as it is about certainty as to when the payment will go through.

“Corporates don’t like the uncertainty. They are not asking for instant payments as such, because there is no payment that leaves a corporate without an invoice, so they know when to make the payment in advance. But when the payment needs to be made they want more certainty. That’s why the same-day promise is important for corporates; to better schedule their payments,” he says.

The gpi initiative, he adds, is an example of how innovation – and meeting the needs of banks and companies – can happen without blockchain technology, at least for now.

“The corporates just need to make payments. They don’t necessarily know what banks use; for them it’s about doing the payment with certainty, transparency and traceability.”