Despite criticism from blockchain advocates, Swift’s one-year-old global payments innovation (gpi) service is growing at a rapid rate and significantly improving cross-border transaction speeds.
A year after the first banks went live with Swift’s gpi, the service has been adopted by more than 150 financial institutions around the world, according to figures released by the global transaction network today. More than US$100bn worth of payments are being sent via gpi messages every day, across 220 international payment corridors, representing roughly 10% of Swift’s cross-border payments traffic.
The figures also show that nearly 50% of gpi payments are credited to end beneficiaries within 30 minutes, and “almost 100% of payments within 24 hours”.
“Those that take longer typically involve more complex foreign exchange conversions, compliance checks or regulatory authorisations,” Swift says in a statement. When contacted by GTR, Swift could not specify how many payments fall into this category, but a spokesperson says these represent “only a small percentage” of the total gpi traffic.
According to Harry Newman, Swift’s head of banking, the ability to credit payments within minutes – often even within seconds – marks a “very significant step forward for banks and for their customers”.
“In addition, banks receive fewer queries and have told us their enquiry-related costs are reduced by as much as 50% when they use Swift gpi. This is a major service improvement to end-users and a considerable cost saving for the industry,” he says.
He now expects adoption of the service to “grow very significantly”, adding new banks and corridors every day.
The gpi is experiencing success amid criticism that Swift has decided to not incorporate blockchain technology into the payments service. This question is particularly relevant for Swift – the system which has supported cross-border payments for decades – as it is now seeing increasing competition from providers offering real-time payments based on blockchain, while Swift has chosen instead to focus on its gpi service.
For example, more than 100 financial institutions have to date joined Ripple’s enterprise blockchain network, RippleNet, to settle global payments leveraging blockchain technology. In another move, IBM and a number of banks recently launched a blockchain-powered solution to clear and settle cross-border payments, using cryptocurrency as a bridge between fiat currencies.
However, Swift has from the start said it was “a conscious decision” to not integrate blockchain into its new service – a decision that was driven by the need to deliver immediate value while exploring new technologies in parallel. So instead of rebuilding its infrastructure from scratch, the gpi was built on top of the existing system to improve speed, transparency of fees and tracking of payments.
“We did not want to wait a couple of years to do something,” Wim Raymaekers, Swift’s head of gpi, told GTR at the time of the launch. “You cannot just rip out what banks have today and put something in that is not proven. Banks across the world do not have a distributed ledger technology 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.”
Even if the gpi service doesn’t offer real-time settlement, today’s figures from Swift mark a significant improvement from the three to five working days a cross-border payment can otherwise take. This is exactly what Swift attempted to achieve, having previously stated that the goal is not to settle in real time, but rather to create certainty for businesses.
“Corporates 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,” Raymaekers emphasised. “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.”
Although Swift is reticent to use blockchain for making payments, the company isn’t ignoring this new technology completely. As part of the gpi initiative, Swift is currently exploring the use of blockchain technology for real-time nostro reconciliation. A nostro account is one that a bank holds in a foreign currency in another bank – which is currently difficult to monitor in real time due to a lack of intraday reporting coverage. While result so far are “encouraging”, Swift says it is “still early days” and has not yet committed to the technology.