What if Cross Border Payments Were as Easy as Ordering and Tracking Delivery of a Pizza? (Part 2 of 2)
(In the final episode of this two-part series on digital transformation in the cross border payments industry, we continue our conversation with Daniel Lynch, Global Payments Innovation Manager, Americas at SWIFT. Read part 1 here.)
Last week, Daniel Lynch told us how SWIFT is transforming cross-border payments with the introduction of SWIFT gpi, a global payments innovation initiative focused on boosting transparency and instant processing of customer transactions. He also talked about the importance of data and that the number one thing to focus on in cross-border payments is ensuring the quality of electronic data and the capability to interchange it.
“For example,” says Lynch, “an inaccurate account number can cause a significant delay with a cross-border payment. Which is why we’re building APIs that will let you pre-validate a data point or alternatively repair a payment in flight. It’s like changing a payment from something that’s more like sending a letter or email to something that’s more like chat which is more dynamic and multi-directional.”
This time around, Lynch spotlights a galaxy of new economies fueled by the dynamics that are disrupting the international payments market. He also provides expert commentary on how the rise of digital goods and services has impacted cross border payments. He dishes, for example, on Kickstarter funding and how he has used the BAT token (from the Brave Browser) to tip news outlets for his fav articles with micro-payments. All of which are examples of new use cases for payments that didn’t exist a decade ago.
“It’s like changing a payment from a letter or email to something that’s more like chat which is more dynamic and multi-directional.”
Read and enjoy.
Appian: I want to pick up on something you said earlier in our conversation. You said that one of the big challenges in cross-border payments is being able to distinguish whether an issue is related to a bank’s network or its back-office system. You also said that if there’s an issue or a delay, more often than not it’s related to data processing issues.
Lynch: That’s certainly true when it comes to handling reference data. Folks talk about innovation at the network level. But would you rather spend time cutting the three second latency we see on the network or (reducing) the hours and days we spend resolving internal (data) processing issues? Those are some of the hidden challenges that people don’t always see when they’re unfamiliar with how payments processing works.
Appian: As an industry outsider, I’m amazed at how huge the global payment market is. And it’s growing at a phenomenal rate. In fact, news reports say that the industry is expected to top $2 trillion dollars in the next 2 years. What’s driving this incredible growth?
Lynch: I don’t think there’s just one answer to that (question). There are a number of factors. So, I think we live in an increasingly interconnected world and that affects wholesale and retail payments. Back in the day, it was huge, multinational companies such as Dow Chemical or General Electric that drove cross-border payments.
But today’s market is being driven by a variety of businesses and industries from Fortune 500s down to SMEs and micro-businesses. Also, as people increasingly migrate between countries, we’re seeing more growth and frequency in remittances to families and friends across borders.
With over $40 trillion sent via #SWIFTgpi in 2018, and more than 3,500 banks now committed to adopting the service, a new era of fast, secure and efficient cross-border payments has arrived: https://t.co/OBhFUtWPY0 pic.twitter.com/8BnQ786Edq
— SWIFT (@swiftcommunity) February 28, 2019
Appian: What about the technology impacts?
Lynch: We’re seeing net-new payment types that wouldn’t have existed in the past. I live in New York and everybody’s addicted to podcasts. So, you could have a membership podcast on something like the history of bread and do a series of episodes on the history of croissants or empanadas. And if customers sign up for your podcasts from continental Europe, that’s a cross-border payment via Stripe and Patreon that wouldn’t have existed even 5 years ago.
So, there’s a whole universe of economies that can rise up around digital goods and services. There’s Kickstarter funding for projects. Lots of people also got caught up in the whole ICO (Initial Coin offering, cryptocurrency) craze. I’ve used the BAT token from the Brave Browser to tip news outlets for articles I’ve appreciated with micro-payments worth a few cents. These are all examples of new use cases for payments. They include everything from wholesale payments on behalf of an enterprise to person-to-person remittances and net new use cases that you wouldn’t have seen a decade ago.
Appian: Which brings us right back to digital transformation.
Lynch: Yes. As you know, SWIFT is a network, a standards body as well as technology and software provider. But an important distinction folks forget is that we are a member owned cooperative that can drive industry wide initiatives to tackle some of these more complex issues. And in 2015 into 2016 we sought to do just that in getting our first gpi consensus group together, as there was a clear market evolution happening in payments and folks were ready to address it holistically.
For example, we saw new entrants to the market in east Asia, rapidly capturing the retail flows for payments. You also had the heightened consumer expectations for instant gratification in retail that I mentioned earlier. So, even in wholesale (banking)—where you might not have the tech infrastructure to support these expectations…
There’s a lot of dissonance in having an instantaneous and gratifying, transparent retail experience and then coming into the office the next day and not having that same level of customer experience for a high-value wire payment.
— SWIFT (@swiftcommunity) October 18, 2018
Appian: Research shows that many organizations are struggling to solve that disconnect. How did you approach it at SWIFT? Where did you start?
Lynch: So, we (SWIFT) basically got a group of banks together to look at the most urgent issues we could tackle. We looked at the biggest headaches in cross-border payments. And we came up with the fact that these payments weren’t always traceable, the way you can easily track a shipment with FedEx. Doing this was seen as really challenging in cross-border payments, because institutions act as bridges for each other across borders and currencies. Having visibility into who these parties are didn’t exist two or three years ago.
Understanding the processing times and efficiencies of these institutions, what fees they were applying, having some kind of settlement finality to know that the creditor you were paying was actually credited—this was all a big step forward. We collaborated with 15 to 25 global transaction banks to address these urgent issues and create gpi and extend it out to our entire community of 11,000 SWIFT institutions.
Appian: And what was the outcome of that?
Lynch: So, now we get together annually with gpi members, which now number in the hundreds, in regional workshops to figure out how to mitigate friction for customers in payments or eliminate it entirely with innovations such as a payments validation API, a case resolution API, or empowering customers to stop and recall payments that are in flight. These are all things that came out of suggestions from the community and working with SWIFT product management to deliver new solutions.