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Cross-border payments outlook 2019

 

The cross-border payment system is ripe for change. The current SWIFT system that banks use to clear transactions is over 40 years old. This system is a chief target for FinTech entrepreneurs, bank CEOs, and regulatory authorities. Cross-border transactions can be carried out more securely, more quickly, and more efficiently than with the current SWIFT-dominated system. FinTech companies are pressing traditional banks to innovate and create a modern transactions clearing system.  This will more closely resemble modern internet transactions and eliminate the dissatisfaction felt by many customers.

Lead, follow, or get out of the way

FinTech start-ups are pushing the banks, which have responded by launching SWIFTnet. They have designed SWIFTnet to process quick and very secure transactions over the internet, including large-file transactions. SWIFTnet is built on top of the SWIFT infrastructure, and the network of participating banks is the same as in SWIFT (the SWIFT alliance). 

However, progress has been slow. The older SWIFT system remains the mainstay of processing cross-border transactions for bank clients. Even today, the banks’ SWIFT telematics wire-transfer system still carries out most cross-border transactions.

SWIFTnet is a genuine step forward. Banks are still working on integrating FinTech firms into their operations, and they have a huge role in where the industry will be in five to ten years.

Banks looking for alternatives

Banks are seeing their cross-border transactions increase, especially among their business customers. But they can’t get the size and pricing they need from the SWIFT system. SWIFT’s advantage is that around 11,000 banks are connected to the network, but smaller players can’t get the attention they need, let alone the pricing. This is driving banks to seek alternatives they need to stay competitive.  

Customers’ attitudes are changing, too. They expect more speed and efficiency in their financial transactions, as well as full transparency in how these are handled. The future of payment processing across borders is digital and customers want to see- the digital information in the same way as they see most of their domestic or online transactions. This is a challenge for the current SWIFT system.

Dynamic environment 

Cross-border transactions require a degree of partnership among banks, their clients, and regulators. This is about adopting and implementing a technology that all can agree on and implement successfully. Many FinTech start-ups are rapidly outmanoeuvring banks. They’ve already developed the technologies and transaction clearing methods that the banks are only just starting to explore.

Many smaller companies are surging in growth on the back of their cross-border payment APIs and services. They are giving customers what they want: ease of use, speed, and transparency. This is difficult for banks to compete with until they agree on a standard payment method.

The next generation of payment processing is here now, but it will be up to banks and regional banking systems to adopt and standardise these technologies for their customers. As banks continue to choose between competing solutions, opportunities abound for FinTech companies to take advantage of a unique moment in the marketplace.

 
Arthur Shah-Nazarov