Maintaining Dominance: Swift’s Superiority in Cross-Border Payments

Having seen a significant decline in funding for fintech startups since the era of very low interest rates and a focus on expansion at any cost, it is becoming clear that disrupting the major players in established financial services is a challenging task. In many instances, this goal has proven to be difficult.

This is particularly evident when considering the giant of global money transfers, Belgium-based Swift. In recent times, Swift has taken steps to address weaknesses in the speed, transparency, and effectiveness of its transactions, while also incorporating a growing number of high-performing payments fintech companies into its sphere. Some might argue that Swift is gradually absorbing some of its primary competitors.

Consequently, the interbank messaging network is maintaining its leading position in cross-border payments and may even strengthen its dominance in the future.

The Urgency For Speed

One of the reasons why an abundance of funding flowed into payments fintechs before the pandemic and up until interest rates and inflation spiked was dissatisfaction with the slowness of traditional correspondent banking. Swift initially responded to this trend by introducing Swift gpi, which has been compared to a tracking service similar to that of Amazon for the financial sector. According to Swift, approximately 50% of gpi payments are credited to end recipients within 30 minutes, 40% in under 5 minutes, and nearly 100% of gpi payments within 24 hours.

In August 2023, Swift announced that 89% of cross-border payments facilitated over its interbank messaging network are finalized within an hour, positioning its transaction speed ahead of the G20’s target of 75% by 2027. Swift indicated in a press release that this achievement challenges misconceptions that payments frequently need to pass through chains of intermediary banks before reaching their final destination. Swift data shows that 84% of all payments on the network are conducted directly or involve just one intermediary.

The G20’s strategy for improving global payments recognizes the significance of these transactions in the expansion of the global economy and underscores the need for industry-wide collaboration to achieve tangible enhancements, stated Swift’s Chief Strategy Officer Thierry Chilosi in the press release.

Partnerships with Fintech Companies

In addition to enhancing the speed of transactions on its network, Swift has also made efforts to establish or strengthen collaborations with rising fintech firms. For example, in September 2023, Swift partnered with the UK’s Wise, a notable player in the payments fintech sector worldwide. Unlike many of its counterparts, Wise managed to achieve profitability early on, successfully conducted an IPO, and maintained profitability while steadily expanding its global presence.

Under the agreement between Swift and Wise, financial institutions will have the capability to direct Swift payment messages directly to Wise Platform, the UK company’s infrastructure solution for banks and major corporations. This partnership is likely advantageous for banks as it does not necessitate the integration of technology that is incompatible with legacy systems, while enabling them to leverage the extensive Swift network. Steve Naudé, Managing Director of Wise Platform, expressed in a press release that Wise views this collaboration with Swift as a means to “enhance the convenience, speed, and cost-effectiveness of international payments for banks, without requiring a major technological overhaul.”

On the other hand, Swift’s Chilosi remarked that “our cooperation with Wise demonstrates how Swift can serve as the foundation for innovation across the industry.”

Subsequently, in October 2023, U.S.-based payments and financial technology provider FiservFISV became a platform partner in the Swift Partner Program. This move will enable Fiserv to bolster support for Swift gpi and offer improved API connectivity for cross-border payments. The amalgamation combines the extensive reach of Swift’s network and the strong confidence it enjoys within the global financial sector with Fiserv’s global technological footprint.

Web3 and CBDCs

Looking ahead, we anticipate that Swift will intensify its involvement in the emerging realm of Web3 payments and central bank digital currencies (CBDCs), although the advantages of blockchain-based transactions over traditional payments remain uncertain, requiring further investments in infrastructure.

In June 2023, Web3 services platform ChainlinkLINK and Swift revealed that they would collaborate with numerous financial institutions to explore how they can connect with multiple blockchain networks. Noteworthy financial institutions involved in these experiments include BNP Paribas, BNY Mellon, The Depository Trust & Clearing Corporation, and Lloyds Banking Group. While Swift asserted that the trials clearly illustrated that its infrastructure “can serve as that central point of connectivity” for the entire financial ecosystem, there are lingering uncertainties pertaining to regulatory clarity on tokenization.

Regarding CBDCs, Swift reported in September 2023 that three central banks/monetary authorities – including the National Bank of Kazakhstan and Hong Kong Monetary Authority – are piloting its solution for linking CBDCs, while 30 financial institutions are experimenting with the solution in a new test environment. Swift is apprehensive that ongoing CBDC developments in various countries could lead to fragmentation, hence emphasizing the importance of ensuring interoperability.

To date, much of the excitement surrounding digital fiat currencies has not translated into tangible outcomes, but we believe that Swift aims to ensure it maintains a competitive edge if the global adoption of CBDCs were to accelerate. In this regard, Swift will closely monitor the progress of the mBridge project initiated by the Bank of International Settlements (BIS) and the central banks of mainland China, Hong Kong, Thailand, and the United Arab Emirates (UAEUAE). The most recent milestone for mBridge occurred in January when the UAE carried out its first cross-border payment using the system.

As indicated by China’s Digital Currency Research Institute (DCRI), mBridge transactions take just seven seconds and reduce cross-border payment costs by 50%. Some proponents of the project even claim that if embraced, it could eliminate correspondent banking entirely.

Although the speed and cost efficiencies of mBridge transactions appear impressive, the project is still in a pilot phase, and any cross-border payment network excluding the US dollar would likely encounter significant limitations.

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