Moving funds across the globe, particularly for high value business-to-business (B2B) transfers, have been a healthy source of revenue for banks. At the same time revenue margins for traditional corporate payments are relatively low and facing downward pressure. To stay ahead, banks are looking for new ways to provide greater value to their customers while reducing transaction costs. The good news is that cross-border payment innovation is accelerating, but tapping in will require banks to be ready for new payment platforms and ecosystems.
I recently attended SIBOS London, the annual conference for the global financial community organized by the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The show’s theme was “Thriving in a hyper-connected world”, and one thing that resonated loud and clear was: Competition in the space is driving an improved ability to “track and trace” cross-border payments across an expanding ecosystem of participants with greater speed and lower costs.
The shift to on-demand digital services is rapidly changing the payments landscape and driving the need for new approaches. To compete, traditional players will need to transform their IT architectures to enable faster partnering and data exchange, development of new micro-services at the digital edge and instant transfer of funds securely and with low latency.
of decision-makers across 12 industries said they would benefit from real-time payments.
Payments then and now
Conventional payment systems evolved as fund transfers in bank-to-bank networks. In domestic transfers, settlement between banks usually takes place in the country’s central/national bank or central clearinghouse. In international cross-border payments, banks use depository accounts with each other, or correspondent accounts, to settle fund transfers.[i]
Today, the payments landscape is a lot more diverse and dynamic as the diagram below illustrates. More players are emerging and partnering to develop new business models and payment methods. Fast payments are moving to real-time, and value-added experiences and services are proliferating.
Financial institutions in 200+ countries use the SWIFT network to send and receive payment information. Now that SWIFT is moving to the cloud, a secure hybrid multicloud architecture is essential to avoid the risks inherent in the public internet.
3 trends from SIBOS shaping the payments landscape
There were a few key trends on stage at SIBOS that are helping to drive this rapid transformation of the payments ecosystem. They include:
- Real-time payments: Today’s consumers enjoy a wide array of real-time digital payment options such as mobile wallets, online banking, and peer-to-peer (P2P) methods like PayPal or Zelle. More than 40 countries have implemented faster payment schemes, and over 56 real-time payments rails (platforms) are expected to be live by 2020.[i] Businesses of all sizes are keen to adopt real-time payments to improve operational efficiencies, reduce cost and create new value. In a PYMNTS survey of 400 decision-makers in over 12 industries, 70% of businesses said they would benefit from real-time payments.[ii] To get there, businesses must be able to directly interconnect to banks, payment providers, networks and clouds over low-latency, secure connections. Real-time digital payments are also increasingly using tokenization for enhanced security as it removes the need for account details to be transmitted.
- SWIFT is moving to the cloud: Most interbank money transfers use the SWIFT messaging network to securely send and receive payment transfer information through a standardized system of codes. SWIFT links more than 11,000 financial institutions in 200+ countries and territories. Until now, companies and financial institutions needed to maintain their own on-premises installations of SWIFT technology to use the network. That may no longer be the case. At SIBOS this year, SWIFT and Microsoft collaborated with the Bank of New York (BNY) Mellon Treasury Services to execute the first real-time payment transaction via SWIFT’s Cloud Connect service hosted on Microsoft Azure. SWIFT plans to begin customer trials later this year and will eventually roll out connections to other major cloud providers.[iii] Banks and companies that have workloads on other cloud providers are using a hybrid multicloud architecture to connect their banking systems to payment networks like SWIFT. By privately connecting multiple cloud environments through a global on-demand, interconnection solution like Equinix Cloud Exchange Fabric™ (ECX Fabric™), banks and payment providers avoid the security and performance risks inherent in performing financial transactions over the public internet.
- Harnessing the data: As financial institutions look for new ways to create value in a fast-changing landscape, tapping into richer data about the end-to-end payment process and customers will be key. ISO 20022 is becoming a global transaction standard providing richer data about payments as part of the transaction message, enabling better insights on payment trends and statuses. Opening up access to data through APIs positions banks to be at the center of a broader digital ecosystem that delivers value-added contextual experiences and payment services. Third party developers can deliver services that go beyond the underlying transaction and focus on the immediate experience – for example, providing instant access to funds for a loan application. And financial institutions have a unique opportunity to leverage the trust they’ve built with consumers and businesses over decades to create new value-added services such as digital identification or verification.
Interconnecting an evolving payments landscape
The digital payments ecosystem continues to evolve and change as new and incumbent players seek competitive advantage in faster payments, multicloud agility, richer data insights and new services. By moving to an interconnected digital platform, providers can overcome legacy IT architecture limitations and deliver real-time value-added services globally.
Read the white paper to learn more about Key Trends in Digital Payments.
You may also want to download the Digital Edge Playbook for Payment and Commerce.
Faster, private interconnection between ACI Worldwide’s any-to-any payment system, its network and cloud providers, partners and customers enabled data exchange and analytics for real-time fraud detection.
[i] FIS, Flavors of Fast Report 2018, website and report; PYMNTS.com, Faster Payments Tracker™, sponsored by fiserv, Jan 2019.