The payments industry has been abuzz since the start of the year about the promise of speedier payments on the horizon. Most recently, the conversation has focused on the launch of the SWIFT gpi (Global Payments Initiative), which promises to increase the speed, transparency and end-to-end tracking of cross-border payments. To accomplish these objectives, SWIFT points to the benefits of its GPI, including the faster, same-day use of funds—within the time zone of the receiving GPI member—and remittance information transferred unaltered.
This is great news for the B2B payments industry as it makes further advancements in reducing risk and increasing speed in facilitating payments. But does a faster payment go far enough? Why should a corporation sending payments from the US to India settle for faster when the technology business framework exists to facilitate the same cross-border payment in real-time? We shouldn’t be settling for “fast enough” when it should be “right now”.
To properly understand the difference in faster payments and instant payments, we must first examine existing infrastructure. Faster payment initiatives, such as gpi, are designed to speed up the existing approaches by modifying current process and procedures in place to accommodate the new business rules.
SWIFT gpi operates on SWIFT’s global messaging platform and functions on the basis of business rules captured in multilateral service-level agreements between participating banks. The SWIFT technology remains the same and payment messages are still sent using the existing SWIFT network. The difference is how the messaging system is structured to allow for greater transparency of the payments message from origination to receipt.
While the initiative is a step forward for SWIFT, it does not alter the existing system in a way that will enable payments in real-time. SWIFT says as much in the SWIFT gpi brochure:
“In the SWIFT gpi roadmap, SWIFT launched a Proof of Concept (PoC) in 2017, to test distributed ledger technology (DLT) and determine if this new technology can be applied to reconcile banks’ nostro accounts more efficiently and in real time, lowering costs and operational risk. Whilst DLTs are currently not mature enough for broad use on cross-border payments, this technology may provide solutions for the associated account reconciliation.”
This is the crux of the issue for the B2B payments industry: how to replace legacy technologies, systems and business models to facilitate instant payments. Industry participants should focus less on enabling the technology and more on putting a model in place, so that the banks transacting the payment know that the funds being disbursed will reach their counterparty in real-time. SWIFT does not believe it currently has the technology to accomplish this goal and points to 2019 as when it may finally be able to use distributed ledger technologies to complete payments in real time.
This is why PayCommerce declared 2017 “The Year of Instant Payments” – to drive the conversation beyond “faster” payments to what is possible in instantly clearing and settling cross-border payments in real time. The promise of distributed ledger technologies in facilitating cross-border payments is not a distant dream, it is a promise that we have already delivered on with the completion of the first real-time, cross-border payment between the US and India via the PayCommerce Network.
Built on the PayCommerce Federated LedgerTM, the instant payment initiative integrates distributed and centralized ledgers enabling faster payments across networks via its messaging platform. By leveraging the foundation of blockchain, PayCommerce ensures it is secure, transparent and accommodates business rules in a heterogeneous network environment. The benefits are immense, not only in the reduction of risk to the payments industry but also in the creation of greater financial inclusion around the world.
The promise of faster payments is already here in 2017, but payments professionals should be pushing the conversation beyond the just “faster” to the immediate. Working together, we can create a world in which the payments industry is fully democratized and payments are securely and accurately sent and received in a trusted, compliant ecosystem in real-time.