FX International Payments
By Mike Faden
Two of the primary organizations vying to provide faster payments infrastructure are the traditional “incumbent,” SWIFT, with its global payments innovation (gpi) service, and Ripple, a financial-technology (fintech) startup. This article updates a prior comparison of Ripple and SWIFT, examining recent developments by both organizations as well as the latest trends in adoption of faster technologies for B2B cross-border payments.
SWIFT’s messaging service supports the majority of B2B cross-border payments worldwide. It enables correspondent banks to send payment instructions and confirmations to each other that ultimately result in the movement of money from payer to recipient. Traditionally, the international payment process has often taken days. SWIFT gpi is intended to change that. It uses SWIFT’s traditional messaging service, but adds key innovations, including:
SWIFT says that banks have rapidly adopted gpi for B2B cross-border payments since its introduction in early 2017. In December 2018, it said more than 450 banks worldwide have signed up for the service and were using it to send $300 billion in payments daily, representing 55 percent of SWIFT’s cross-border payments messaging traffic. Overall, over 50 percent of SWIFT gpi payments were credited to beneficiaries within 30 minutes, and almost 100 percent of payments within 24 hours.1 SWIFT also said the adoption of gpi was largely responsible for driving a roughly 11 percent increase in its payments traffic in 2018.2
One bank executive who supports gpi told American Banker that the initiative is putting pressure on banks to reduce cost and move money faster. “With gpi, we can see the charges banks have made along the way and how long they have taken to process a payment,” he said. “Seeing how much each bank is deducting puts pressure on the ecosystem to reduce costs.”3
SWIFT also is adding new capabilities for banks and businesses engaged in international trade. In 2018, it announced that gpi tracking would be available for all payments, not just those initiated by banks that have signed up for the gpi service.4
SWIFT also began piloting a gpi payments pre-validation service designed to reduce the number of payments that are delayed due to errors such as incorrect or missing beneficiary or regulatory information. It said the service will enable the bank sending a payment to check beneficiary account information with the recipient’s bank, allowing the sending bank to quickly fix any inaccurate or missing information. The service is being piloted with 14 banks from around the world.5
Also in 2018, SWIFT said that 22 large companies and banks were going live with a multi-bank tracking standard that enables businesses to directly initiate and track the progress of their gpi B2B cross-border payments, instead of having to ask the bank for tracking information.6
The organization also conducted a proof of concept demonstrating even faster payments by combining Australia’s new domestic real-time payments system with gpi. Nine banks in China, Singapore and Thailand sent cross-border payments to Australian banks via gpi; once they reached Australia, the payments moved across the domestic real-time payment system. All payments completed within 60 seconds, according to SWIFT.7
Ripple also says that financial institutions have been rapidly adopting its payments technology. Ripple’s cross-border payments software for banks, xCurrent, offers an alternative to SWIFT for moving payments between banks and payment providers in different countries. Ripple uses blockchain distributed ledger technology and real-time messaging to enable cross-border payments that it says settle in seconds within the network of financial institutions using the software, which the company calls RippleNet.
In January 2019, Ripple said that more than 200 payment providers had signed up for RippleNet, double the number of customers that it claimed in October 2017.8,9 The company said it saw a 350 percent increase in customers sending live payments in 2018. Ripple reports adding two to three customers per week, and that RippleNet now operates in more than 40 countries. Companies that have recently signed up include payment providers based in the U.S., several European countries, the Middle East and Latin America. They also include a bank specializing in trade finance.10
Several of those companies are using Ripple’s digital blockchain token, XRP, to send money, according to Ripple. Blockchain proponents say that this approach can reduce processing costs and eliminate the need for banks to store money in accounts held at correspondent banks in order to ultimately fund B2B cross-border payments. Instead, the sending bank buys XRP tokens that are immediately transferred to the recipient and exchanged for fiat currency in the destination country, completing the money transfer.11
Several other financial institutions have also begun to introduce blockchain-based domestic and cross-border payments services. In early 2019, a large U.S. bank said it plans to introduce its own blockchain token, pegged to the U.S. dollar, to support several applications for its business customers, including international payments.12 A large Japanese bank said it is partnering with a U.S.-based technology provider to develop a blockchain-based payments platform in Japan, capable of handling over a million transactions per second by the first half of 2020.13 And the Pakistan-based subsidiary of a large telecommunications company launched an international payments service based on blockchain technology from a Chinese financial-services company.14
B2B cross-border payments are finally getting faster. SWIFT and Ripple say that adoption of their faster payment technologies is growing rapidly, and new blockchain-based international payment options are starting to appear from other financial institutions.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. “SWIFT gpi breaks 50% barrier,” SWIFT; https://www.swift.com/news-events/press-releases/swift-gpi-breaks-50_barrier
2. “Double digit growth in SWIFT message volumes as gpi uptake soars,” SWIFT; https://www.swift.com/news-events/press-releases/double-digit-growth-in-swift-message-volumes-as-gpi-uptake-soars
3. “Is this Swift's answer to Ripple?,” American Banker; https://www.americanbanker.com/news/is-this-swifts-answer-to-ripple
4. “gpi Tracker extended to all payment messages,” SWIFT; https://www.swift.com/news-events/news/swift-introduces-universal-real-time-payment-tracking
5. “14 major banks join SWIFT gpi pre-validation pilot focused on error detection,” SWIFT; https://www.swift.com/news-events/news/14-major-banks-join-swift-gpi-pre-validation-pilot-focused-on-error-detection
6. “Corporates go live with multi-bank tracking on SWIFT gpi,” SWIFT; https://www.swift.com/news-events/news/corporates-go-live-with-multi-bank-tracking-on-swift-gpi
7. “SWIFT sees success with gpi instant cross-border payments trial,” SWIFT; https://www.swift.com/news-events/news/swift-sees-success-with-gpi-instant-cross-border-payments-trial
8. “RippleNet Surpasses 200 Customers Worldwide,” Ripple; https://ripple.com/insights/ripplenet-surpasses-200-customers-worldwide/
9. “RippleNet Grows to More Than 100 Financial Institutions,” Ripple; https://ripple.com/insights/ripplenet-grows-to-over-100-financial-institutions/
10. “RippleNet Surpasses 200 Customers Worldwide,” Ripple; https://ripple.com/insights/ripplenet-surpasses-200-customers-worldwide/
11. “Euro Exim Bank Will Start Using XRP for Cross-border Payments in Q1 2019,” Ethereum World News; https://ethereumworldnews.com/euro-exim-bank-use-xrp-q1-2019/
12. “JP Morgan is rolling out the first US bank-backed cryptocurrency to transform payments business,” CNBC; https://www.cnbc.com/2019/02/13/jp-morgan-is-rolling-out-the-first-us-bank-backed-cryptocurrency-to-transform-payments--.html
13. “MUFG and Akamai to launch Global Open Network, Inc. joint venture,” Mitsubishi UFJ Financial Group; https://www.mufg.jp/english/vcms_lf/news/pressrelease-20190212-001-e.pdf
14. “Pakistan Telenor Subsidiary Launches Remittance Service Using Alipay’s Blockchain Tech,” Cointelegraph; https://cointelegraph.com/news/pakistan-telenor-subsidiary-launches-remittance-service-using-alipays-blockchain-tech