Cross-border payments: the privileges of the present and the possibilities of the future

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To survive in the payment business, banks must adapt their own systems to changes in customer habits and requirements, the deployment of real-time internal payment systems, and the transfer of local gross settlement systems to 24-hour operations.

If small banks can avoid de-risking procedures when using SWIFT compliance solutions, then instant payments require a completely new control scheme. That is why it is necessary to obligatory develop instruments for the control of financial crimes and to increase the possibility of obtaining information about the clients. Aurpay cross border payments are to conduct checks on their transactions and detect money laundering abuse while reducing the likelihood of duplication and opening new opportunities for more effective control processes. Check out the article for more details.

How cross-border payments work

Cross-border payments are inherently more complex than domestic payments because they involve traversing the “closed loops” of multiple currency systems. Further complicating the system (which already uses 180 world currencies and applies the rules and requirements of even more jurisdictions) by introducing new types of “closed loops” will only slow the transfer of funds. Closed systems create barriers, adversely affect mobility and freedom of value movement, and limit competition and liquidity. A global system must support the transfer of money between any accounts anywhere in the world.

New infrastructure and mass transition to SWIFT GPI

SWIFT is developing the next generation of the cross-border payments system, which will not differ from its counterparts in the domestic markets.

The emergence of real-time domestic payments and 24/7 payment processing at central banks ushered in a new era of cross-border payments that has redefined the way the sector operates. In 2017, SWIFT and its community took an important step toward this goal by introducing new technology, SWIFT Global Payments Innovation or SWIFT gpi.

In creating SWIFT gpi, three basic conditions were formulated:

1. Introduction of a special tag or a unique identifier of the transaction, which accompanies each payment at all stages of the operation. The presence of this 36-character token allows a payment to be tracked as it passes from the sender through the correspondent banks to the final recipient’s account.
2. Introduction of a technical solution (gpi Tracker) that tracks these payments as they are transmitted and reports their status upon request.
3. Creation of a new cross-border convention requiring banks to process payments from the initial sender to the final recipient in a very short time frame. And these deadlines will be known to respondents and correspondent banks through a tracking system.

More than 55% of SWIFT cross-border payments are already processed through SWIFT gpi. Payments of more than $40 trillion are transferred in 148 currencies between more than 200 countries along 1,100 currency corridors faster than ever before. Half of them are credited to the final recipients’ accounts within minutes and most of the remainder within 24 hours. In two years, gpi technology will be used for all cross-border payments.

Round-the-clock operation

Round-the-clock payment processing, not limited to business hours, is already becoming the norm. In some cases, this is because domestic payment systems are introducing round-the-clock processing of domestic remittances. As a result, more and more of Aurpay’s central bank customers are introducing their own real-time gross settlement systems (RTGS).

Versatility

There are alternative closed-loop systems that allow domestic and cross-border payments through, for example, personal e-wallets, gift cards, etc. But, as a rule, the transfer of funds from such systems is not always easy, often associated with additional costs, and sometimes simply impossible.

With the help of the gpi service, SWIFT and its user community are improving the existing processes, which can improve liquidity management, increase accessibility, transparency, and speed in the implementation of the usual fiat currency transfers.

Every day of its work Aurpay sees that the technology of cross-border payments gpi is the norm for thousands of banks, connected to the SWIFT network, which asks for help. Aurpay, in turn, ensures the transfer of funds without interference.

Intelligent systems

Most cross-border payments do not require manual intervention and are suitable for straight-through processing (STP), but a small percentage of present difficulties and cause additional costs for banks.

Greater and more effective use of data, as well as artificial intelligence and machine learning systems, is already improving control algorithms and reducing false positives. As quality data accumulates and AI systems improve, manual intervention in operations will steadily decline.

The key to solving this problem is getting rid of the industry’s main curse: missing or incorrect data. Therefore, SWIFT uses several tools to verify messages, among them:

• The pre-validation tools. It allows the sending bank to check the data, e.g., completeness and correctness of the recipient’s data (name, address, account number) before creating a payment order.
• The case resolution tool can resolve operational and regulatory issues quickly and interactively, simplifying and speeding up the payment process.

In the future, there are plans to transition to a system in which verification will be done only once.

Real-time operation

As SWIFT gpi technology is adopted, with more and more domestic transactions beginning to operate in real-time, instant cross-border payments are becoming more realistic. In four Asian markets, SWIFT gpi is being used for instant payments to different geographic regions through real-time internal instant payment infrastructures. The same is now being used in Europe, and a structure is gradually being introduced that will enable such payments worldwide.

Looking into the future, one can even imagine that some real-time domestic payment systems will offer seamless “cross-border payments by cell phone number or e-mail address” via SWIFT, without even knowing the bank account number.

Close interaction

Banks and corporations, as well as specialized platforms acting on their behalf, will soon be able to initiate SWIFT cross-border payments, simply through an API request right at the point of sale. Pending the successful outcome of the concept test with the R3 trading platform, SWIFT plans to roll out gpi payments on DLT-based trading platforms. Solving the payment problems faced by DLT platforms, SWIFT gpi payments are initiated as part of the trade workflow, automatically transmitting them to the banking system.

Conclusion

In its practice, Aurpay develops the market so that cross-border payments become as convenient as domestic transactions, and the boundaries in terms of service between large and retail businesses will gradually erase. As a result, banking payment services and infrastructure become equally convenient and accessible for e-commerce, transactions between individuals, and large businesses.