Reimagining Cross-Border Payments: How SWIFT’s New Platform Changes Everything

4 Treasury and Trade Solutions 5 Reimagining Cross-Border Payments: How SWIFT’s New Platform Changes Everything The migration of the industry to ISO 20022 XML will provide richer, more standardized data sets. This will improve reconciliation efficiency, with better payments data for end users and opportunities for banks to streamline their operational processes, resulting in fewer repairs, rejects and returns. One of the key challenges with the current SWIFT messaging infrastructure is that the data model was built to be as efficient and data-lite as possible, and MT messages have limited fields for payment information. Today, MT messages’ limited space and structure creates potential problems, including an increased requirement for manual repairs and processes, challenges in identifying missing or incorrect information before a payment is sent, and the potential for data truncation across the payments chain. SWIFT’s new platform solves data structure and space issues by building to ISO 20022 standards. It also uses an improved data model across the payments chain. Instead of payments information being passed point-to-point between participants, the new SWIFT model centralizes payments information on its cloud infrastructure and gives participants across the chain permission to access information for payments processing and settlement. A gold copy of the payment message will be stored in SWIFT’s new platform for each bank to access, overcoming concerns about data quality loss; each bank will be given permission to alter fields in the payment based on their role in a specific payment. This gold copy message approach will enable banks on varying ISO journeys to interact seamlessly, lightening the requirements for translation services, but empowering all banks to ingest a richer data set for streamlining message processing. It will also ensure that there is integrity across the banking chain and that changes are not made to critical payment information in flight, resulting in alterations or loss of data. This is a huge step forward as it will ease industry migration to ISO for cross-border payments and interactions with ISO-native RTGS and Net Settlement clearing systems. For end users, it will result in more robust and rich data that is more easily reconciled and ingested by ERP systems and offers better safeguards against payments repairs, rejects or returns due to payments data quality and structure problems. A new centralized data model built on ISO 20022 standards 1 With an enhanced data model and dynamic connectivity in place, SWIFT will be able to play a new role in cross-border payments. SWIFT will coordinate and orchestrate payments – effectively lining up a payment chain to facilitate a cross- border instant experience leveraging the current interbank model. Orchestrated settlement will enable a synchronized settlement process based on message pre-validation and SWIFT instructions. Leveraging the dynamic interaction model facilitated by APIs, SWIFT will be able to line up a payment across multiple banks and then orchestrate instant or near-instant settlement across the chain. This is a dramatic transformation of SWIFT’s role and the cross- border payment experience it offers. It will mean that payment issues are identified and addressed before release and therefore provide full certainty for the sender that the beneficiary will be credited in real time. This functionality and experience, which is currently only available in closed loop ecosystems and domestic instant payment schemes, will transform how cross-border payments are made and cross-border commerce is facilitated. Additionally, the functionality of orchestration and the APIs that will be developed to facilitate it have the potential to enable more complex and action-oriented instruments such as payment versus payment (PVP) and delivery versus payment (DVP). For many years, SWIFT has facilitated PVP and DVP but the need for greater automation, efficiency and immediacy for such settlements is increasing. Standardized API connectivity, dynamic calls between institutions and a structured data model will provide the foundations and technologies for related schemes to continue to evolve in future. Orchestrated settlement and payments coordination 3 SWIFT’s new platform Endorsed by the SWIFT board in September 2020 and set to launch in November 2022, SWIFT’s new platform will deliver “instant, frictionless payments,” through new transaction management capabilities. While finalization of design is ongoing, SWIFT’s new platform will be backwards compatible with current MT messaging standards, and is built on four key pillars: Delivering a cross-border instant payments experience will require interactions between players to be dynamic, structured and allow for 24/7 availability of payments. These interactions must be able to facilitate functionality like pre-validation, executing rule-based payments actions and real-time query resolution. The current MT/MX store and forward messaging is unable to offer this dynamic, real-time functionality. Application Programming Interfaces (APIs) have been key to enabling some of the most successful start-ups in the world to scale their businesses and allow different pieces of software to interact. They enable standardization of operations and functionality and are designed for immediate call and response based on a predefined set of protocols and operations. Therefore, APIs are better suited to facilitating an instant, real-time 24/7 payments experience than the current linear MT messaging flow. While APIs are not new to banking or payments, their adoption by banks for core payments processing and messaging has not been widespread. SWIFT’s platform seeks to change this by introducing APIs or API-like interaction to the core of the ecosystem for all interactions, facilitating bilateral and multilateral communication in real time. This will be a key enabler for an always-on payments experience. In addition, this API-based model will provide efficiencies compared to the current store and forward model, as communication will be streamlined into predefined action-oriented calls and responses. Dynamic connectivity between banks and SWIFT based on API interaction 2 The open and standardized architecture of SWIFT’s platform could enable it to become a marketplace where institutions can access services on offer from either SWIFT or fintechs to improve the overall payments experience. Services in this marketplace could include early warning schemes that highlight potentially erroneous and fraudulent payments before execution or technology that provides smart contract or programmable money capabilities. In addition it could provide seamless connectivity to trade schemes such as Contour and Komgo. Micro Services 4