Feeling pressure from fintechs, SWIFT to update its cross-border transaction capabilities
LONDON — Innovation is key to surviving in a competitive market. (Hello, Kodak. Hello, Blockbuster.)
Now SWIFT, the Belgium-based cooperative whose money messaging services are used for cross-border transactions around the world, is feeling the heat from firms muscling in on its dominance in the field.
With competition from the likes of Revolut, TransferWise, Currencycloud, RippleNet and others looming large, SWIFT recently announced a new two-year plan to upgrade its platform and infrastructure for processing payments in ways that it said would deliver “instant and frictionless end-to-end transactions.”
Spend Matters spoke with Chris Ward, principal consultant based in London with FBX, a branch of Informa, about what this might mean for customers, including fintechs and banks.
“The critical challenge for customers is that cross-border payments are not instant,” Ward said, “and there is limited clarity around timelines for processing (not to mention the fees and charges). For businesses, this can make cash-flow management more difficult, and payment for services and goods less predictable. For individuals, where timing is important (if they’re buying a home abroad or sending money to a relative living abroad), this lack of certainty can lead them to look for alternatives.”
Competition to SWIFT transactions abounds
What about the financial-technology competitors?
“Fintechs have clearly identified this as a gap and sought to address it,” he said. “Revolut has developed into a far more diverse offering, meaning that competition from established banking brands in this space may not be its greatest concern, but those brands focused more closely on cross-border payments may need to assess how they differentiate.
“We also need to be mindful of the moves being made by big tech firms in the payments and currency space — a universal digital currency could be the greatest threat to any player in the payments space.”
SWIFT, he added, is clearly having to adapt to the needs of its members: “It’s the banks in the network who fear disruption and to some extent they’re already some way behind.”
SWIFT’s customers could benefit once the strategy shakes out.
There’s no doubt that the servicing of global bank transactions is highly complex, requiring banks to pay several firms at different levels along the pipeline and it’s expensive.
“So it would be interesting for a bank to have one player to take on more of these servicing jobs,” said Milan Schreuer, an independent financial analyst based in Brussels and the founder of the healthtech startup Telemedi, in an interview with Spend Matters. “For SWIFT, that could mean the servicing of transactions and provision of cloud storage in a cross-sell from its messaging system to banks.”
That could mean a cost-savings as well as a faster, more-efficient system.
“Reporting standards for interbank transactions have been going up all over the world in the light of money-laundering scandals,” Schreuer said, “so banks are prepared to invest heavily in any service that can help them sort out their own transactions.”
Making money in the space
SWIFT, its competitors and its customers are all chasing profits, of course.
“Payments, and not just the interbank ones, have become an ever more important profit center,” Schreuer said, “especially for European banks due to extremely low interest rates. Infrastructure services and, increasingly, payments are becoming one of the most lucrative businesses in finance.”
He said another element is at play too.
“There is also an opportunity for SWIFT to extract data from managing and servicing all these transactions,” Schreuer said.
And the fintech competitors?
“It just shows that the old big financial infrastructure players are waking up and innovating,” Schreuer said. “So if anything, this move by SWIFT is a sign that fintechs have been doing a good job over the past years and that they should keep on doing so.”