The operator of the world’s largest financial messaging system, SWIFT, has said it will trial real-time "gpi" cross-border payments using the European Central Bank's TIPS platform. SWIFT gpi has been developed as an answer to distributed ledger payment technologies, most notably Ripple.
In conjunction with banks from five European countries, the Society for Worldwide Interbank Financial Telecommunication, known by its acronym SWIFT, will trial its latest payment network, SWIFT gpi, on the TARGET Instant Payments Settlement (TIPS) platform — a service launched by the European Central Bank in 2018 that enables cross-border money transfers in real-time, 24/7.
The banks involved in the trial are said to be Deutsche Bank, Natixis, Santander, UniCredit, BBVA and Banque Internationale à Luxembourg.
SWIFT’s interbank payments network was first established in 1973 and now serves 11,000 financial institutions across 212 countries but the outdated technologies and complex processes that underpin it make for slow and expensive money transfers.
Now, as part of its digital transformation, SWIFT has developed the Global Payment Initiative, commonly known as the “gpi” network, and following a successful trial last year in Australia, SWIFT is bringing its latest technology to Europe.
In its press release, SWIFT says that the initiative has been launched in order to “extend the reach of instant cross-border payments deeper into the European market by enabling gpi in the TIPS system”; it further explained that “banks will carry the cross-border legs of the payments, which they will then settle through TIPS, allowing for instant crediting of accounts at ultimate beneficiary banks across Europe.”
“The ability to process gpi cross-border payments instantly, even when the final legs of the payments have to be cleared on arrival within the destination country, is key to ensuring ubiquitous availability of real-time cross-border payments,” SWIFT affirmed.
On last year’s Australian trial, SWIFT said: “[This] successfully demonstrated that by enabling gpi in real-time domestic systems, cross-border payments can be effected almost instantly, even when they involve domestic settlement and non-gpi banks.”
At a time when the payments industry is facing significant disruption, SWIFT is putting all of its efforts into gpi — what it calls “the new standard in global payments,” though that is up for debate.
SWIFT has so far signed up 3,500 institutions to gpi, which it promises will improve the speed, tracking and pricing transparency of international transfers.
Since its launch in 2017, SWIFT says that 40 percent of gpi transfers have been credited to end beneficiaries within five minutes. The network is reportedly responsible for $300 billion worth of flows every day, covering 148 currencies.
Critics, though, say gpi doesn’t go far enough; not in a world that now has distributed ledger technologies (DLT), including blockchain.
Responding to a tweet by Wim Raymaekers, SWIFT’s programme director for gpi, one DLT enthusiast on Twitter said: “GPI is not really innovation, it’s an improvement. It’s still not that fast and still needs pre-funding. And if Ripple never showed up, I’m sure [the SWIFT network] wouldn’t even have been upgraded, which shows the lack of innovative power at SWIFT.”
Though the tweeter’s credentials can’t be ascertained, the opinion he or she expressed reflects the prevailing view among senior fintech professionals, such as those leading the way at the aforementioned Ripple Labs — the headline-grabbing creator of a DLT-based payment network that utilizes the company’s native XRP cryptocurrency. Companies like Ripple seek to revolutionize what they see as a highly inefficient industry, winning market share as they go.
Sure, SWIFT has signed up thousands of banks to the new network, which sounds great, but given the organisation’s multi-decade stranglehold on the international payments space, that was always a certainty.
The reality is that many institutions are seeking alternatives to SWIFT or hope to add additional payment platforms; they are also creating these platforms themselves.
In February, JP Morgan became the first US bank to successfully test a proprietary stablecoin (a digital coin pegged to the US dollar). The prestigious US bank says that its blockchain-based “JPM Coin” will allow for the instantaneous transfer of funds between the bank’s institutional accounts.
And while it no longer wants its own digital currency, Citigroup also wants in on the act. Citi’s global head of innovation for treasury and trade solutions, Gulru Atak, said earlier this year that the group was “strongly considering the fintechs,” although it will continue to “leverage the payments ecosystem,” which obviously includes SWIFT.
Undoubtedly, Ripple leads the charge against SWIFT, having already onboarded 200 global banks.
In a recent interview with Fortune, Ripple’s CEO Brad Garlinghouse said that xRapid — the name of Ripple’s payments solution — is seeing increased adoption because it’s simply “better, faster and cheaper” than what’s currently available. Others, including the World Bank, would tend to agree.
“DLT-based cross-border payments potentially offer a promising pathway to dramatic improvements in the lives of millions of people in emerging economies. DLT could improve the traceability of remittances and reduce compliance costs for MTOs and supply chain payments, stimulating economic activity in destination countries,” World Bank experts wrote in March.
The World Bank also highlighted xRapid’s 2018 pilot which covered the critical remittance corridor between the US and Mexico: “Financial institutions involved in the pilot saved 40-70 percent in foreign exchange costs and the average payment time was just over two minutes.”
Though “two minutes” sounds less impressive than “instant,” which SWIFT gpi promises in conjunction with TIPS, it’s important to remember that TIPS only settles transfers in euros, whereas the aforementioned Ripple transfers were for payments into a foreign currency, requiring extra layers of processing. As a measure for comparison, we can refer to the already-stated statistic that only 40 percent of gpi transfers are credited to beneficiaries within five minutes.
SWIFT says it will share the results of its European pilot at September’s Sibos conference in London. Those results are expected to be positive, but like other members of the financial “establishment,” it will have to fight tooth and nail to retain dominance over an industry riddled with inefficiencies and ripe for a revolution.
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