Bringing the Global Economy Within Reach

Jul  30 
Andrew Foulds  Director, Product Management, Enterprise Payments Platform, Fiserv 

Partnerships, technology offer SWIFT access for small, mid-size financial institutions

Cross-border payments are expected to grow as the global economy becomes more interconnected, and the SWIFT financial messaging network is playing a central role in that expansion.

But, in many cases, only the largest financial institutions have been able to capitalize on the SWIFT messaging services, leaving small and mid-size banks and credit unions searching for affordable ways to access the growing cross-border payment processing market.

While not ubiquitous, SWIFT is the commonly accepted financial messaging service for cross-border payments. More than 11,000 institutions in 200 countries and territories are connected to SWIFT.

Global payments revenue totaled $1.9 trillion in 2018, continuing an upward trend, according to a 2019 report by McKinsey & Company. Cross-border payment revenues comprised about $230 billion of that, with 4 percent growth.

That report was written prior to the COVID-19 pandemic, and McKinsey & Company now predicts a short-term decline in payment revenues. However, the rise in electronic payment transactions will continue, propelling the shift from cash and checks toward digital payment solutions, carrying international payments with it.

The digital transition isn't just consumer-based. According to the 2019 McKinsey report, the global payments market can be broken into four segments, all of which had high indicators for growth prior to the pandemic.

  1. Consumer-to-consumer remittance was on the rise through digital money transfers, particularly in emerging countries. The World Bank reported migrants from low- and middle-income nations sent $554 billion to their home countries in 2019. While that amount has dropped during the pandemic, it is likely to recover in the medium term
  2. Consumer-to-business e-commerce was the fastest growing segment, including online bill payment for everything from tuition to taxes 
  3. Business-to-consumer transactions include payments that are typically bank-dominated, such as wages and salaries, gig economy payouts, refunds, interest and dividends 
  4. Business-to-business growth was fueled by small and medium-sized businesses pushing accounts payable and other marketplace payouts to digital channels  

Across the board, payments are going global and digital. Even with recent events, digital is on the rise, and global payments should pick back up in the near future.

A Complicated Relationship  

Cross-border payments are popular, but that doesn't mean everyone is happy with them.

A 2017 SWIFT and EuroFinance survey of 300 treasury professionals from international businesses found areas for improvement. Payment tracking, visibility into fees, and consistency in payments sent and received were among the top concerns. Those aspects will come into sharper focus as the pandemic highlights the challenges of a remote workforce.

To remit international payments, senders must navigate a combination of policies and processes at corresponding banks. The process presents challenges, from bank architecture differences to varying market practices and infrastructures across the global financial ecosystem. While a transaction is being processed, there's generally little insight into progress, errors or even the cost of a transaction.

Corporate banking customers want to know when a payment has been credited to a beneficiary's account and how much is being charged per transaction. In short, they want more control. And they want their financial institution to provide it, even if it's a small or mid-size community bank or credit union.

SWIFT has addressed many concerns with its global payments initiative, its tracking capability and other new tools. It provides the connections, reliability, control and efficiency needed by financial institutions providing the service and the businesses using it.

But SWIFT can be out-of-reach for many small and mid-size financial institutions that are less capable of shouldering the cost of providing cross-border processing services.

Small and mid-size financial institutions can prepare now for an upswing in the economy and use the revenue from global payments to fund new global ventures.

Technology and Partnerships

SWIFT membership may work for large financial institutions. But smaller banks and credit unions, especially those with low international volume, can benefit by pursuing cross-border payment processing through technology and partnerships.

Instead of connecting directly to SWIFT, those financial institutions can access the correspondent banking network through a financial services provider. Official SWIFT partners can engage in commercial activities with SWIFT's multibank community. At a fraction of the cost, a trusted service provider can:

  • Offer secure message format translation, reporting and regulatory scanning services
  • Integrate SWIFT messaging services directly into origination systems and applications
  • Accept, sort and route messages to back-office applications and associated workflows 
  • Archive messages according to corporate retention policies 
  • Provide security, technology management and constant support   

Partnership moves the onus of cross-border innovation outside the financial institution. As messaging formats and reporting requirements change, the financial and technical burden of staying up to date transfers to the service provider. That provider takes responsibility for SWIFT certifications and audits and must meet all of the connectivity, availability, change requests and security requirements dictated by SWIFT.

Managing growth

Cross-border transactions have the potential to generate high margins for payments products. Small and mid-size financial institutions can prepare now for an upswing in the economy and use the revenue from global payments to fund new global ventures.

More importantly, those banks and credit unions can serve their corporate customers and remove any reason they would have to go elsewhere for international payments.