Let’s Talk Payments: The transformation of cross-border payments

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Game-changing innovations are redefining how money moves across borders. SWIFT gpi and other cutting-edge advancements are paving the way for frictionless, transparent, and lightning-fast global transactions. On this episode of Market Points, you’ll hear from Dougal Middleton, VP, Enterprise Payments at Scotiabank and Kevin O’Neil, the Director of Strategic Relationships and Head of Canada at SWIFT. They’ll discuss recent advancements, the role of data, and other trends that are transforming the global cross-border payments system. As well as the opportunities for businesses as payments become increasingly instant, borderless and contextual.

Let’s get started. Here’s Dougal Middleton.

Dougal Middleton: Kevin, great to see you again. And I’m so glad to have this conversation with you today.

Kevin O’Neil: Thanks, Dougal. Looking forward to the conversation.

DM: Why don’t we get started with some of the innovations that we’ve been seeing in the cross-border space?

When we think about SWIFT and cross-border payments here at Scotiabank, we think primarily around the corporate, commercial, small business space, sending money globally to facilitate business-to-business type activities.

KO: Completely agree.

DM: Lots of modernization activities happening globally across a number of jurisdictions that are taking shape and helping to make cross-border payments borderless, more contextual and more instant than ever before. And so, with a lot of the investments that SWIFT and the community have been making, primarily on the backbone of the SWIFT Global Payments Innovation Initiative, we’re certainly seeing a material uplift of both the network capabilities, but also the customer experience around global cross-border payments.

Many of our customers coming out of the corporate space have been demanding lower costs, more certainty, better security, more predictability in their payment flows, especially when it comes to cross-border. And with a lot of the work that we’ve done as a bank within the gpi community to invest in the ability to enhance that transparency, these payment flows, enhance the certainty and make sure we’re getting more predictable payment flows.

KO: Couldn’t agree more and if I take a step back and look at kind of that innovation lifecycle, there are many innovations that we can talk about that the community has driven and they’re all at different stages.

DM: Yeah, we talk about SWIFT gpi, it’s been going on since somewhere close to 2016. We’re in a very, very strong spot now globally with the ability to track payments, enhance transparency of these payments, and be able to kind of shed light on what’s happening with a given dollar flow through the various corridors that we support. We’ve had a big focus on being able to review a payment status similar to what we’re used to in the consumer space, where I get a package shipped to my door or I’m shipping a package out, I can track that shipment from every step of the way. I think the old anecdote is, why can I buy a package of razors on Amazon and know exactly when it leaves? But if I send a million dollars overseas for an M&A transaction, how come it goes into a black hole with a, you know, an intermediary that may not be as transparent as it should be? Gpi has done a ton to uplift that experience and enable the corporate user base to be able to gain access to that FedEx like tracking ability. We’ve done things at Scotiabank to launch the SWIFT gpi tracker for our corporate end users. Being able to track that payment when it’s coming in the door to Scotiabank so that we could provide better certainty and predictability about when high dollar values is arriving at the doorstep here for our corporate clients.

KO: Absolutely. Almost two thirds of gpi payments are credited to end beneficiaries in 30 minutes or less. Almost half in 5 minutes. Many are in seconds. The average transaction time for a SWIFT GO, which is a low value payment with no deductions, is measured in seconds. And now that we can track where payments go around the globe, we can also start to focus on, well, where do things actually really slow down? There are various things that might slow down instant, frictionless global payments. We’re working towards that future and we’re looking to build on that as we take things to the next level in the community as well.

DM: Yeah, it’s a great call out when you think about where we’ve come from as a community, right? A state of play where payments were opaque. They sort of went into the ether, weren’t really sure where it was at any point of its lifecycle, if it was taking 3 to 5 days to arrive at its destination. We’ve really been able to shed light on the practices and question the community around ‘Is this the right thing to be doing at this stage of the game, so to speak, in cross-border?’ If you look at some of the digital transformation activities that have been accelerated the last several years, the expectations of the consumer, we’re expecting things on demand, real-time at our mobile fingertips, right? And coming into the workplace, we’re expecting similar experiences when we do our day-to-day jobs. And so, if you’re in a cash management position at a major global corporate or you’re in a treasury function and you’re issuing millions of dollars overseas for a given transaction, you want that certainty. You want that digital experience that lends itself to that on-demand reality that we live in today.

KO: Certainly, the world is moving instant, you demand that instant experience. But oftentimes companies will look for that certainty and that transparency of knowing when that’s going to happen, as well as that trust and credibility and security. But as you mention, that certainty that you know where the payment is and when that payment is going to be credited, and then how much money is going to be credited to that end beneficiary. The other thing I’d say is now that we can measure things, how do we build on that? There might be things we can do upfront before the payment is even made to prevalidate why do things slow down. Well, maybe the account number is not exactly matched, or the account and name, or there might be other reasons given, for the purpose of payment in a given jurisdiction that might slow things down. Some of that you might want to have available upfront and prevalidate and we’re looking to make those tools available and drive adoption of those types of tools to further improve that payment experience with people.

DM: Globally there’s a massive amount of demand on making sure that when I put in an account number and I’m sending money out the door, especially with something like a wire transfer that is irrevocable, prevalidation is one of those services that we look at, at Scotiabank, as an important piece of the puzzle to make sure that we’re absolutely getting that tool kit upfront to our customers to make sure that the account number, is it actually held by Kevin at the bank that I think it’s held at? Banks are in the best position to be able to help provide the information sets and the toolsets to make sure that they’re able to do this in a frictionless, non complicated fashion.

KO: Indeed, global payments are complex. There are many regulations, necessarily so, that regulation may differ depending on jurisdiction. We operate in over 200 markets and we’re very happy to work with partners like Scotiabank to help shield some of that complexity from clients. But people do need to be aware that it’s there because that may make the difference in terms of how payments operate in different jurisdictions.

DM: And we’re excited to partner on some of those toolkits. We’ve done a lot of investment in our own digital roadmaps to make sure that we’re enabling our services through platforms like our TranXact platform, which is our API enabled cash management platform that we launched last summer. But a big pillar of that is that whole reference information service set. So how do we give the corporate community the right tools like account validation routines through an on demand service that they could plug directly into their platforms, whether it’s their enterprise resource platform, whether it’s a Treasury management system, and be able to actually take advantage of those embedded directly into workflows so they can get that certainty upfront and be able to get the payment out the door with a high degree of accuracy.

KO: Absolutely. How do you press the button in your ERP or TMS? How do we make that easy? How do we embed that? Underpinning all of it has to be safety, soundness, compliance, and then also making sure that the payments that are being made around the world are being done for good and not for harm. And increasingly, looking at how do we provide overlays from, you know, an ESG perspective, standardization so that we can do what’s right for the people and planet as well.

DM: I think the security and safety is an underpinning tenant of the SWIFT Network, and that’s exactly why it’s still very strongly positioned as the de facto for cross-border money movement. We’ve invested heavily internally at Scotiabank as part of the customer security program, that SWIFT launched several years ago.

KO: And you mentioned the customer security program. Companies, banks have done a great job in raising the bar over the last several years on security. That journey will continue. We always want to try and stay ahead of the curve there and work with the community from a best practice perspective. Everybody has a job to do when it comes to that security down to the individual user at a company, right through to senior execs and cybersecurity experts at banks, as well as sharing of information.

DM: Yeah and we’re investing heavily on the anti-fraud measures behind the scenes. So, payment initiation is one thing, but before payment goes out the door, there’s all sorts of various activities that take place within these software environments that run our high value payments ecosystem. We’re providing the right checks and balances to the end user on whether or not we suspect something has occurred with the payment. And we’re double checking with network level resources on whether a pattern might fit, you know, some nefarious activity that may have been observed at the network level in the past and making sure we’re scoring transactions accordingly.

KO: We’re seeing a great cooperation in the industry, what are those threats that we see and how do we protect ourselves and how do we continue to evolve to make sure we’re providing for that safe and secure infrastructure? But then similarly, on the financial crime and AML perspective, how do we be as efficient as possible while also making sure that we’re not letting bad actors do things that they shouldn’t be doing in the network, so, continue to invest in tools on that. We apply things like artificial intelligence behind the scenes, we’re increasingly looking at how do we evolve those toolsets?

DM: Maybe pivoting a little bit we look at the massive transformation happening around the globe, both in the cross-border space, but also the immediate payment space, so domestic immediate payment schemes up and running; some are close to 60 jurisdictions now with local schemes handling domestic real-time transfers. A lot of activity happening now to kind of knit these things together and turn them into a global instant transfer network. SWIFT has obviously been playing a key role in helping prove out what’s possible.

Maybe you could touch on some of the things that you’re up to in that regard to help drive some of the innovation on the, I guess, the lower dollar value transaction set that maybe SWIFT traditionally hasn't been known for but is now fit for purpose to address.

KO: We’ve had a lot of success with gpi in terms of speed and transparency. So how do you take that experience and make it available for people who want to go even faster and who also want a little bit more certainty around no fee deductions? So that in a nutshell, is what SWIFT Go does. And we started to have some real success in certain corridors, you know, into the U.S., into Europe, into Asia. It will leverage domestic real-time rails where they’re available and where the cross-border infrastructure allows for those types of transactions.

DM: So, the tech exists to be able to do this but the jurisdictional regulations have to be in place to be able allow this type of thing, because anytime money is coming into a jurisdiction from cross-border or going out the door to other jurisdictions in a cross-border sense, we invoke a lot of other regulatory oversight regimes that need to have transactions reported against scanned against, etc.

KO: Absolutely. And we’ll continue to build on that and even extend as we look at which are data sets becoming more available. This all kind of comes together as you continue to build on what exists today, taking what the best practice is, and then also looking for new opportunities to build on that with ISO 20022, and things like that.

DM: I think a big part of what clients are after is the data to drive decisions. The decision to make those payments or what you’re going to do with those payments when they arrive can be very well supported by richer datasets. Getting into more of those data rich constructs that are now evolving with the ISO 20022 data standard is a very important part of that ability for the network to provide a better, more contextual experience to the end users and the day to day operations of a Treasury team, especially when it comes to what is the corporate treasury going to do when, you know, half a billion dollars lands in their operating account? What’s the next move for that half a billion? What’s the opportunity cost that’s presented with it? And how do they make sure they can make those decisions with certainty supported by the data, supported by the activities that the networks are able to provide.

So, you touched on ISO, the 20022 standards that are effectively the new language of payments that we’ve just completed a huge uplift of the network in March of this year to make sure that the community has the ability to receive payments in this new language, in this new format. But what it’s doing is starting to bring that very contextualized, precise definition of what a payment really is in a way that we can describe the counterparties of the transaction in a very precise, definitive way. There’s a lot of different ways now that this construct can help deliver even more certainty and help our corporate commercial users get access of that data to drive efficiencies, drive automation, and drive more precision in those decision-making capabilities that they need from a Treasury management and finance management perspective.

KO: Indeed, there are many companies that exclusively use that language, that format. Why do they do that? Because it’s a single standardized format. It’s embedded and built into their Treasury management system or their ERP system, and they don’t have to manage multiple formats in different location in the cost and complexity. But then as you start to get into the data richness, the ability for additional remittance information and reconciliation, the ability to add in that unique transaction reference so that when the million/billion dollars hits your account, you know that it's instantly available. You see it on the way in and you can reconcile it in your systems. And from a data richness perspective and will continue to build on that. SWIFT is talking to the community, the vendor community, the corporate community. Looking at how we take that end-to-end perspective from ISO and continue to build on that and improve that experience in the years to come.

DM: You know, when we speak about ISO to our clients, we’re not out there pitching ISO. We’re out there talking to our corporate commercial clients about, you know, where does data matter to them in their Treasury operations, in their cash management operations (AP/AR).

Where do we have challenges with data shortcomings today? And we relate that back to sort of what’s evolved in this new language and what could it do for them. Our core payments infrastructure at Scotiabank has been ISO enabled and ISO standardized for quite some time. Now it’s about making sure we’ve got the end-to-end solved for in a very specific way, so that we can start to deliver additional new value add services on top for those end users. We’re already working to deliver a lot of ISO enabled services with our TranXact platform, taking things that maybe used to be as simple as balancing transaction reporting and old standardized formats. But looking at the ISO information flows that are coming in through the SWIFT network as well as domestic immediate payment schemes and being able to enrich that statement information with the ISO additional information that's already resonating with our end user community as we start to pilot some of these activities and demonstrate just what that data rich context can bring to them so that they don't have to do a lot of that post-processing overhead when a payment lands to get their three way match to happen, to get their bank rate to happen, to get their cash application to happen in a short period of time. We've all put our ball gloves on, so to speak, to catch these payments now.

KO: By 2025, the estimates are that 95% of global market infrastructures will also be using ISO 20022, which is that end-to-end story. The good news for the corporates is you can migrate at your own pace. We will continue to support existing traffic and MT messages and existing pain messages on the network. But we’re also looking at and investing in tools to enable people to migrate. Start to benefit from some of these use cases and things like APIs, artificial intelligence and looking for those nuggets that will help their businesses.

DM: And maybe we can pivot.

Maybe you can speak to some of the things that are top of mind around the innovations on safety and security and what some of the clients are really demanding of SWIFT. What you’re hearing from the corporate community?

KO: So, from the corporate and market infrastructure and bank perspective, we talked before about the customer security program continuing to raise the bar. What is that best practice to make sure that you have a trusted ecosystem, a trusted network to all end points but also what can we bring to share information on indicators of compromise or threats? And we make that service available to all SWIFT end points through what we call an information sharing analysis center, which is a fairly common term in the industry. So that will continue, and that framework will continue. And really, we see that as a best practice type of environment. If you gave your keys away to your house or to your car, you know you’re going to be in trouble making sure that we also educate the community and reach out to the community to make sure they’re not giving those keys away. But we continue to upgrade people’s infrastructures. Usage of cloud technology can also help. But beyond that, what tools can we bring looking for things like anomalies, and we talked about pre validation. We talked about the application of looking at transactions that have gone across the network in the last year or so. So increasingly looking at making those tools available or looking for those anomaly and then the individual, be it bank or a company, could apply that logic and decide if this anomaly is necessary, its a valid use case.

DM: It comes down to a layer cake sort of model, right? The customer, what they are doing on their side to ensure safety, security, the practices that they’re employing technology around. Did you give the keys to your car, to somebody else, or are you truly the only one who holds a copy of the key? The bank, everything the bank could do around the payment analysis and the payment flow activities, checking against our own fraud algorithms and various known activities that are taking place. And then the network and what sort of network level intelligence exists that we can start to use against any nefarious activity or leverage to enhance some of the fraud scoring and fraud analysis that we're doing.

KO: I completely agree.

DM: When we look at how do we navigate the road ahead, that omnipresent milestone that we've all got to 2025 global ISO enablement. The new language will be across the globe. Everybody will be up and running and live on it.

What do you think some of the key things that are in store on the global stage for this end user community that we want to maybe touch on here?

KO: First, a really exciting time to be in payments. As we look to the future, there’s a lot of opportunities to build on this ISO story. We’ve established this framework. Now it’s time that we’ve built out this ISO framework that we start to fill that ISO message with rich and interesting information in different parts and different communities will be at different stages of their lifecycle for that. But as we look to the future, it’s all about what are we investing, but it’s also making sure that we’re investing and building responsibly, looking at safety, security, compliance or potentially unintended consequences if the world moves to everything is instant, what does that mean from a liquidity standpoint? Moving $10 is way different than moving $10 billion from a liquidity standpoint. And perhaps the parting thought from my perspective is interoperability is key in payments. So not building digital islands, whether we’re talking about ISO, whether we’re talking about payments and securities and trade, whether we're talking about new technologies like DLT or CBDCS, it's important that we look at things from that cross-border interoperability perspective and solve for the challenges that are most important to us.

DM: Yeah, we touched on the magic word there, probably didn’t do it justice, but the interoperability aspect of it for sure, it goes back to knitting together this global implementation that’s afoot around faster payments, more transparent payments, all anchored on the standard common language of 20022, but also built on the backbone of some of the precedent setting activities of the gpi initiative that SWIFT has launched. So I think the key message is really about the new technologies and advancements in data that are underpinning this global transformation that's afoot, are enabling a lot of those opportunities for our end users and our corporate and commercial clients to truly digitalize that end-to-end, not just digitize. That’s where “transform treasury” can really start to take a hold. We’re moving into this instant, borderless, contextual, global space, and we’re here to help. Scotiabank has the right toolkits, the right expertise and quite a bit of knowledge and experience to help our customers along this transformation as they move further and further in their digital transformation journey.

Kevin, thank you very much for joining me today. Really appreciate SWIFT’s expertise in the space and the ongoing partnership. And we really look forward to some of the innovations that we've got planned as the year unfolds.

KO: Thanks to Dougal. Great to be here and look forward to future conversations.

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