One of the widely known mediums for financial transaction messaging called Swift has been facing criticism for not being able to fulfill the needs of financial markets around the world. There are some who believe that it has turned out to be inefficient for settling cross-border payments for not being able to manage real-time settlement of any transaction amount and not being transparent in payment status and settlement risk.
Global Payments Innovation – A New Initiative
In response to such criticism, Swift has launched Global Payments Innovation (‘GPI’), which has the ability to make funds available on the same day for B2B transfers that fall in the same time zone. It also offers secure remittance information, end to end payment tracking, and better transparency. The first phase of the project was made live in January this year and is currently in use by twelve banks, including ING, ‘Danske’ Bank, ‘Citi’, and Bank of China. It is currently focusing on B2B payments. Swift has made another commitment to expanding its cross border payment system.
The effort of improving global messaging service might be too small or too late in terms of resolving worldwide payment clearance, payment and settlement blockage, especially for customers from the non-banking sector.
‘Bitcoin’ Remittance Companies
Both new and old ‘bitcoin’ remitters are already working on resolving these issues. They use different ‘blockchains’ to transfer money around the world. Align Commerce is one of the ‘bitcoin’ remittance companies that became famous for $20.25 million in funding. ‘Marwan Forzley’, CEO of Align Commerce, considers distributed ledgers and ‘blockchain’ to be next generation opportunity.
Cross Border Payments in the Global Finance Chain
These payments were around $26 trillion in 2014, which is around 33 percent of the world’s GDP. Due to inconsistent and non-standardized infrastructure, the money will stay trapped in today’s system. For sending payment across the border, a customer has to find a transmitter for managing money transfer. The transmitter will be able to transfer payment due to its contacts with financial institutions in both home and recipient countries. Furthermore, each institution has its own intermediary, which adds more to the complexity of the process. Every bank, involved in managing the transfer, charges its own service fee and it can take 7 days for a process to complete.
The corporate sector around the world was estimated to be $15.7 trillion in 2014. They can negotiate fees between 1 to 2 percent of the payment amount. Whereas, small and medium size companies; and person to person transactions can be charged up to 15%. The hidden cost of these transactions makes it harder for customers who cannot afford it.
If a customer belongs to a ‘underbanked’ or undeserved part of the world, he may not be able to find those paths that may enable simplified cross border payments, for example, taking the services of a transnational bank for payment transfer by using their infrastructure.
Efforts made by ‘Bitcoin’ Remittance Companies
Although, Swift is committed to bringing transparency in cross border payments through ‘GPI’, yet, it failed to provide relief when it comes to customers who cannot negotiate fees. On the other hand, ‘bitcoin’ remittance companies have made efforts to resolve this issue at a small-scale. These companies enable customers to execute borderless transactions at a low and well-controlled cost.
One of the largest ‘bitcoin’ remittance firms called ‘Bitspark’ is based in Hong Kong. The company believes that it has the best long-term prospects despite the lack of traction. The CEO of the company, ‘George Harrap’, said,
“The vast majority of the world’s remittances are not done via banks, but by cash money transfer shops. This will not affect how they manage their business or transactions. Cost will remain the same as remittance companies batch payments anyway, so potentially, reductions in wire fees do not affect companies who transfer $10m per transfer and draw down on this balance for small remits.“
The Problem Persists
Despite Swift’s intention of improving payment transaction recording for its member institutions around the globe, it is possible that innovations inspired by ‘GPI’ may show up in other ‘blockchain’ enabled applications. For instance, ‘HyperLedger’ Project (a project in which Swift is a member) might develop the basis for cross border frameworks in future.
The CEO of ‘ZipZap’, ‘Alan Safahi’, managed to raise $1.1 million in 2014 for expanding its cash to ‘bitcoin’ service. According to him,
“‘ZipZap’ uses a combination of traditional (Swift) bank payment rails and ‘blockchain’ technologies to find the least expensive and most efficient transfer option. The Swift ‘GPI’ is primarily for B2B payments, so it will not impact ‘ZipZap’s’ current business flow.“
It is mentioned in the Ripple that launching ‘GPI’ was more of a step toward staying relevant rather than a step toward modernization.