SWIFT – Society for World Interbank Financial Telecommunication.

Nowadays, payments have become one of the most important services users around the world demand. For many years, payments have been run by banks. However, in the last few years, many new fintech companies have tried to improve the user experience in the payments space, proving that there was a lot of room for new players in the global payments scene. Companies like Venmo, Wise, Revolut, have been very successful when redesigning and redefining the new standards when it comes to payments. While a payment run at a banking interface could take few minutes and would demand a very long and tedious manual process of entering data, companies such as the ones mentioned above have created experiences that enable seamless payments within seconds. Venmo allowed people to send money to family and friends in few clicks, Wise allowed people to move money abroad within different countries in few clicks, or Revolut allowed to purchase items with a global card without needing to have multiple currencies or exchange cash. Nevertheless, nowadays payments are embedded in pretty much every single space in our lives.

Despite the fact that fintech companies are re-defining most of the payment experiences, there is one thing that hasn’t changed in many years, the infrastructure. Most of all the companies described above, still run above banking rails and infrastructure. When it comes to global cross border payments, nothing has changed. SWIFT, is the key word to understand the process behind all these payments. If you want to know what SWIFT is, how does it work, and know a bit more about its origins, please keep reading.

SWIFT is the abbreviated form for Society for World Interbank Financial Telecommunication.

The SWIFT network was formed In Brussels, Belgium, in 1973, and it aimed to create a standardized language and form of communication for financial transactions. Thus, it created a system of standardized data and a global communication network. This network was created that year by the banks, in a cooperation effort to improve the way global financial transactions were conducted at the time.

The cooperation among banks started in 1973, and the main functioning guidelines of the network as well as the main rules and responsibilities were defined in 1975 and developed during the following years. In 1977, the SWIFT network was able to send the first SWIFT message. Since then, the SWIFT network has been key in the development of the global economies as it has been the main infrastructure for all cross-border payments behind investments, global commerce and banking transactions.

1. Originator: This refers to the payer, in charge of giving instructions to the bank with a request to issue the transfer charged to his account in favor of the beneficiary account.
2. Issuing bank: The bank receiving the order to initiate the transfer receives instructions from the ordering party, reviews all the information and, if deemed appropriate, orders the issuance of the transfer through the SWIFT interbank communication system.
3. Correspondent Bank: Appears when the transfer is made in a different currency to that of the country of the issuing bank. For example, this intermediary bank appears in the transaction when the intervention of a bank located in the country of the same currency as the transfer is necessary.
4. Paying Bank: It is the entity in which the beneficiary of the payment has the account where the transfer money arrives.
5. Beneficiary: Is the person or company who receives the funds in his or its bank account.

Making a payment to another country can be much more complex and time-consuming than any other type of payment that we are used to. Paying with a credit card in a supermarket or online in a commerce platform is easy, but making a cross-border payment is more complex.

So how long can a wire transfer take? What can slow wire transfers down? And how can these sources of friction be addressed?

Wire transfers can take time to complete, particularly when it comes to cross-border payments. The multiple parties and steps (involving different banks), slows down the transaction. Global transfers typically may take 3 to 5 days, but exceptionally, can take fewer or more days, depending on the banks involved.

As mentioned above, cross-border payments are complicated. Not only involve different banks creating multiple intermediaries, or can involve different currencies, but also require several steps to guarantee that the transfer ordered is legal and that it complies with antimony laundering etc. The faster the payments, the better anti money laundering, anti fraud, and faster KYB processes are required.

Separately, there are a number of reasons why cross-border payments may be delayed or held up. First of all, bank account balances can’t be updated outside the operating hours of local settlement systems in all cases.

Lastly, different data standards and formats between countries can hinder automation, while technological limitations and differences between countries can also prevent funds from being delivered on time. Some banking systems rely on batch processing, lack the technology to monitor transactions in real time, or have very low data processing capabilities.

In recent years, there has been a lot of activity in the fintech space, with a big focus on payments. Blockchain and Crypto, has been receiving large amounts of funding,  being recognized as one of the technologies with the most potential to disrupt global and cross-border payments. Companies such as Ripple, offer cross-border payment solutions but after a lot of initial hype, the interest or momentum around these companies has slowed down amid many cases of fraud and problems with some of the cryptocurrencies that enable the payments.

Some of the blockchains still have a lot of volatility, and transacting within this blockchains entails very high energy costs, which doesn’t make these methods as appealing as it was initially thought. Future iterations of some blockchain will probably end up solving the speed of cross-border payments, as the underlying technology improves.

In the meantime, how is SWIFT evolving to solve the existing problems around cross-border payments? Definitely, the SWIFT network continues to work to find solutions to the existing issues that slow down the payment processes.

SWIFT is addressing some of the challenges addressed before as part of their strategy to enable instant, frictionless payments. Their enhanced platform will also provide transaction management services that reduce delays, including payment pre-validation, transaction screening and advanced fraud detection capabilities which are nowadays required to meet the demand of quasi real time payments.

Other initiatives carried out by SWIFT are also driving very significant improvements in order to improve the payments experience. SWIFT gpi has significantly increased the speed, traceability and transparency of cross-border payments, using a unique end-to-end transaction reference (UETR) to pinpoint the status of payments in real-time. As a result, today through the SWIFT instant, almost half of international payments are credited to beneficiaries within five minutes, with two thirds credited within 30 minutes.

Paying invoices, whether it is cross border, or domestic, entails a very similar experience. Still the process is very inefficient and slow. Paying an invoice involves receiving the invoice, extracting the main relevant information, running approvals, and finally adding the payment information at the bank. Batch payments for invoices, are not supported, as these are done in another section of the banking interfaces. Thus, you need to go to the cross-border payment section of your bank and add all the invoice information manually, in addition to the banking information of the recipient bank, with the intermediary bank information, the BIC SWIFT code amongst others.

Snab was born after experiencing a totally inefficient process when it came to pay invoices and make global transfers.

Snab is an automation platform for treasury management, invoicing, payments and collections for companies. Snab allows you to pay bills from the platform without having to go to bank interfaces to make these payments. Snab works for both one-time bill payments and bulk or batch payments. In addition, the Snab platform is connected to the SEPA network, so payments made by Snab have the same guarantees as any other transfer made by banks, since it circulates through the same network. Snab also aims to make running cross-border payments as smooth as running a domestic payment. There shouldn’t be any difference from the user experience point of view. Thus, with Snab you can run bill payments domestically or globally in few clicks without noticing any difference between the two processes.