A group of banks led by National Australia Bank have tested sending money from China, Singapore and Thailand to Australia by leveraging the country’s new, real-time national payment system.
Now that domestic payments in Australia can be made in real time, the idea is to enable SWIFT messages to reach beneficiary accounts in real time, too.
SWIFT, the global utility for cross-border correspondent banking payments, last year introduced its global payment innovation (SWIFTgpi) as a means of renovating its legacy infrastructure. This allows for near real-time settlement among correspondent banks that upgrade their systems to handle it. A few domestic payment networks have done the same, but on a purely local basis.
The thinking behind this pilot was to ask: where participating banks have the capabilities, why not allow payments from overseas be able to jump on the domestic real-time system too?
From days to seconds
Out of this idea emerged the proof of concept with NAB, other Aussie banks, and counterparts in Asian countries.
SWIFT is pleased with the results: one payment, from China, reached its beneficiary in Australia in 18 seconds. All other transactions were done within 60 seconds.
The trial demonstrates that banks can achieve cross-border payments in near real-time on a consistent basis, says Luke Perkins, head of clearing services and product at ANZ, one of the participating banks.
Today payments into Australia sent from Singapore or Shanghai in the afternoon typically only settle the next day; these must be processed before Australia’s real-time gross settlement network closes at 4.30pm. Taking into account time zones and the processing window, someone in Singapore must therefore send a payment before 1pm to realize a same-day settlement, Paul Franklin, general manager of payments at NAB explained,
But Australia’s domestic New Payment Platform, which went live earlier this year, can accept payments continuously, leaving it to recipient banks to decide their own cut-off times.
“We can easily process until 8:30pm Australia time,” said Franklin, “So payments from Singapore can be sent until 5pm Singapore time.”
The bridge bank
In the pilot, banks in Asia sent payments to NAB in Australia, which bridges SWIFTgpi and the local payments infrastructure: it then passes transactions on to other Aussie banks that ultimately receive the payment, including ANZ and Commonwealth Bank. It does so by converting the SWIFT payment into an ISO 20022 message,
Although delivered by NPP, the cross-border payments will be processed differently than a normal domestic payment. Franklin explained that the payment carries an identifier that recognises it’s an international payment and the bank therefore needs to do full sanction screening and money laundry screening.
The gpi tracker will be updated to the NPP network, so the sender in the other country will be able to see that the payment has been delivered to the customer and settled.
NAB will now lobby to get all Australian NPP banks on board, which is targeted to be done next year.
“The next step is for us to work together with other banks, to agree to send and receive these payments in real environment, to agree on what roles and operating procedures are required to do this,” Mr Franklin said. “We’ve started to have conversations with other banks, and we’d like that to happen in 2019.”
When Australia’s NPP network is commercially ready, it will be easy to scale the solution by getting foreign banks that are gpi-compliant to leverage NPP as well, so they can realize instant payments to Australia.
“If that process goes into production, nothing will prevent a Japanese bank to use gpi to access Australia in real time,”said Philippe Dirckx, Swift’s managing director in Asia Pacific.
NPP powers gpi
But there remains work to do, such as copying the process to other real-time domestic markets and also allowing transfers in real time out of Australia too, for those markets that have payment rails that can support it. China, Singapore and Thailand all have such infrastructure.
Dirckx said that SWIFT is in discussions with multiple domestic real-time payment operators and regulators.|
Although this improvement is due to more countries upgrading their own payment infrastructure, the quicker transmission also follows SWIFT’s own program to defend against blockchain-based competitors such as Ripple. Transactions via its blockchain, xCurrent, are global, very fast, and can occur at any time.
SWIFT now says more than 30% of payments use gpi, and half reach end-beneficiary accounts within 30 minutes. Ripple likes to point out that 6% of SWIFT transactions fail or suffer errors. But often, frictions and failures are not within SWIFT’s network but are due to domestic problems or local banks that haven’t invested enough in their tech.
The PoC shows SWIFT can address these failures in markets that have implemented real-time domestic payments.
Dirckx says when gpi is connected to a system like Australia’s NPP, people in Oz can receive their payment, even if their local bank has not upgraded to Swift’s gpi standards.