Interviewed By The Asian Banker Live
Eddie Haddad, SWIFT Managing Director, Asia Pacific talks about the latest developments in Global Payments Initiative (gpi), how it helps institutions manage and assess payment risks, as well as create solutions tailored to their clients’ needs.
Here is the transcript:
Boon Ping: One of big themes coming out of SIBOS this year is payment. In Australia, the national payments has just been launched around and there is huge proliferation of real-time payments and GPI. What are some of the developments here?
Eddie: We launched GPI two years ago. By the end of this year in Asia, we will have 85 percent of the potential payment will be signed up on GPI service. 50 percent will be live and another 50 percent will be made live next year. So, we actually have to do a little bit of work in the back office for the customer and the customer needs to do a few things. But we think we will be able to get to 85 percent of the volume sites and moving very quickly. It is a similar situation in the other regions. Then following that, we will be going out to each market, explaining the benefits of GPI to the smaller customers on the longer tail and then we will see how they adopt it. But by the end of November this year, every customer whether they’re big, medium, or small must be able to take a GPI payment and process it and pass it through. By 2020, they actually have to confirm that they have passed through the payment onto the SWIFT Cloud, into this tracker. So, we have kind of re-plat formed the platform if you like just in that one process. So, that’s GPI, really fast adoption, really good use cases. The service itself essentially just strips out the friction. The SWIFT network has always been fast, two seconds between here and Singapore, encrypted, low-cost, multicurrency, but obviously there are banks in the chain and the banks need to do their own processes, whether it’s fax, there is foreign exchange (FX) fees. They may have sat on the money because of time zone, their cutoff times. All that has been removed with GPI, or a large part of it, which speeds up the rails. Once you have got fast rails, you can then do some other things. One of the things that we’re doing is we’ve looked around the region and we’re seeing that the standing up of these real-time infrastructures. Singapore has one, Hong Kong just went live. SWIFT was involved building the one in Australia. Malaysia is about to stand theirs up. So, what we said was why don’t we take GPI and we pass the GPI message through the GPI bank in another country and then pass that into the real-time infrastructure. Let’s do it in two phases with a group of banks. Let’s see if we, first of all, can really speed up the GPI links.
So, at the moment, typical GPI is sub 30 minutes. Let’s try and get it down to seconds. We put in place a rule book, different service levels that removes even more friction from the system. So, we got that tested as part of this result. Then, we said let us see if we can open up the real-time networks so that we can pass it into the real-time network. So, we have done tests between China, Thailand, and Singapore into the new payment platform and the first GPI leg is fast, it is seconds, and then into network time protocol (NTP) is fast, and then ultimately to an end beneficiary. So, we are talking sub 30 seconds for that whole chain with information being. We are working with UOB, DBS, Standard Chartered, NAB, ANZ in Australia. Now we need to kind of make it a service, make it a product, and we have been talking to the banks this week about doing that. One of the big things, it’s not so much being fast, it’s just basically you are leveraging the opening hours of these real-time networks. If you miss the cutoff in China at noon and you are sending a payment to Australia, it takes another day to get there. Where Australia sits, it is obviously open first but it is closed first. So, as a result of that, what we are learning is the technology is one thing, but the rules and the opening hours and all of that really add to the service.
We are talking to the banks now about standing up the service and now we are talking to the other regulators in the region. We are talking to MAS. We are using the existing rails and currency controls are okay –we are talking about Singapore, Australia – but the real-time networks were not necessarily set up for cross-border payments. They were for domestic, so you have to go to each of the operators and say okay, how I open this up so that I can get a cross-border message in. In Australia, we have to do a little bit of work with NPP. I went the MAS two weeks ago and asked them are there any policy issues. They said no, we think what you’re doing is fantastic. We are wholly behind it, just bring it to the next payment and clearing association meeting as a request, which one of the banks will sponsor and then we will be able to start doing the testing in Singapore. Another likely market will be Hong Kong. Another likely market will be the U.K. Those fast payment flows into Hong Kong from the U.K. or into Singapore or even into Australia from the U.K. Those kind of corridors make sense to SWIFT.
Boon Ping: Talking about opening up each market’s faster payments in ASEAN, this is kind of when they haven’t even implemented it, but as part of the ASEAN Economic Community (AEC) roadmap, they also talk about payment integration. Regulators in Bangkok, Thailand signed up for PromptPay, and subsequently BSP in the Philippines also signed up.
Eddie: There is the private sector and then there is a utility and then there is the politics and the governance of it. So, I cannot talk for the (political part of it), but the aspiration is clear, the aspiration obviously makes sense. I think it is probably the private sector presently a solution. So, we have presented a lot of information back into the ASEAN Finance Ministers’ meetings. We have suggested things they could perhaps do, but I think the real catalyst is going to be some kind of private initiative. One of the global banks we are speaking to after announcing this fast GPI has said they would like to have an ASEAN instant payments product. So, basically any big customers in any ASEAN country could get an instant payment. Those kind of initiatives I could see wiring up in ASEAN perhaps before some of these other governmental initiatives.
But I think regulators are finding it a little hard though. They sign those agreements, but I have heard that connecting to instant payment systems is probably a little harder. It was not really clear to me in those instances how the banks participated. So, who is going do the FX? Is the central bank going to take on all the risk? I don’t know. I think that is why the solution that we have proposed is a little bit more elegant in terms of you use the existing rails, so no additional infrastructure. The banks play a role because it only works through the banks. So, in the case of Singapore to Australia, you will send Australian Dollars. So, the FX is done in Singapore but it is sent in AUD. So, when it arrives here, it’s AUD. The banks at both ends participating. They are reusing their investments in existing infrastructure. Then, because it’s SWIFT, we don’t really have any profit maximization at all. We are owned by the banks, we are part of the community. Then, the other step further is if you want to do interoperability, it’s all very good for Singapore and Thailand to tie up and then maybe Philippines ties up then maybe someone decides to tie up Hong Kong. But then, how do you make sure that it’s standardized? How do you ensure that there’s interoperability? SWIFT ensures that standardization and interoperability are met. So, that’s why I think naturally we are one of the players to do this and what I have heard is that there has been some challenges because other organizations don’t necessarily have those kind of characteristics.
Boon Ping: The original objective of GPI, more efficient payment, more transparency, speedier, real-time, and cost efficient. So, once this is done, do corporates pay that for the updating?
Eddie: The fees are exposed. So, there is a visualization of how long it took to get the payment to me, the corporate treasurer, and then the fees are exposed. So, if I am the corporate treasurer and I have a banking relationship and I can see that took a long time and a lot of fees were taken out, then maybe I shop around. As a result of that, you will get compression of fees just through market forces. Then, there will be other features that we add to the network going forward which I think will also provide efficiency.
I think longer term, you would expect to have some of the fees reduce, but then some of the other benefits that we are providing on the network, maybe like stop and recall, we are going to be doing pre-validation, maybe there is a service charge for those things. Banks will be able to provide add-ons. There is data now. You have the transparency. You have the clean rails. So, you can even innovate with a Fintech. You can get a Fintech to come in and help you build a service that sits on top of the GPI rails but the bank offers that as a service to its customers. We can definitely see that happening.
Boon Ping: By next year, GPI will be exposed to all the banks for tracking?
Eddie: Definitely by the next year, we will be giving every bank a lighter version of the tracker so every bank will be able to see, if not the whole rich dataset, but they will all be able to see a certain level of data in the tracker. Then, as we roll out more and more services, we will see if those banks want to consume a higher level of content.
Boon Ping: What are some of the solutions that SWIFT is introducing to help with fraud prevention and anti-money laundering?
Eddie: We have had our traditional financial crime and compliance products. They have been in the market for several years. Sanction screening, KYC registry, sanctions testing, so testing the actual filters, data quality, making sure that the actual payment can go through. We have also had a requirement where because of the banks that we know that have been hacked and it’s been well documented, we have actually forced all the endpoints to go through our customer security program which is all about us requesting customers or obligating customers to adhere to a certain level of controls and then attesting to those controls that we capture in the KYC registry and now banks we hope will start consuming that as part of their security reviews of their correspondent. So, that is in its second year and we should get the full attestation from the whole community at the end of this year. That is an annual program of attestation and those controls will evolve. We have got the typical compliance controls, you have got this customer security program, and then we are introducing things at the network level that actually look for inbound transactions that might be fraudulent. So, we can’t control everyone’s environment. We can ask them to step up and put in place the right controls, but the bad guys might still get in. So, we are providing this service where through a series of alerts, you set the alert based on your historical payment transactions. Then, the other service that we have got is we can actually monitor the SWIFT infrastructure at the client. So, if it gets tampered with, we can ping it to see if it is still running properly if it’s been configured properly, and then come back with a notification to the customer. So, getting more and more sophisticated but it’s a bit like an arms race.
Boon Ping: Okay, but also you have to balance the customer experience and security in this instance where you are actually blocking a payment?
Eddie: You are right, you don’t want payments blocked. That’s the whole point of making the payment. The way it works is we give you six months’ worth of data of all your past transactions. Then, you look at that data and then you come up with some alerts. Then, based on this six months’ of data, you see whether or not your alerts would have stopped a lot of legitimate payments. If it had been, you do a recalibration. So, we work with you as you go through that process to implement payment controls, which is the service that we’re talking about.
Through GPI, we have exposed the network to our API call. So, we publish information on the message into the SWIFT Cloud and then we have opened that up for the first time for banks to do an API call, take the information from the tracker service which is in the cloud, integrated into their corporate portal, and basically display to the corporate customers or even their retail customers where a payment is. So, that is one example of an API. There will be other APIs that we release going forward. The KYC registry in Singapore is an interesting case. SWIFT has a KYC registry. We have got 5,000 institutions in it. It’s a utility that the banks have come to us to set up. In January 2019 or the first quarter of 2019, we will have an API call into that. So, if you want to consume data from the KYC registry in your bank, you can use an API call into the bank. We have a range of other data services where we can actually compare your data with a peer group set of data. We have got services that allow you to actually allow a central bank to do surveillance on exports versus receipts for those exports. So, we will be increasingly adding those kind of API services to those products as well.
Boon Ping: Now, in the original roadmap of distributed ledger technology as part of SWIFT initiatives at some point?
Eddie: I think we have done a few things already with distributed ledgers. We did a very large proof of concept globally on the nostro and vostro accounts. We got like 30 banks globally and we tried to prove a use case on whether or not you could get a real-time view of your nostro. So, what you owe and what is owed to you in these accounts. It was one of the largest proof of concepts that has been done on the technology. It worked fine, no problem. A bit of a challenge scaling, but more importantly, given the way the payments world works and the participants in it, the big guys are fine, they can do it, but the smaller guys are doing batch processing. They are never going be able to use it. So, you are never going get everybody moving to that kind of solution. That is one thing that we’ve done, but we’ve proved it out. We’re paying pretty close attention to what happens here in Australia with the ASX and what they are doing. We are also doing an e-voting, so like a proxy service on DLT in Singapore. We have got SGX, DBS, and they are actually using distributed ledger. We are hosting the application. So, I think that is where we see where it goes. It’s us kind of working on data, data standards, interoperability between distributed ledger applications, hosting the nodes. I think that is where we see ourselves playing, but we’re deeply involved in a number of use cases and proof of concepts.