Corporate treasurers are justified in asking when they can expect new technologies that have been generating considerable hype, such as blockchain, to make a material difference to their cash management and trade finance operations.
Turning a supertanker
The answer is that anyone expecting rapid “Uber-level” disruption is likely to be disappointed: change will be evolutionary rather than revolutionary. On one level that may be a relief for those at large multinationals with legacy systems and processes in place, since adapting to incremental change is more manageable than scrapping and replacing entire processes at once. But it also reflects the reality of changing an immensely complex system involving multiple parties and complicating factors. Having the technological capabilities alone isn’t enough.
Consider the most basic questions that clients want answered when sending money abroad: how long will it take and how much will it cost? These are not complicated queries, and anyone wondering why, for example, they can easily track a parcel across borders but not a payment, would recognise that it’s not for a lack of available technology. Rather, it’s a matter of ensuring that all the factors that enable international correspondent banking – from regulations and laws to languages and data standards – are aligned, while also encouraging adoption on a scale sufficient to make a new solution viable.
The challenge of consensus
From a customer service standpoint the appeal to banks of being able to answer those basic questions is easy to see, especially as fintech entrants stand poised to take more of their business. Yet getting all parties in the correspondent banking network to commit to full transparency, as well as support new systems and standards to track payments, has been far from straightforward – even if the proposed underlying technology is built on existing systems rather than intent on disrupting them.
Partly this is due to conflicting priorities: many financial services providers have had other focus areas in recent years, such as ensuring compliance with waves of new prudential regulation, while the commercial appeal of rolling out sexier consumer-focused technologies, such as Apple Pay, has often outweighed investing in more quotidian improvements. But some solutions are now reaching critical mass.
SWIFT’s Global Payments Innovation (GPI) is the most prominent. Though it’s been in planning since 2015, the first stage, focused on improving the speed, transparency and tracking of cross-border business-to-business payments, launched this year with over 90 participants. Each is obliged to adhere to a service level agreement with transparent fees and timelines, while a cloud-based system will enable end-to-end payments tracking. The second phase, enabling payments to be stopped and recalled as well as the usage of rich data (to smooth compliance, reconciliation and other currently manual processes) will take another year or more to go live.