(Wait, What? Yes, I said it. And it's not as fantastical as it sounds. But more on that later. In this two-part conversation with Daniel Lynch, Global Payments Innovation Manager, Americas at SWIFT, we get a double dose of expert commentary on how consumer expectations are driving innovation in the trillion dollar global cross border payments industry. Read part 2 here.)
For SWIFT, the customer interaction digits are HUGE: Over 35 million digital payment transactions processed per day for more than 11,000 institutions in over 200 countries. And, yet, when you think about an instantaneous, effortless and transparent consumer experience, you probably don't think of the payments processing industry first.
But competition from fintech challengers is ferocious. So much so, the success of industry leaders such as SWIFT ultimately depends on their ability to transform the customer journey to match the effortless efficiency, transparency and convenience of top consumer brands like Amazon, Walmart and Alibaba (AliExpress).
"I think rising consumer expectations are driving change with the institutions we work with," says Daniel Lynch, Global Payments Innovation Manager, Americas, SWIFT. Before we launched our Global Payments Initiative (gpi), I think there was a sort of cognitive dissonance for a bunch of bankers and corporate treasurers who could order a pizza and track delivery of it."
"But when they punched in at work," says Lynch, "they couldn't get the same (effortless) experience with a large, cross-border payment transaction. So, I think digital transformation has heightened expectations not just for retail consumers but for banking and corporate customers in the payment industry as well."
Lynch says that SWIFT is focused on eliminating the dissonance in how customers interact with a digital retailer and what they experience with a payment transaction. Here's why that matters: The customer value chain of banks and other traditional money-transfer providers is under relentless attack from fintech challengers. In other words, the stakes are serious for incumbents in the fast-growing $24 trillion-per-year payments market.
So says the World Economic Forum (WEF). In fact, traditional business models are already being disrupted by innovation, changing cost structures and lower barriers to entry. In the U.S. this means competing in a volatile environment where customer expectations are driving the digital economy to expand more than 4x faster than the economy overall.
All of which means consumers, banks and payment providers need access to innovative systems that can process cross-border payments faster, easier and more securely than ever before.
Which brings us back to the gpi initiative that Lynch mentioned earlier. SWIFT launched gpi in 2016 to improve customer experience for banks and corporations on the messaging system's platform in Europe, Asia Pacific, Africa and the Americas. Lynch recently sat down with Digital Masters to dish on gpi and why it matters in the context of digital transformation in the Payments industry. Read and enjoy.
Appian: Hi Daniel and welcome to Digital Masters.
Lynch: Thanks. Glad to be here.
Appian: Tell us about your role as Global Payments Innovation (gpi) Manager for the Americas at SWIFT. Also, what exactly is gpi and why does it matter?
Lynch: Sure, the gpi initiative is about mitigating and where possible eliminating friction in cross border payments. We (SWIFT) want to simplify and accelerate cross-border payments for banks and corporations within SWIFT and extend these capabilities to other payments legs such as local settlement mechanisms like central banks.
We basically want to make the payment experience as seamless and effortless as possible.
Appian: One of the topics we talk about on this program is digital transformation and how it impacts the customer experience. How has digital transformation affected customer experience in the payments industry?
Lynch:I think digital transformation is being driven by fundamental shifts in client expectations and available technology, coupled with a proliferation of new payment providers and infrastructures. And I think SWIFT gpi is at the forefront of this transformation because we're collaborating with the global banking community to put in place a new standard for handling cross-border payments.
Appian: And what do you expect to come out of this new (gpi) standard?
Lynch: We want to meet the industry's need for speed, trace-ability and transparency in the short term while more broadly gpi seeks to eventually allow banks to provide their customers with instant processing of cross border payments over extended operating hours and resolve problems as quickly as possible.
Appian: Which is a good segue to my next question. You know, in looking at the SWIFT website, there's a lot of commentary about how SWIFT is in the business of "moving value" which is a really interesting way to talk cross-border payments. Can you elaborate on what "moving value" means?
Lynch: So, traditionally SWIFT has been the financial messaging system for not just cross border payments but also for settlement and reconciliation of securities, trade finance and other applications.
We're evolving from just providing the messaging rails to offering robust transaction management systems as well.
Appian: Experts say that there's a lot of confusion out there about how money moves across borders. What's the biggest misconception about cross-border payments?
Lynch: It's not so much about misconceptions.There's a Lack of Understanding About how the Industry Works.
Here, in the United States there are thousands of people at community banks and credit unions who, understandably, have very little exposure to correspondent banking. And, so, for these people, "payments" is like a black box. They may touch on it every now and then to serve a customer. But it's not their core business.Other people may have aloose idea about payments.
But I think the primary confusion tends to focus on misdiagnosing where the problems with payments reside and how to solve them.
We've seen a lot of buzz about settlement tokens. I think they can play a role in liquidity management at the banks, but many of today's problems revolve around the behaviors of banks (largely determined by their back office systems) and the quality of data related to these payments.
Appian: So, where should we be focusing? In your opinion, what's the most important issue to focus on in payments?
Stepping back, I think the number one thing to focus on in cross-border payments is (ensuring) the quality of electronic data and the capability to interchange it.
For example, an inaccurate account number can cause a significant delay with a cross-border payment. Which is why we're building APIs that will let you pre-validate a data point or alternatively repair a payment in flight. It's like changing a payment from something that's more like sending a letter or email to something that's more like chat which is more dynamic and multi-directional.
Appian: And what's the best way to do that?
Lynch: We have a chance now to use First Principles design to ask "well how would you design this if you had chatty APIs and automation?" And imagine how the third bank in a four-bank payment chain can reach back directly to the first bank via an API and automatically get the data they need to push a payment through.
One of the big challenges in cross-border payments is being able to distinguish whether an issue is related to a bank's network or its back-office system.
For over a decade now, transactions on the SWIFT network have generally been communicated in under three seconds. And if there's an issue or a delay, more often than not it can be traced back to inaccurate data.
(Watch this space for next week's final installment of our two-part conversation with SWIFT's Daniel Lynch on digital innovation in cross border payments. Meanwhile, to learn more about gpi and the transformation of cross-border payments, check out this application industry brief and SWIFT's gpi site.)
Appian is a software company that automates business processes. The Appian AI Process Platform includes everything you need to design, automate, and optimize even the most complex processes, from start to finish. The world's most innovative organizations trust Appian to improve their workflows, unify data, and optimize operations—resulting in better growth and superior customer experiences.