I’m trying to get to grips with all things payments and blockchain related at the moment, and this quest has sent me in various directions. One emerging Fintech company thats fast occupying both the payments and distributed ledger space is Ripple. More on them later. But for now, i wanted to cover a couple of the Ripple Insights articles on SWIFT GPII – Global Payments Innovation Initiative. SWIFT, Payments and innovation are topics close to my heart, and Ripple provide a refreshing outlook on the SWIFT GPII. Their two articles What to Know Before Adopting GPII: Part 1 and Part 2 are well worth a read. As i read the articles, i made the following notes on why the SWIFT GPII aint up to scratch:
What is the SWIFT GPII?
The SWIFT GPII is all about improving cross border payments by:
- Common Standards – Introducing a new Service Level Agreement (SLA) that all participant banks will abide by
- Faster – Enabling participants to have same day use of funds
- Transparency – Stating payment fees upfront
- Visibility – Tracking of the payment from sender to the payment beneficiary
- Rich Remittance – Transferring ALL of the payment remittance information through to the beneficiary
This is all happening in 2017, and right now there are 73 participating banks.
Sounds perfect, Whats the Problem?
1. An SLA Update… Seriously?
The folks at Ripple argue that the existing payment infrastructures cant handle the global demands that the increasing number of cross border payments are putting on the current rails. The solution therefore is not as simple as an updated SLA, instead it requires a major overhaul and a new system (i wonder who can provide that…?) that can meet the needs of new consumer demands and expectations
2. Forget Same Day Settlements, we need REAL TIME!
While same day settlements are better than the current settlement cycles (which can be anything up to 5 working days, sometimes more), what people really want are real time payments.
3. Legacy Rails Cannot Handle Future Growth
Following on from point 1 above about the existing infrastructure, Ripple argue that when you consider the growth and demands of future technologies such as the Internet of Things (IoT), then existing payment infrastructures fall short. The argument is that existing infrastructures will struggle to cope with the increased transaction volumes and real time demands of the new technologies.
This reminds me of a post i did a little while ago about the problem with legacy systems.
4. Transparent Fees…. Really?!?!
- SWIFT say that the GPII will enable the “Transparency and predictability of fees“
- Ripple say “SWIFT cannot offer pre-disclosure of fees before a payment is initiated“
SWIFT need to clarify what they mean by “transparency and predictability of fees” – in short:
- Will SWIFT users know upfront how much a cross border payment will cost ?
- Will the fee be the same across participant banks?
5. Rich Remittance…. What has changed??!?!
- SWIFT say that GPII will feature “transfer of rich payment information“
- Ripple say “SWIFT’s GPII will continue to mandate its 140-character message for payment instructions“
Again, clarity around what “rich payment information” really means is required. If it really is a continuation of the current 140 characters, then this is nothing to write home about!
6. Upfront Visibility – Dude, Where’s my Payment?
The current problem with SWIFT cross border payments, Ripple argue, is that the process requires the transfer of the payment from bank to bank one at a time. The more correspondent banks involved usually makes the overall journey of the payment more prone to error(s), delays and increased costs. All of these “skips” introduce uncertainty (i wonder who can provide a solution for that…?).
And what if one of the banks is not a SWIFT GPII participant? The correspondent bank will not necessarily play by the GPII rules, and the benefits of the SWIFT GPII may not be realised.
7. Underlying Security Concerns are not Addressed
In another article, Ripple explain that the existing technology used to initiate and send payments continue to expose security weaknesses in the overall cross border payments process. Referring to the recent SWIFT related hacks Ripple argue that the distributed ledger technology needs to be implemented to increase cross border payments security.
Ripple suggest that multi-signing across validated parties using a distributed ledger offers increased security because it ensures that a single person/group cannot initiate a (fraudulent) payment.