The Swift Messaging System’s Retail Push
The Swift messaging system has long been a key player in enhancing international transactions, but now it aims to streamline retail payments as well.
This move indicates a shift from its traditional role in larger intrabank or business-to-business payments. Working with approximately 30 banks across 17 countries, Swift is introducing new rules designed to ensure greater transparency and efficiency in retail cross-border payments.
Under the updated guidelines, Swift claims that retail users will benefit from transactions faster than the G20 benchmarks, with around three-quarters of payments reaching beneficiaries within ten minutes. The system also aims to eliminate hidden fees and uses domestic real-time payment systems for instant settlements where possible.
The Correspondent Bank Model
With a surge in cross-border payment demand as global communication networks expand, the correspondent bank model remains prevalent despite its complexities.
This model involves banks entering into their own partnerships with overseas counterparts, often involving multiple intermediaries that complicate and slow down transactions. Manual processes defining these relationships can lead to delays, errors, and fraud opportunities.
Concepts like nostro and vostro define how banks hold each other’s cash,” explained Hugh Thomas, a Lead Commercial & Enterprise Payments Analyst at Javelin Strategy & Research, in an interview with PaymentsJournal. The nostro is mine held by you, while the vostro is yours held by me. These processes are often manual.”
Banks in the correspondent banking system usually rely on trust to ensure each institution fulfills its part of the transaction.
Getting Payments to the Finish Line
As a messaging network, Swift’s primary role has been to streamline communication between financial institutions. This has significantly impacted the in-flight” stage of transactions—though this stage represents only about 20% of the total time for an average cross-border payment.
The main challenge lies in the final leg after payments exit the Swift network, a process that is much more time-consuming due to regional nuances like regulations, fees, and domestic infrastructure.
Looking for Alternatives
Although Swift’s new framework could improve many aspects of cross-border payment processes, numerous alternatives have been proposed as solutions. Visa and Mastercard have built global networks through Visa Direct and Mastercard Move, aiming to offer a better alternative to the correspondent banking model.
Crypto and digital assets also present a potential solution, offering seamless, secure, and transparent transactions across a blockchain. Fiat-backed stablecoins like those from Circle and Tether are well-suited for cross-border payments due to their stability.
Other networks connect domestic infrastructures such as PayPal World, which integrates systems like India’s UPI and China’s WeChat Pay with PayPal’s ecosystem, bypassing traditional banking partnerships altogether.
Preserving Its Role
Despite these alternatives, Swift continues to play a critical role. The network is upgrading its platform and will soon require participants to use the ISO 20022 protocol, which increases data sent with payments significantly.
This enhancement could drastically reduce delays caused by incomplete payment instructions and save organizations millions in costs related to delayed or failed transactions.
Swift is also piloting digital asset transactions on its network, aiming to bridge traditional finance with decentralized solutions. Together with initiatives like new retail cross-border payment rules, these developments are likely to reinforce Swift’s role in the global payments landscape.
