SWIFT gpi: Life in the Fast Lane

By now, most treasurers will have heard of SWIFT gpi – the solution that is speeding up cross-border payments and delivering track and trace capabilities. But not all treasurers have grasped the game-changing potential of gpi, or that it isn’t just for treasury functions that are SWIFT-enabled. Christof Hofmann, Global Head of Payments and Collection Products, Global Transaction Banking, Deutsche Bank, explains to TMI how, following the successful gpi for Corporates pilot, the solution is becoming more widely accessible.

Eleanor Hill, Editor, TMI (EH): Could you provide a brief update on the current development status of SWIFT gpi?

Christof Hofmann, Deutsche Bank (CH): SWIFT gpi is becoming the standard for all cross-border payments. The general evolution of gpi is following three stages (see fig. 1). The initial stage involved banking participants deploying the concept as the ‘new normal’ in cross-border payments. This created numerous live payments corridors, but largely excluded end-user access to the transferred data – the Tracker was visible only to the banks.

The second stage opened up gpi status data to the electronic banking channels used by corporates, offering users greater transparency and precision on payment location. Not all banks are delivering this service yet, but I believe corporates will expect this as a minimum going forward.

Deutsche Bank entered the third stage (more are planned) in October 2018, giving corporates access to all available information about a payment, across multiple banks, which they can incorporate directly into their ERP or TMS. This information includes payment routing, foreign exchange rates, and bank deducts. It also enables corporates to establish their own payment-monitoring capabilities, potentially delivering alerts via the ERP or TMS if a transaction fails to progress as expected. Furthermore, some corporates are now using statistical analysis tools within their ERP or TMS, leveraging the gpi data to help them engage more in a strategic dialogue – across their banks – around payments workflow efficiencies.

EH: Tell us a little bit more about the process and outcomes of the SWIFT gpi for Corporates pilot. What was involved and what has been achieved?

CH: The pilot kicked off with a discovery session at the end of 2017 with the aim of bringing together SWIFT, banks and corporates to design, build and test a new standard that would deliver transparent, real-time, trackable multi-bank information for corporate treasurers.

After the design and development phase, testing began in July 2018, with 12 banks and 10 corporates taking part. The ultimate goal was to deliver a multi-bank gpi solution that was integrated into the corporates’ ERPs and/or TMSs. Just prior to Sibos in October 2018, many of the participants, including Deutsche Bank, brought the service into production. It has continued to be live within this closed user group.

Some of the milestones achieved through the pilot include: enabling corporates to access payment status information across SWIFT and bank proprietary channels and the ability for the corporate to generate its own Unique End-to-End Transaction Reference (UETR) – which is the SWIFT gpi tracking code. The pilot has also ensured that the originating bank provides status feedback retrieved from the central SWIFT cloud tracker in a standardised manner to the corporate payer.

EH: How have corporates on the pilot reacted? What has been the feedback - and the key learnings?

CH: The reaction from those corporates taking part in the pilot has been excellent. One of Deutsche Bank’s clients, Martin Schlageter, Head of Treasury Operations at Roche, commented that, “It’s like day after a long night to, at last, have nearly full transparency of your cross-border flows through gpi.” He has found that having access to tracking information has significantly improved the treasury team’s efficiency when dealing with payment enquiries. His team is also now able to analyse the performance of different correspondent bank payment channels, comparing the fees and time taken to deliver a payment, and can use this data to improve the service that banks deliver to Roche.

One of the key learnings from the pilot – for everyone involved – has been that there need to be pioneers who are prepared to take bold steps. We cannot wait around for the entire industry to be ready before investing in gpi, we must blaze a trail.

EH: What next? How will SWIFT gpi for Corporates be made more accessible for corporates of all sizes?

CH: SWIFT will open up the service beyond the closed user group of early adopters in June 2019, at which point banks can provide the gpi for Corporates service to all their corporate clients. At Deutsche Bank, we currently have the service live in Germany and are about to expand it to the UK, France and the Netherlands, ahead of a global roll-out.

Until now, gpi has been for SWIFT-connected corporates only, using the MT format. Before mid-year 2019, we plan to go live with ISO20022 XML-formatted payments, throwing open the doors to many more corporates. We are also adding channels, so that transactions sent host-to-host or via FileAct, for example, will be trackable in the same way.

This is game-changing: gpi for Corporates is now independent of SWIFT membership. It is not SWIFT providing the data, it is the corporate’s bank. Corporates can simply provide a payment file to their bank in a standard format, using any of the established channels. The bank then executes that instruction as a gpi payment. If the corporate has provided a UETR in the file then the corporate will get all the feedback on that payment’s progress, including information on deducts and intermediaries, in near real time, automatically, via the same channel they used to originate the payment.

EH: So, how can corporates – especially those that are not SWIFT-enabled – generate a UETR and take advantage of gpi functionalities?

CH: To leverage gpi, all the corporate has to do is create the UETR, either using its own integrated industry-standard algorithm, or applying such functionality from its ERP or TMS technology vendor. Many of the vendors are implementing this as standard functionality in their systems. Then, whenever the corporate generates a payments file, it includes a new UETR for each transaction to alert the banks that it requires feedback. The only other step for the corporate is to ensure that its relevant core systems – ERP or TMS – are prepared for receiving status feedback in MT or ISO20022 XML format via the established channels. Again, many vendor packages already include or will include this as standard functionality.

EH: Do you think this will open the floodgates? Will all corporates soon be wanting to use gpi?

CH: As mentioned, every corporate can theoretically make use of gpi; but the question is to what extent will it benefit them? Treasurers must consider how important the information received is going to be to them, and then decide whether to make the modest investment required for minor system changes.

A mid-sized domestic corporate with just a few cross-border payments would not necessarily gain much from deploying gpi for Corporates into their ERP or TMS system; the standard bank portal works well under these conditions. For multi-banked corporates with a substantial cross-border payments flow, where operational issues are common, the transparency and immediacy that gpi for Corporates offers is arguably indispensable.

EH: What additional gpi services are in the pipeline?

CH: Of the functionality wish list that resulted from preliminary discussions around the pilot, the highest on the corporates’ priority list is beneficiary services. A new pilot is being launched, tracking in-bound payments and giving corporates the ability to see payments that are yet to hit their accounts. From a liquidity forecasting and working capital perspective, this is potentially an incredibly powerful tool.

More pilot programmes are coming on-stream as use cases arise. One such project is looking at payment pre-validation, i.e. checking before execution that the beneficiary account exists and is valid. Another pilot, currently in Asia and soon in Europe, is investigating the launch of gpi into instant payments. This brings a cross-border instruction into domestic instant payment rails. Speed is not the only aim – 50% of gpi payments are executed within 30 minutes – it’s the independence from time zone differences that is the goal because a major cause of delay is the beneficiary’s bank or the clearing system in the receiving country being closed when a payment arrives.

EH: How does gpi’s movement into real time fit into the broader context of the corporate treasury world?

CH: The concept of real-time treasury moves the function away from the time-constraints of batch or end of day processing. There are three elements interacting and shaping this reality. These are gpi, instant payments and API technology. Thematically, they represent the connected topics of transparency, speed and connectivity.

In terms of instant payments, these are moving more into the B2B sphere. Currently, although the UK has pushed its own Faster Payments limits to £250,000, others are lower: SEPA Instant Credit Transfer (SCT Inst) is just €15,000. Deutsche Bank will this year extend the limit for SCT Inst to €1m. We are doing this by joining a closed user group for EBA Clearing’s RT1 system. In addition, the TARGET Instant Payment Settlement (TIPS) clearing system, which DB will join as well in 2019, can be leveraged as it does not validate the amount. If a bank allows a client to pay higher amounts via TIPS, and the beneficiary bank has no objection to receiving central bank money via this route, it can quickly allow higher faster-payment thresholds to evolve and, in so doing, meet treasury needs.

Meanwhile, APIs are a method of integrating corporates more closely with their banks. Rather than being a replacement for host-to-host, it enables the movement of processes that are currently managed in various bank platforms, into the corporate’s ERP or TMS. Through our cooperation with the SAP system integrator Serrala, for example, APIs are allowing clients to execute instant payments within SAP. This then links to our plan to allow higher amount payments for SCT Inst, and all complements the progress made around accelerating payments.

The combined result of these initiatives around connectivity, speed and transparency, I believe, opens up the scope for new services. With the treasurer’s understanding of each interacting element, they can rise to the strategic challenge, and start new conversations with their banks around improving the client experience.

EH: What are the next steps for treasurers, against this evolving backdrop?

CH: I would urge treasurers to explore these new technologies and their potential within the unique ecosystem of their business. There is no one-size-fits-all solution and each organisation needs to come to its own conclusion by assessing where the pain points are in its current processes, and determining which of these can be overcome through any combination of gpi, instant payments or API technology.

Given the pace of development of solutions such as gpi, treasurers would do well to keep up with developments; as more services are added, the use cases compound the value that gpi can deliver.

EH: Finally, what is the ultimate goal with gpi – is there an end game?

CH: It’s a continuous journey, but for me personally, I believe SWIFT gpi will have truly ‘arrived’ when it is simply referred to as a ‘payment’ rather than a ‘gpi payment’. With gpi now live and going into global production, it should not take long before it becomes ‘the new normal’.