Can compliance with SWIFT CBPR+ be a costly decision?
Is the cost of SWIFT CBPR+ compliance a worthwhile investment for banks looking to diversify their cross-border payments business?
According to a recent global payments report by McKinsey1, cross-border money movement generated a quarter of a trillion US dollars in revenue in 2022, an increase of 17 per cent from 2021. That revenue is expected to double and reach half a trillion US dollars over the next five years, but considering the growth in this segment, the market may reach that point much earlier. So yes, cross-border payments are not just an essential business service but also an extremely lucrative line of business which merits continued investment.
The infrastructure and services that are necessary to underpin this business continue to be dominated by the SWIFT organization, which means that SWIFT itself is mission-critical for the world economy. Hence, why the importance of SWIFT’s ongoing modernization efforts remains undisputed, as the organization seeks to enhance and expand secure and efficient international financial communications.
At the heart of this push to modernize is SWIFT CBPR+ (for Cross-Border Payments and Reporting Plus): These new messaging standards, among other things, provide a more comprehensive transaction data set for banks as intermediaries as well as other stakeholders who are part of the cross-border payment transaction value chain. Introduced a few years ago, this has created a number of compelling growth opportunities for banks, the key ones of which are described below.
1. Opportunity to monetize data
This can be explored on two levels:
- An improved transaction data set can lead to better transparency and personalized upsell opportunities for the bank’s customer base across all segments: retail, business, commercial, corporate, and fintech.
- By leveraging their platform business model to acquire and distribute services through an external ecosystem of fintech and non-fintech corporations, banks can offer better value units or granular services using a more comprehensive data set. This will eventually impact the bank’s top line.
An excellent example is the transaction data that banks provide to fintechs who offer credit and lending services; this improved data set leads to better credit decisioning and eventually monetization opportunities, both for the bank and the fintech.
2. SWIFT CBPR+ as a trigger to diversify cross-border business and thus improve “margin” opportunities.
SWIFT is deeply embedded in most banks’ cross-border business, directly or indirectly, through their own correspondent banking network or through the network of their banking partners. The improved financial messaging standard was long overdue, and it took a while for the banking industry to agree on it. SWIFT is a cooperative organization with a diverse range of banks, financial institutions, market infrastructures, and large corporates as members, with some members exerting stronger influences over strategy and direction than others, and not everyone wants to move at the same pace.
From a bank’s perspective, the improved messaging standard with SWIFT CBPR+ should be step one in growing its cross-border business. SWIFT offers a range of other services that the bank can consume, such as SWIFT GPI, SWIFT Pre-validations, and SWIFT GO which provide a set of functions for much faster and more transparent cross-border payment experiences, each of which caters to the needs of the business and commercial banking segments of the bank’s customer base.
However, banks shouldn’t just stop there, they should consider this expansion in market services as a trigger to diversify their cross-border business beyond a focused reliance on SWIFT, which could open up better transaction margin opportunities and access to new markets and payment endpoints. There are a few infrastructures sub-layers that banks can consider.
Banks should consider diversifying into regional cross-border platforms. These payment services offer better value in terms of cost and speed of transactions within a specific regional context.
In the Arab world, Buna and AFAQ (GCC RTGS) are leading regional cross-border platforms that offer added value services and innovations backed by regional governments. Across Africa, the Pan Africa Payment and Settlement System, PAPSS, is growing and collaborating with other regional networks. Southern African countries are pushing SADC RTGS and instant payment services that offer great options across the Sub-Saharan markets on the continent. India has been aggressively pushing its UPI payment scheme across the world, ASEAN governments are working on an interconnected cross-border offering within the group supporting instant payment flows, whilst China has been building networks for specific segments of cross-border transactions in their area of geo-political interest. These networks offer better cost and speed possibilities in the regional context, and banks should consider supporting and leveraging these as part of a diversification strategy.
The emergence of fintechs that offer alternative cross-border networks like Thunes, Wise, Mastercard Move, and Visa Direct and Visa B2B Connect services, as well as many others that may dominate regionally, represents a pivotal shift in the market, challenging traditional models by providing a much cheaper transaction fee structure and, in some cases, claim up to 90% more affordable relative to conventional cost structures, faster transaction settlement, and greater global reach. These fintech networks can also represent the quickest way into the token-based cross-border payments realm, a fast-growing segment that can be a complicated and risk laden landscape to navigate. The adoption of the fintech segment can also be gauged by their valuations, many of these new entrants have reached valuations of multi-billion US dollar in a relatively shorter time and continue to offer services that are highly competitive relative to the traditional offerings.
Banks with growth ambitions, will need a diversification strategy for their cross-border payment business, but compliance with SWIFT CBPR+ should be step one on this journey.
3. SWIFT CBPR+ as an opportunity to improve back-office efficiencies and prevent revenue loss from operations and architectural inadequacies.
Banks lose a lot of revenue on the operations floor. Duplicate and inefficient processes, slow reaction time to market changes, missed collaboration opportunities, and poor customer services can all contribute to substantial loss in margin per transaction, which in most cases is not even measured. The change in processing dynamics, and platform, that is being driven by the introduction of SWIFT CBPR+ should be grasped as an opportunity to improve these operational aspects and be part of a more comprehensive longer-term strategy.
If banks view SWIFT CPBR+ as just a message transformation exercise, then they are missing a strategic opportunity to advance and elevate their capabilities for the long term, otherwise, the alternative is a tactical approach to their cross border payment services which is likely to prove to be a very expensive business decision in the medium to long term.
Banks and financial institutions increasingly seek strategic collaboration with financial technology providers such as Temenos, to navigate these complex changes. Building a strong, collaborative relationship with a proven and capable partner is crucial for successfully implementing robust, scalable solutions that can support the diverse needs of modern banking, from payment processing to regulatory compliance, business model innovation and beyond.
In conclusion, SWIFT CBPR+ triggers the process of building a new strategic cross-border payment platform that enables the bank to compete and achieve its ambitious growth vision and to accommodate the rapid evolution in the digital payments industry.
1 https://www.mckinsey.com/industries/financial-services/our-insights/the-2023-mckinsey-global-payments-report
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