If you’ve sent money internationally or between banks, you’re no stranger to the SWIFT network. For decades, SWIFT has been a leader in global payments, earning a reputation for reliability in cross-border transactions.
Yet against today’s shifting financial backdrop, a trusted name alone doesn’t always equal success. From faster transactions to support for cryptocurrencies and tokenization, cross-border payments platforms need to go above and beyond. Here’s how SWIFT is evolving to meet modern demands and what it means for your business.
The rise of SWIFT
The SWIFT messaging network — short for Society for Worldwide Interbank Financial Telecommunication — was established in 1973. Acting as a central system that connects banks worldwide, SWIFT facilitates secure transactions by assigning unique codes to ensure financial institutions are searchable and verifiable.
Before SWIFT, a lack of cooperation among banks meant there was no standard format for account verification. This resulted in a costly and time-consuming process for dealing with new recipients.
Soon after SWIFT replaced its predecessor Telex, however, more banks adopted the system due to its benefits in error reduction and efficiency. In the subsequent decades, SWIFT refined its common messaging standard and helped develop ISO 20022, now a hallmark of advanced payments platforms worldwide.
SWIFT messaging has now expanded to include foreign exchange confirmations, balance reports, debit or credit entry confirmations, and more. These use cases help explain SWIFT’s popularity within the payments ecosystem; today, the messaging network serves over 11,000 members across 200-plus countries, processing 44.8 million messages per day.
Meeting the new demands of global commerce
Despite its reputation for reliability, SWIFT has drawn criticism for a number of reasons — chief among them a processing time that previously took multiple business days. That’s why, in recent years, SWIFT has released a suite of new products and updates to match the expectations of both the business payments community and individual merchants.
Faster payments
Amid the development of real-time payments (RTP), long wait times for clearance and settlement quickly became a thing of the past. So how has SWIFT reacted?
SWIFT gpi was launched in 2017, paving the way for high-speed cross-border payments. According to SWIFT data, half of gpi payments are credited to end beneficiaries within 30 minutes, 40% take less than 5 minutes, and almost 100% are credited in 24 hours.
To compete with instant payments infrastructure, there’s also SWIFT gpi instant. This combines their gpi solution with domestic real-time payments to provide always-on support with transactions that can be carried out in seconds.
Easy access to data, fewer regulatory headaches
In addition to speed, Swift gpi provides end-to-end tracking and remittance data. For businesses dealing with ever-changing compliance requirements and foreign exchange controls, this brings peace of mind and simplifies record-keeping.
Functionality for low-value payments
Cross-border payments aren’t limited to organizations sending high volumes of funds, but transfers of small sums are often held back by high costs per transaction and lagging execution times. Such hurdles leave a massive market unserved — especially when it comes to digital remittances, a market expected to reach $340 billion by 2030.
To address this challenge, SWIFT developed SWIFT Go. Featuring full transparency of upfront FX fees, expedited transfers, and coverage across 630-plus banks, SWIFT Go is a fast-growing solution within the low-value payments space.
SWIFT in the digital economy
The future of commerce will be shaped not just by innovations from private companies, but also by state-led initiatives. One prominent example lies in central bank digital currencies, otherwise known as CBDCs.
What are CBDCs?
As cash usage dwindles and digital transactions become the norm, central banks are stepping up to deliver their own virtual currencies. CBDCs are akin to cryptocurrencies in that they rely on the principle of tokenization, a way to convert assets into digital units. Unlike cryptocurrencies, however, CBDCs are regulated and centralized.
Nations of all sizes are drawn to CBDCs because they provide easy access to funds for un- and underbanked populations, boost transparency in money flows, and have the potential to decrease transaction costs. According to data from the Atlantic Council, over 100 countries are either researching, developing, or presently launching CBDCs.
When it comes to cross-border trade with different CBDCs, though, ensuring seamless trade is easier said than done. That’s where SWIFT enters the picture.
Overcoming the problem of “digital islands”
Even if countries successfully launch their own CBDC, there are lingering challenges associated with each currency’s own technology and messaging standards. Absent interoperability, the result is an ecosystem of digital islands, which SWIFT experts describe as “disjointed systems that can’t interact with one another.”
To remedy this issue, SWIFT is testing a tool to integrate CBDCs into existing financial infrastructure. Working alongside Capgemini, SWIFT has enabled CBDC-to-CBDC transactions using a combination of distributed ledger technology and its global network. So far, they’ve run tests with 18 central and commercial banks and processed 4,736 payments. The next phase of experiments is planned to focus on securities settlement and trade finance.
Tom Zschach, Chief Innovation Officer at Swift, says, “Our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway.”
With a five-decade track record and an eye toward the future, the SWIFT network is set to play an integral role in the next generation of digital finance.
Ready to dive deeper into the trends shaping cross-border payments? Check out our podcast, Converge.
