Will the industry ever achieve 100 percent STP in cross-border payments?

Cross-border payments are becoming faster, but friction remains, slowing some payments down. Will the industry ever achieve 100% STP (straight-through-processing) rates in cross-border payments?

The digital transformation of monetary services has accelerated the pace of cross-border payments; in many cases payments are settled almost instantly. But within this real or near real-time environment, friction which will cause enquiries or investigations still exists, slowing down the payment process.

According to SWIFT, 2%-5% of cross-border payments are subject to a search or investigation, leading to a delay within the payment being completed.

The source of such friction varies, including internal and external factors. for instance, each country to which a correspondent bank sends payments can have its own rules, regulations and requirements for data. Understanding the various requirements globally requires a high level of experience. Problems also can occur when clients fill data fields with the wrong information or within the wrong format. Because there's no single, global regulator overseeing cross-border payments, there are many various formats and peculiarities. This fragmentation means cross-border payments are difficult to automate.

SWIFT estimates that enquiry management is costing banks 25-35 times quite payment processing itself which efforts to automate cross-border payments processing have had very limited results.

Enablers to scale back Friction

1. SWIFT gpi

SWIFT gpi is addressing several blocks in cross-border payments.

Payment Confirmation is one among the challenge. We automate the confirmations by our SWIFT approved tools and counting on the dimensions of an establishment, the answer is often an automatic MT 199 or a CSV file upload and for larger organisations, seamless integration of an API.

2. Field Validation

A significant number of cross-border payments are stopped due to the various approaches to compliance and screening. Document and compliance checks often need to be made. Even within a specific regulator’s jurisdiction, banks may have different risk policies and manage different lists of names, requiring certain payments to be stopped and checked on a day to day. One bank may stop payment for a particular individual, while another might not.

A payment validation tool that pre-validates payments before sending them across borders, enhancing the STP rates up to 96% is the right way to fix it.

3. The Rich ISO 20022.

Standardising cross-border payments formats will help financial institutions to eliminate many of the frictions. SWIFT’s move to the richer file format of ISO 20022, which is simpler to know and brings more fields into play, will make life easier for financial institutions and their correspondents. The format will allow more data to be included which may satisfy local regulatory requirements.

Translation alone will not solve all the issues a financial organization faces, however. Financial institutions also can reduce friction by implementing dedicated platforms for cross-border correspondent payments. Such a platform can enable a bank to route payments quickly and efficiently to the acceptable correspondent and automatically populate that payment with the right data within the correct format so as to process it straight through.

In Real-time payments, Financial institutions might not yet be ready to eliminate all frictions, but with the utilization of standards and technology, they're going to be ready to make friction a minor, not a serious, inconvenience, while providing both fast and safe cross-border payments.