In an era defined by rapid technological progress and geopolitical uncertainty, the landscape of cross-border payments is undergoing a profound transformation. Thierry Chilosi, Swift's Chief Business Officer, recently shared his vision for the future at The Banking Scene Conference 2024 Brussels. His insights highlighted the payment challenges as well as the opportunities that await the banking and fintech industries.

Chilosi began by acknowledging the inherent uncertainties of our times, driven by climate change, geopolitical shifts, and the accelerating pace of technological change. Despite these challenges, the cross-border payments industry remains remarkably vibrant. According to McKinsey, the sector boasts revenues of $280 billion, drawing substantial investments and a multitude of innovative players.

However, Chilosi pointed out that the real challenge lies not in developing new technologies but in achieving their widespread adoption. “Adoption is a different matter,” he stated. “You can have the best ideas, you can roll out the best technologies possible. Adoption is a different matter.”

Regulatory Landscape and Global Coordination

In this dynamic environment, regulatory frameworks are evolving rapidly. Chilosi emphasised the importance of regulatory compliance that accompanies innovation, particularly in the context of initiatives like the G20's agenda to enhance cross-border payments. This agenda focuses on improving speed, transparency, cost, and choice, and it calls for the mobilisation of both public and private sectors. Swift, with its extensive network of more than 11,500 financial institutions, is deeply committed to supporting these goals, working closely with regulators to ensure that these improvements are realised globally. “The regulators are really stepping in, expecting improvements not just at the European level but at the global level,” Chilosi noted.

As a key part of the global financial infrastructure, Swift's primary role is to provide secure, reliable, and trusted payment rails. Chilosi underscored the critical importance of maintaining robust infrastructure, which is vital for the smooth functioning of the global financial system. Over the years, Swift has introduced numerous innovations, and is currently supporting the migration to ISO 20022. This new standard promises to revolutionise the industry by enabling more structured information, thus unlocking further innovation. “We are very much focused on supporting this migration,” Chilosi explained.

Transitioning to a Transaction Management Paradigm

One of the significant transformations at Swift has been the shift from being purely a messaging provider to adopting a transaction management paradigm. This change allows financial institutions to trace payments globally, enhancing transparency and efficiency. Chilosi shared impressive statistics: “90% of Swift's payments reach the beneficiary bank within one hour, with 50% credited within five minutes. Now that’s quite an achievement, but a lot more is left to be achieved.”

Swift's strategy involves leveraging data services to enhance payment efficiency. Pre-validating payments, anomaly detection, and sanction screening are just a few of the innovative services being developed. Chilosi highlighted the importance of mutualising these services to reduce duplication and increase system efficiency. This collaborative approach aims to achieve seamless global reach for these capabilities, ensuring that they benefit the entire financial ecosystem. “Our ambition at Swift is to make these capabilities not only widely used intra Europe but making sure that the adoption has a global reach,” he asserted.

Chilosi outlined four primary models for cross-border transactions: correspondent banking, closed-loop systems, interlinking market infrastructures, and digital ledgers. Each model has its unique strengths, and Chilosi envisions a future where all these models coexist harmoniously. Swift’s role will be to provide common visibility and interoperability among these models, ensuring efficient and transparent transactions across the board. “Transactions in the future are probably going to have to go into multiple networks,” Chilosi predicted.

Enhancing Customer Experience and Embracing Innovation

A central theme of Chilosi’s address was the focus on improving the end-client experience. He stressed that building sophisticated infrastructures is futile if they are not widely adopted. Swift’s strategy moving forward is to consolidate and enhance interoperability, ensuring that new initiatives succeed and serve their intended purposes effectively.

“The goal is to make cross-border payments as seamless and efficient as possible for all users, from large financial institutions to individual customers. It’s not sufficient to build infrastructures if those are not getting used,” Chilosi emphasised.

Swift is at the forefront of experimenting with distributed ledger technologies and Central Bank Digital Currencies (CBDCs). Chilosi shared insights from one of the largest CBDC experiments conducted by Swift, which involved 38 financial institutions. These experiments revealed the potential of distributed ledgers to simplify and enhance payment flows. However, achieving widespread adoption and scalability remains a challenge. Swift's approach is to integrate these new technologies with existing systems, ensuring a smooth transition and maximising their benefits. “We are extremely focused to make the ISO migration work because that is a no-regret move that is agnostic of payment systems of ledgers,” Chilosi remarked.

In navigating the complex regulatory landscape, Chilosi emphasised the need for cross-border solutions that respect stringent data privacy regulations, especially those in regions like Europe. He advocated for standardising data flows, workflows, and response times to harmonise global payment systems while ensuring compliance with local regulations. This balanced approach is crucial for fostering innovation while maintaining the integrity and security of financial transactions. “Standards are essential,” he noted. “And there is a very big change happening in the next couple of years, which is the migration to ISO 20022 in the cross-border space.”

A Collaborative Future for Cross-Border Payments

Thierry Chilosi's speech painted a compelling picture of the future of cross-border payments. Swift’s role as an infrastructure provider is evolving, with a strong focus on innovation, interoperability, and customer experience. Collaboration among financial institutions, technology providers, and regulators is essential to navigating the uncertainties and realising the opportunities in the global payments landscape.

For the banking and fintech industries, these insights underscore the importance of staying adaptable, investing in innovative technologies, and working collaboratively. The future of cross-border payments is bright, with Swift leading the charge in driving transformative changes that promise to benefit the entire financial ecosystem.

In conclusion, Thierry Chilosi’s vision for the future of cross-border payments is one of optimism and opportunity. By embracing technological advancements, fostering regulatory compliance, and focusing on customer experience, Swift and the industry are well-positioned to navigate the challenges ahead and pave the way for a more efficient, transparent, and interconnected global financial system. “The secret of any strategy is in the execution,” Chilosi concluded. “And this is where we want to collaborate with all the different financial institutions and technology providers.”