SWIFT gpi – from obligation to opportunity

For November of 2020, the SWIFT release does not require any format changes for payment transactions for once. These were postponed until next year because of COVID-19. Still, the requirement for the so-called "universal confirmation" as part of SWIFT gpi remains. In simplified terms this means: for the credit in the MT103 format on the account of the beneficiary all FIN participants must send a response to SWIFT, specifically to the tracker. Rejections must also be reported, however, this does not replace the actual return. Thus, the payment sector once more has to cope with a (regulatory) mandatory project, which results in less resources for customer projects. But does it have to be like that? To answer this question, let us first look at what SWIFT gpi means.

Since 2016 the topic SWIFT gpi (global payment innovation) has become increasingly important. The core is a unique end-to-end reference, the UETR, which is given to the payment at the beginning of the correspondent banking chain and is maintained throughout all stages. This enables the tracking & tracing of payments, which had long been demanded for cross-border payments. The information is collected in the tracker. The tracker is a central database in the FIN cloud at SWIFT, which automatically reads the necessary information for each payment in FIN and is completed by further messages from the gpi financial institutions.

At first, UETR existed only within the CUG (closed user group) of the financial institutions participating in the gpi initiative, and only for customer payments (MT103). The standard service is also called gCCT (gpi for Customer Credit Transfer), which was soon completed by gCOV (gpi for Cover Payments). As of 2018, all FIN financial institutions are required to support the UETR, in addition to customer payments (MT103), for all bank-to-bank payments (MT202/205) – i.e. for all payments. First positive effects can be reported. With the UETR it is now possible to make statements such as "40 % of all gpi payments are final within 5 minutes" or "75 % of all gpi payments are final within 6 hours". Previously, there were only examples of payments that arrived very late (or not at all) or with no remittance information, but with high deductions for fees (including OUR), which led to many complaints with corresponding enquiries. A somewhat unexpected effect of the introduction of gpi was the drastic reduction in investigations.

If possible, a gpi financial institution undertakes to process the data on the same day, to waive the deduction of fees for OUR, to pass on the remittance information in full and unchanged (analogous to SEPA) – which should all go without saying – and of course to exchange information with the tracker (as soon as possible) not only on the status but also on fees and exchange rates. This information is then available to the payer bank as gpi bank. In this way, a further shortcoming of the cross-border payments – the lack of fee transparency – can be reduced. These benefits and in particular this information can then be communicated to the payer.

And then there is the issue of recalls. If need be, it should be possible to stop payments along the executing bank chain. However, same as the payment along the chain, the recall message is processed step-by-step by each involved financial institution. This is where the gpi additional service gSRP (gpi Stop and Recall Payments) comes in. The recall is reported to the tracker and the next attempt to transfer a payment to FIN with the relevant UETR is rejected. The long chain is skipped.

Now, with the "universal confirmation" the transparency is completed. This means that the payer bank not only receives the information "payment arrived at the last bank in the FIN chain", but also the status "payment arrived at the recipient". An acknowledgement was an integral part of the definition of SEPA instant payments from the beginning, but that was almost 50 years after the first SWIFT messages.

The FIN financial institutions are now required to report a "universal confirmation". This only applies to customer payments (MT103) and not to all payment receipts (M202/205). Reports must also be submitted for TARGET2 incomings, as these are transported via FINCopy. A "goodie" is the (manual) web access to this tracker, which was previously only available to gpi financial institutions.

The financial institution has up to 2 working days to report the "universal confirmation" (own public holidays are therefore excluded). This SLA will also be measured and the conduct of other financial institutions will be reported, but this will not start until mid-2021. Web access to the tracker is also made dependent on good behaviour.

Financial institutions with the smallest volume could consider manual reporting in the tracker. For automated solutions the payments platform should, for example, support one of the routes offered by SWIFT (MT199 or API). In addition, there is a so-called CSV solution in which corresponding messages are then generated to the tracker from a specific CSV report in the SWIFT interface.

Thus, a non-gpi bank must meet almost all the requirements that a gpi bank must fulfil. The missing step is no longer a big one, but the benefit for your own customers can be enormous. And with the options for gpi bank-to-bank payments (MT202/205 – called gFIT, which stands for Financial Institution Transfer service, an option for gpi banks), the financial institution's internal departments like treasury or money trading can also be given the security that the "payment has arrived".

However, for a financial institution it is not as important to receive the status messages from the tracker for sent payments, but rather to provide the customer with added value – in the best case the receipt "Payments received" (including information on fees and exchange rate). The service levels that a financial institution can offer range from the minimal version of manual access to the tracker via an own (corporate customer) hotline, to self-service offers in the online banking portal, to active information through notification with status reports to the corporate customer. And this is actually only possible by taking the step from the "universal confirmation" to the gpi standard service and opting for gpi. In the future, financial institutions with corporate banking will have to measure themselves against this.

Cross-departmental cooperation is required here; the services cannot be provided by the central administration department alone or even only by IT itself, as is often expected in "regulatory" projects during a SWIFT release. This can be achieved with a consultation that focuses on the overall process.

In summary, one can therefore state that it is not a long road from the mandatory requirements to enormous opportunities, and the prospects for additional services for corporate customers and also for internal bank departments are exiting.

Author: Mario Reichel

ISO 20022 – more topical than ever despite the dates being postponed

The decision has been made: on 27/07/2020, the European Central Bank has agreed with the vote of the European banking community to postpone the go-live date for the T2 and T2S consolidation by one year to November 2022. Similarly, the migration date for the Eurosystem Collateral Management System (ECMS) was postponed from November 2022 to no earlier than June 2023.

In the survey conducted in May, the European banks had declared themselves in favour of postponing the migration. In addition to the effects of the Corona pandemic, the main reasons for this include the postponement of the ISO migration for cross-border payments already announced by SWIFT. At many financial institutions, both migration scenarios converge in one project, since it is simply not possible to separate payments via TARGET2 from cross-border payments. Large financial institutions with extensive correspondent banking operations in particular saw major risks in the divergence of migration dates. With this decision both events have now been synchronised again. EBA Clearing has also joined in and postponed its migration to 2022.

The relief about the postponement was certainly great – but what does this decision mean for the financial institutions and their projects? The last thing that should happen now is for financial institutions to sit back and slow down their projects, as there is now an extra year’s time to implement them. That would be the worst solution at this stage. Many financial institutions have underestimated the effort that the TARGET2 migration entails. On the contrary, the postponement now offers the opportunity to continue with the projects at full speed in order to make up for lost time. Leaning back and leaving off now only to pick up the process in early 2021 is not an option. It should also be noted that the start phase of the user tests was only postponed by nine months from March 2021 to December 2021. Releasing external resources will mean that the people who previously worked in the projects and acquired knowledge will no longer be available.

It should also be borne in mind that the specifications, which have already undergone two new adjustments this year, will continue to be adapted. The ECB still has pending change requests which were not yet relevant for the November 2021 migration. This will certainly change with the postponement. It can be expected that with the new UDFS in November further functionalities will be offered, which will have to be evaluated and implemented.

The objective of SWIFT is also not yet clearly defined. So far, it is known that a transaction management platform is to be built, which will act as a central "hub" to handle cross-border payments. There are no published specifications for this yet. In addition, new ISO message types are currently being defined, for example for fees and cheques, which must also be considered and implemented. Thus, there is still much movement and uncertainty in the upcoming ISO migration. As such, might one not wonder whether there could be an even further postponement for SWIFT? How would the ECB react then? Could there also be a further postponement of TARGET2, or would we then have to accept that the migration dates diverge? How does one deal with changes in already harmonised message formats, such as pacs.004?

And as if that were not enough, the ECB's decision on instant payments is also causing a stir. Based on discussions with market participants of the AMI-Pay, the ECB council has decided that, on the one hand, all PSPs with TARGET2 that have subscribed to the SCT Inst scheme (i.e. instant payments) must be reachable in TIPS. On the other hand, all ACHs offering instant payments should move their technical accounts from TARGET2 to TIPS. The implementation is scheduled for the end of 2021. The ECB will thus make TIPS virtually obligatory for those who are already participating in the instant payments procedure. This is important because a large number of financial institutions today are using the EBA's RT1 procedure.

Also, so far only the decision itself has been made and announced. Further descriptions such as technical details are still unknown and will be published sometime later. One must also ask what a future pricing model will look like, especially if fees are charged for cross-ACH transactions. What can a transaction fee look like and what effect does this have on the pricing of the clearing houses? The question also arises whether there is an increased settlement risk for the settlement of positions such as RT1, as TIPS involves an additional participant in the chain.

What's more, SEPA will also switch to the new 2019 ISO version in 2023 - according to the currently announced plans of the EPC. The current gap of more than one year with regard to the migration of TARGET2 and SWIFT may seem a long time off. However, it has to be considered that a lot needs to be done before: reading specifications, writing business concepts and preparing systems. Despite the migration being postponed to 2023, it may not be underestimated and we recommend to deal with this issue as early as possible.

As is evident, the next three years will bring many topics related to ISO 20022 for financial institutions, and every institution would be well advised to use the time gained by the postponement to realign its priorities.

This requires highly specific know-how, and one should not indulge in short-term budget considerations and cut back on resources that will then be urgently needed again in 2021.

Authors: Sabine Aigner, Thomas Ambühler