By Julie Bolan, Head of Payments APAC, Swift

Cross-border payments have come a long way over the last couple of years, with their speed evolving to become quickly actioned transactions that can be monitored with complete transparency on where they are at any point in time on their route.

Although this evolution has been a success, payment practices will have to continuously innovate to keep up with the rising demand from consumers, who expect instant results. 

Identifying the contributors

Payments sent internationally experience multiple sources of friction that can alter the course of the transaction. These disruptions will often fall into four categories – compliance checks, local operating hours, fragmented data and legacy technology.

The industry recognises how pivotal compliance checks are for payments and financial institutions. They act as the first line of defence in the prevention of money laundering, fraud and terrorism financing. However, such rigorous processes add friction to cross-border payments.

If a payment is incorrectly flagged as fraudulent or creates a false positive sanctions screening alert, it’s likely to require manual investigation that can cause delays. Furthermore, if the bank responsible for initiating and actioning the investigation is offline, the transaction can be halted for hours before resolution.

This is where local operating hours come into the equation. Moving through continents, across borders and past regulatory jurisdictions, the payment will arrive in different time zones, where staff may not yet be working. Even if a payment is sent first thing in the morning from one region, if it travels via another that’s offline at the time then it’s unlikely to be processed immediately, leaving the end recipient waiting.

Fragmented data also plays a role in friction. Data standards and formats vary between different jurisdictions, systems and message networks, making interoperability and automation challenging. Once again, staff may be required to manually process a transaction or double-check that its details are correct, leading to an increase in staffing costs and the same limitations of operating hours.

To counter these contributors to friction, financial institutions can look to harness machine learning (ML) or AI. Unfortunately, however, not all legacy technology systems are capable of integrating these innovations. Many legacy systems rely on batch processing, lack the ability to monitor payments in real-time and have a low data processing capacity – challenges that are only compounded when different legacy systems need to interact with each other.

Innovation to address cross-border friction

For financial institutions to meet their consumer expectations of efficient transactions, the right technologies need to be adopted and most organisations have innovation on their delivery roadmap plans for the future. However, many of the tools needed to start reducing friction are already at hand.

Today, 34 per cent of payment delays occur as a result of formatting issues such as incorrect beneficiary account information. To counter this, financial institutions can implement pre-validation for payments. In July 2022, Swift went live with Payment Pre-validation. This has enabled financial institutions to validate elements of a payment before it is sent.

The platform provides a set of common transaction processing services, such as pre-validation of essential data leveraging APIs, rules-based anomaly detection and sanctions screening, in addition to transaction tracking, and exception case management also supported via API services. Payment pre-validation technologies together with rich data elements available in ISO 20022-based payments and common processing will significantly improve end-to-end efficiency and reduce total costs.

However, friction will not always occur at the beginning of the payment journey. If an issue arises during the transaction process, it’s important to be able to quickly amend it and keep customers updated on its status. Solutions like Case Resolution allow financial institutions to automate exception and investigation handling, leading to faster resolution times, reduced costs and better customer experience.

It is not just high-value payments that experience friction – low-value payments need to be addressed, too. Looking at the last 12 months, Swift data indicates it can take Australia an average of seven hours to process low-value, cross-border payments, so solutions catered to small businesses and consumers looking for instant and frictionless reduced-cost payment services are increasingly valuable.

Swift Go enables small businesses and consumers to make fast, easy, predictable and competitively priced low-value cross-border payments with full transparency on timing and costs, directly from their bank account.

Looking to the future, industry collaboration with these solutions will continue to be key to delivering continued cross-border payment innovation. Consumer expectations will continue to evolve, and it is up to the whole industry to develop solutions and strategies that provide a frictionless payment process.

By identifying pain points, we can work together to overcome the challenges and financial institutions can adopt solutions that remove unnecessary disruptions to the transaction journey. Cross-border payments have evolved so much, but there this more to achieve and industry cannot stop its innovation now.