Leveraging a new payments landscape in GCC

Technologies such as APIs, AI and cloud computing offer many opportunities for incumbents and challengers alike to transform financial services.

What are your views on the current payments landscape in the region?

The payments business is undergoing unprecedented change. New payment providers are challenging incumbents for market share and using technology to disrupt traditional networks and business models across retail and wholesale payments.

Regulation is increasing; payments platforms and market infrastructures are consolidating, renewing and re-designing. Customer expectations and behaviour are changing—the shift to digital is driving expectations of on-demand delivery and the growth in volume of non-cash related transactions. Today's banking customers are also customers of the bigtech companies that dominate the ecommerce space.

Their real-time expectations have transitioned through to B2B. Consumers and businesses alike expect payment providers to ensure that their money follows goods and services at the same speed. Corporate clients specifically demand faster payments that are transparent, predictable and lower in cost.

For those in the Middle East—a strategic trading, business and financial hub—this is critical. In response to these trends, domestic payment infrastructures are renewing their systems to deliver the services that customers have come to expect.

Real-time gross settlement systems are being modernised and instant, 24/7 payments are now a reality in a growing number of countries across the world, including many in the Middle East such as the UAE, Jordan and Kuwait, which have already or are set to launch payments system modernisation, Bahrain, which is already running instant payments and Saudi Arabia which is expected to launch its instant payments scheme later this year.

Additionally, many regions across the world, including the Middle East, have decided to embark on regional harmonisation and integration projects. Forging regional ties through integration and cooperation can eliminate obstacles to trade and make the region more competitive in the global marketplace.

For example, the Arab Monetary Fund has launched ‘Buna,’ a regional payment platform that enables regional financial institutions to send and receive cross-border payments across the Arab region and beyond.

SWIFT is pleased to be supporting this transformation, using our expertise in innovative technologies, messaging and standards to deliver secure, reliable, efficient and cost-effective payment clearing and settlement. Incumbent institutions are also reinventing their payment businesses, renewing IT infrastructures and re-evaluating traditional business models with the aim of delivering the effortless payment experience that the market needs. However, firms know that they cannot transform their businesses in isolation.

Institutions are partnering and collaborating with a wide range of parties to deliver the financial services of the future—from bigtech to fintech, corporates, end-clients, market infrastructures and even competitors. Rapid change is also happening in the cross-border payments space. In this day and age, customers expect their cross-border payments to be as fast, frictionless and transparent as their domestic payments.

In response to this need, SWIFT and its community have dramatically improved the customer experience in cross border payments through SWIFT global payments innovation (gpi) which has increased the speed, transparency and traceability of international payments.

As a service provider for the financial services sector, based on your conversations with banks, what are their main concerns when it comes to implementing emerging technologies into their businesses?

The face of financial services has changed considerably over the last decade. Customer expectations continue to dictate the scope and speed of technological evolution in the world of financial services and beyond, with technologies such as artificial intelligence (AI) and application programming interfaces (APIs) offering financial institutions both opportunities and challenges.

In recent years, the industry has faced increasing competition from fintech companies and as lines continue to blur between banking and non-banking institutions, more new entrants are coming into the market. These new competitors are known for employing a mix of customer insights and digital technology to create customer-centric solutions across product lines.

For traditional players in the payments industry, adopting new technologies is not always straightforward. Unlike newer challengers, the IT infrastructure of these players has evolved incrementally as various different systems have been added over time. As a consequence, they often have highly complex legacy infrastructure.

While such issues do not directly hamper innovation, they can reduce an institution’s ability to implement new technologies and business models as quickly and cheaply as newer players.

A number of factors have enabled challengers to compete in financial services markets – not least a significant reduction in the cost of technology ownership offered by cloud computing and APIs, alongside a drive from regulators to open up financial markets to new players deploying these technologies.

Even as technology continues to disrupt and present challenges for the banking industry, it offers numerous opportunities. In some instances, artificial intelligence and cloud technology are combining to reduce cost and enhance performance, for example, in compliance and customer service. When employed in a strategic manner, these technologies offer incumbents an opportunity to reinvent and redefine their business models, to address both customer and regulatory expectations.

SWIFT introduced gpi in 2017, how has that fared thus far?

Since its launch three years ago, SWIFT’s global payments innovation (gpi) service has been widely adopted as the new norm in cross-border payments by the financial community, enabling thousands of banks on the SWIFT network to execute smooth, safe, secure and friction-free value transfers.

SWIFT gpi has dramatically improved the customer experience in cross-border payments, increasing the speed, transparency and traceability of international payments. We transferred nearly $77 trillion in cross-border payments via SWIFT gpi in 2019, almost doubling the $40 trillion sent by SWIFT members in 2018.

Over 200 financial institutions in the Middle East and North Africa have already signed up to SWIFT gpi, and nearly 80 are already live on the service. This remarkable growth is the result of the trust and recognition gpi is gathering within our community. We continue to work together with our community to extend the coverage of gpi and increase its value even more.

SWIFT is driving the introduction of new functionality on top of gpi to make real-time, 24/7 cross-border payments as seamless, convenient, cost-efficient and accessible as domestic payments. For example, at the end of last year we introduced a case resolution function, which enables banks to improve their customers’ experience for enquiries and investigations related to gpi payments.

We are also looking at how to connect SWIFT gpi with domestic instant payments systems around the world to deliver global real-time payments. Through a combination of gpi and domestic real-time payments networks, SWIFT, together with gpi banks, will facilitate real-time international payments with up-front fee and FX transparency for senders, while also ensuring ubiquitous availability of real-time cross-border payments globally.

How are financial institutions tackling the challenges posed by cyberthreats and financial crime?

As cyberattacks continue to evolve and increase in frequency and sophistication, cybersecurity has become a major area of attention and investment.

Simultaneously, complying with the large number of global regulations that aim to combat money laundering and terrorist financing is also a challenge for the industry, both in terms of costs and resources. The integrity of the entire banking ecosystem depends on trust. There are many aspects to establishing and maintaining trust, but robust operational processes are key.

These include defining and implementing KYC processes and due diligence, ensuring cyberdefences are in place, sharing information to help others in the community combat crime. In addition, demonstrating transparency and a willingness to adhere to industry best practises and conform to community rules is essential to build confidence in the financial system overall.

To manage risk across our industry, collaboration is paramount as we are only ever as strong as the weakest link. This is why the members of the SWIFT community work together to manage cyberthreats, meet compliance obligations and strengthen security.

Looking at what we have in the market at the moment, what emerging technologies do you think would revolutionise the banking industry?

Technologies such as APIs, AI and cloud computing offer many opportunities for incumbents and challengers alike to transform financial services. As such, financial institutions are accelerating their digital transformations, combining these technologies with the right business models to deliver a seamless experience to their customers.

APIs, for example, are transforming the way business is done. They make it easy for applications to speak to each other, facilitate the creation of new services and drastically reduce time to market.

As the industry embraces API technology, SWIFT believes that an ongoing effort will be required to avoid fragmentation and isolation, needless complexities that will frustrate attempts to build the value-added services customers want. Similar to the instrumental role that SWIFT has played in standardisation in financial messaging, SWIFT is actively fostering API standardisation for the financial services industry using ISO 20022 specifications.

We are also using APIs to simplify access to SWIFT content and shared services: SWIFT gpi, Sanctions Screening and SWIFTRef, among others, are already available via APIs. Future phases in our API roadmap will involve the availability of additional SWIFT content and services via API. The use of AI is on the rise due to the huge growth in data and computing power in recent years. AI is already quickly changing the financial industry landscape.

SWIFT has found that an obstacle to the deployment of AI in financial services is the limited availability of structured, rich data. This is a major hurdle for the development of analytics capabilities. SWIFT sees that it has a key role to play in improving the quality of data so that our members can use AI effectively.

Our ISO 20022 initiative is one such example where we are supporting the community to improve data quality. The adoption of cloud computing has also been increasing rapidly over the past few years with more and more organisations embracing cloud-based solutions. We are doing the same at SWIFT to further support our community, with two distinct cloud initiatives.

The first one is Alliance Cloud, a private cloud-based connection to SWIFT services providing a robust option for institutions of all sizes that wish to host their messaging operations on a SWIFT-managed infrastructure. The second helps customers smoothly migrate to large cloud providers such as Microsoft and Google Cloud.