Collaborative innovation: Key to driving transformation in the financial industry

5 mins read

Stella Lim, Managing Director, Asia Pacific, SWIFT

Strong community collaboration is necessary for financial institutions to turn their innovation efforts into effective solutions for customers

Stella Lim, Managing Director for Asia Pacific at SWIFT

The increasing adoption of cloud and related services continues to fuel the rapid rise of new or enhanced applications, processes, and products or business models that are changing customer behaviours and expectations. Today, quality and speed have become essential by-products customers have come to expect from brands and services providers they interact with, including financial institutions.

For instance, in the financial world, the increasing use of artificial intelligence (AI) and machine learning (ML) is not only redefining customer service, but also delivering new efficiencies in price forecasting, fraud prevention, and risk management. 

Not surprisingly, customers now also expect a seamless, transparent, fast, frictionless, and predictable cross-border payments experience, pretty much like making and receiving payments locally. In September 2020, SWIFT announced its enhanced platform, which will use APIs (Application Programming Interface) and cloud technology to provide a set of common processing services that banks have historically invested in individually.

The platform is underpinned by ISO 20022, a global and open standard for payments messaging that provides significantly richer and better structured data, which is crucial in the delivery of better payment experiences for customers.

This begs the question. Why has it taken the community this long to implement this at a global scale? The reason is simple: cross border-payments is a complicated business. It is highly fragmented due to varying service levels and regulations by jurisdiction. What’s more, the data underlying cross-border payments can be interpreted, translated, truncated, enriched, and corrected multiple times while sending funds from debtors to creditors, creating challenges for financial institutions and their customers alike.

Financial institutions globally are making good progress towards the November 2022 deadline to migrate to ISO 20022, which coincides with the launch of SWIFT’s new platform. Concurrently, they need to plan and implement seamless integration and interoperability of their existing and future infrastructure. 

To hasten innovation and transformation, both at local and global levels, it is imperative that SWIFT and its financial services community of over 11,000 institutions work together to tackle their common challenges. 

The importance of collaboration between financial institutions  

The financial services ecosystem depends on collaboration in the same way that life on earth depends on the planet’s atmosphere. For SWIFT, establishing the right collaboration models within the banking community has been essential for the industry to reach where it is today. The trick is finding tools and approaches that best address the challenges the financial industry faces today. 

SWIFT plays a key role in bringing financial institutions together to establish a ‘new normal’ or raise the industry baseline. By working together as an industry, we’ve been able to develop solutions that mutualise costs and drive business transformation than individual institutions could do alone. 

In our industry, innovating successfully takes time and effort. It requires a high level of coordination and for everyone to move in the same direction. Typically, when innovating, you’re only as fast as your slowest mover, which is why we have been working with smaller focus groups to develop a good understanding of the problem we are trying to solve, before opening it up to the rest of the community for feedback. With this flexible approach we can bring a product to market faster and create something that can then be scaled-up to benefit the rest of the industry, while still allowing institutions to evolve at their own pace.

How the pandemic has changed the way we work together

One of the most important parts of creating a new solution is to truly understand your customer – their needs and what kind of solutions might help solve their problems. This comes way before thinking about the technicalities of what you’re building.

At SWIFT, we approach this by holding focus workshops with stakeholders and one-to-one interviews with end users. With the pandemic, the inability to be in the same physical room as our customers has taken us some time to get used to, but it hasn’t stopped us from moving forward. No two customers are the same, so we’ve had to find new ways of working with each customer and/or new project.  

One thing the pandemic has highlighted is how interconnected our world is. And a lesson we can all take away, not just in financial services, is the need to work together to tackle global challenges. 

Recent successful collaborations

A few examples come to mind but SWIFT gpi (global payment innovation), which increases the speed, transparency and tracking of cross-border payments on its network, tops the list. We wanted to transform cross-border payments – make them faster, more transparent and develop common Service Level Agreements (SLAs) that all participating banks would adhere to.  

It was crucial that we had a good understanding of the problem we were trying to solve, so we worked with key players within the cross-border payment chain to understand the main issues and opportunities for development. Next, we brought together 15 banks from around the world to form a working group. The aim was to ensure that the problems we had identified in our research were grounded in reality and resonated with banks that sent payments daily. Finally, we began testing and implementing our solution. We created a Unique End-to-end Transaction Reference (UETR) in the payment message, allowing it to be fully trackable wherever it is in the chain. Today, SWIFT gpi is used by over 4,000 financial institutions that send the equivalent of more than USD 400 billion in value via the service every day, with most payments made in minutes and nearly all within a day.

Reimagining cross-border transactions

SWIFT is transforming its platform based on the concept of transaction management to enable instant and frictionless transactions.  

Correspondent banking traditionally relies on each bank to provide many of the basic services as part of a transaction, resulting in additional cost, complexity, and friction. SWIFT’s enhanced platform, set to go live in November 2022, will strip much of that burden away, enabling common processing and mutualised services in areas such as fraud detection, data analytics, and transaction tracking. 

The full adoption of ISO 20022 will be a game-changer. It allows financial institutions to process payments by pre-validating key information, minimise errors with seamless exception handling, and automate many processes more easily. 

Crucially though, it is a model which works for everyone. An immutable copy of the transaction data will remain in the middle and financial institutions involved in the transaction can access it using whichever method they choose – whether traditional messaging or APIs. 

The benefits are manifold. Banks that adopt ISO 20022 and APIs early will unlock the full benefits of richer data and advanced platform features for a competitive advantage across service innovation, operational efficiency, and financial crime risk mitigation.

But this is just the beginning. Above all, financial institutions need to adopt a strong collaborative spirit towards addressing the unique challenges they are facing. Only then can they successfully drive innovation and transformation that the customer of today demands.