The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has, for a long time now, been the backbone of global trade and commerce. And for good reason, with it being highly reliable and secure.
But changes are coming thick and fast, and the potential of a 3 day for funds to go through on a wire transfer is just not acceptable anymore. Finance should never bee the bottleneck, and borderless banking is where to overhaul it.
Sluggish traditional systems
One reason SWIFT transfers has always been slow is the correspondent banking model. When money moves between two countries that do not have a direct financial relationship, it goes through various intermediary banks. Each stop in this journey adds a layer of processing, compliance checks, and, of course, fees. It also obscures the process in that you often can’t see exactly how far along the journey you are, so there’s nothing real-time about it. Sometimes, it’s not even clear how much you will be charged or what the exchange rate will be.
This means that SWIFT has two costs. Fees, and the opportunity cost of uncertainty.
Real-time payments
Borderless banking is very different. It uses local payment rails and APIs. So instead of that long chain of intermediaries, it plugs directly into local banking systems. It becomes an international payment solution that connects directly to regional infrastructures so that companies bypass the bottlenecks of the correspondent network.
It’s a shift that is abundantly clear in emerging markets where account-to-account payments are becoming the standard. Funds are pulled or pushed directly from one bank account to another in seconds, and because it’s on local rails like Pix in Brazil, the international aspect of the transfer is handled digitally and instantly. This level of localization democratizes market entry - small enterprises can have cash-flow agility.
The great leveller
As mentioned earlier, unfavorable (and often unclear) exchange rates and surprise intermediary fees are a real issue, and borderless banking has more data transparency. Businesses can see the exact exchange rate and the final amount the recipient will receive before the transaction is initiated. Generally, it opens more small businesses up to international deals and helps them compete with larger firms who benefit from large treasuries.
The automation in these systems means that it has fewer errors than SWIFT, which is another reason it can take days. It’s also harder in some ways to make an error, as more data is being communicated. By going away from reactive manual reconciliation to API-led validation, company’s finance teams can focus on being more strategic and high-level than simply data checkers for many transactions.
Blobal trade is opening up, and SWIFT has even been used as a geopolitical weapon in the case of Russia. While that means some alternatives are being birthed, API-led international payment solutions look like they’re here to stay. When payments are sped up, trust also increases, and businesses can take more risks by dealing in broader markets. It’s a move that came just in time to squander some of the propositions of decentralized and less regulated payments.
