SWIFT 2018/2019 Ushering in a Digital Revolution for Trade Finance - Authored by: Synechron
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SWIFT 2018/2019 Ushering in a Digital Revolution for Trade Finance Authored by: Jamie Gallagher Managing Director-Sales
SWIFT 2018/2019 Ushering in a Digital Revolution for Trade Finance | 2
Despite being one of the oldest forms of vastly different degrees of architectural
banking, Trade Finance has gone largely change from each bank to allow for the
unchanged by the numerous technology processing and scalability required by
revolutions over the decades. For many, the messaging standards can be met.
this process remains predominately Given this, there is no one-size-fits-all
manual, with banks using spreadsheets approach. Those that are operating
or systems developed in the 80s to track manually face significant architecture
financing and guaranteeing a transfer of modernization while those operating on
goods vs. payments. The annual SWIFT legacy Trade Finance platforms will need
standard updates due in November 2018 to work with their providers to assure
and even more in November 2019 will that new messaging requirements can
see a substantial change for the industry be met. More digitally-enabled business
with the massive modifications for MT7xx will have an easier time adhering to
series that will undoubtedly have a the new standards and are in a position
significant impact for the day to day work to evaluate emerging technologies
for trade finance. such as Blockchain as potential SWIFT
Banks operate on a broad spectrum replacements when more mature. What
of digital maturity, which will require is true for all, is that the time to act is now.
SWIFT 2018/2019 Ushering in a Digital Revolution for Trade Finance | 3 Act Now For those yet to begin initiatives to adhere and eating into revenue as they adjust to against larger and more digitally mature to new SWIFT standards, the bad news new standards. Additionally, these banks businesses as well as present new is it may already be too late to ensure could also face heavy competition from opportunities. In addition to improving readiness in due time. For predominately digitized banks who can deliver superior the efficiency of transaction processing manual banks, falling out of SWIFT customer experience related to letter of and minimizing the amount of processing compliance will require the addition credit issuances with faster payments so needing to be insourced through of personnel to process all documents that customers don’t have to wait as long major banks, a more digitally-enabled manually, which is cumbersome, error- for funds to hit their accounts. infrastructure would enable firms to prone and costly. Small and regional The good news however, is that not only engage in automation, improve platform banks operating out of compliance may is it possible to catch up, but doing so integration, and have better risk insights. have to use services provided by larger would yield significant benefits. Treating Compliance through modernization can banks to process these transactions, SWIFT compliance and the modernization place a bank in position to be a market outsourcing their operational burden it requires with urgency will safeguard leader as others struggle to adapt. Considerations for System Modernization Vendor software is one way to work compliance roadmap implementations. these changes, their software version is toward SWIFT compliance. Banks still For those that are already using software outdated. Thus, it is critical that banks relying on excel or legacy proprietary to manage their businesses, their focus perform an impact report to identify systems stand to benefit greatly from may require software upgrades as well necessary updates and remaining gaps. the implementation of cutting-edge as working with their vendors to share When creating a modernization strategy, systems catering to Trade Finance, their needs and requirements for new it is important to note that system such as Finastra’s FusionBanking Trade functionality needed to address these implementation and upgrade projects can Innovation+, as a means to modernize new standards. Even more digitally be a significant time investment, further the entire Trade Finance operation, advanced banks may find that while emphasizing the need to act now. expand functionality, and accelerate their they have the infrastructure to handle
SWIFT 2018/2019 Ushering in a Digital Revolution for Trade Finance | 4
Looking Forward
SWIFT compliance is critical in the short- this results in executing a payment in a
term; however, it’s worth looking beyond fraction of the steps and without involving
SWIFT for the long-term. By acting as a third-party.
a driving force toward Trade Finance Many banks are engaging in POCs to
modernization, SWIFT has opened the prove business cases such as how a
door to firms embracing digital solutions Letter of Credit could be issued digitally
capable of more than just delivering using DLT with downstream workflows
compliance, Straight-Through-Processing managed completely digitally using
(STP) and payments. Some digitally- smart contracts and digital payments.
enabled banks are already exploring Understanding emerging technologies
possibilities beyond SWIFT for the future, such as Blockchain will help firms avoid
and could think about expanding existing playing catch-up when the next Trade
Proof of Concepts (POCs) to achieve Finance revolution occurs.
compliance for the short-term. Those
currently engaging in modernization The impending SWIFT changes in
to reach compliance can be evaluating 2018 and 2019 will significantly alter
alternatives to include in a longer-term the Trade Finance landscape. The
roadmap. Despite being the farthest importance cannot be overlooked as
behind, manual banks looking to invest SWIFT’s changes are representative of a
heavily in the future have a cleaner banking industry-wide shift towards more
entry to the digital space as they are granular messaging requirements and
uninhibited by legacy infrastructure. the migration toward digital architecture.
SWIFT Compliance should be prioritized
One potentially-disruptive technology is not just to catch up to tail end of this
Blockchain, which is uniquely capable of movement, but to position for the future.
serving Trade Finance in new and exciting With deadlines unattainable for firms
ways. Blockchain offers a decentralized yet to start considering the changes, it’s
database for all participants, allowing imperative that trading innovation system
those across the network to create a implementation and/or update initiatives
single source of truth without the need to begin immediately. Additionally, now
rely on a central authority. Data agreed is also the time to consider digital
upon across the Distributed Ledger alternatives to SWIFT such as Blockchain.
Technology (DLT) underlying blockchain SWIFT’s updates are an indication of
applications can then be advanced via broader trends, so rather than playing
a digital workflow based on “consensus” catch up the next time sweeping changes
logic coded into smart contracts that will come around, be ready.
automatically execute when pre-specified
terms and conditions are met. Ultimately,Global Footprint
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