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Introducing SWIFT
1. Introducing SWIFT Global Forum on Remittances 2009 Laico Hotel, Tunis Michael Whyte 23 October 2009
2. Introducing SWIFT – January 2009 – Confidentiality: Public 2 SWIFT’s three dimensions – Community Community Standards Platform
3. Introducing SWIFT – January 2009 – Confidentiality: Public 3 3,8 billion messages per year (2008) 9,000 customers 209 countries and territories Over 2,000 employees Average daily traffic 14.8 million messages September 2009 YTD Last peak day -17.8 million messages – 15 October 2008 SWIFT figures
4. Introducing SWIFT – January 2009 – Confidentiality: Public 4 SWIFT in figuresFIN messages by market Sept. 2009 YTD Trade 31 million msg Treasury 160 million msg Payments 1,357 million msg 1.1% 5.8% 48.8% Securities 1,221 million msg 43.9%
5. Introducing SWIFT – January 2009 – Confidentiality: Public 5 Payments - 5.0 % Treasury -19.5 % Trade -12.0 % Total - 2.9 % SWIFT in figuresFIN traffic evolution by market Sept. 2009 YTD Securities 2.5 %
15. 12 Market overview A remittance is a cross-border, person-to-person payment of relatively low value. Market: International migrants 200 million Financial flows USD 400 billion Industry revenue USD 15 billion Annual transactions 1 to 1.5 billion Average transaction value +/- USD 300
16. 13 Strategic importance for banks The remittance transaction is: a turnkey product to build relationships with migrant communities in order to cross-sell other products Positive externalities of greater involvement of the financial community: leveraging economic development potential of remittances Promoting financial inclusion
17. 14 Bank options for service delivery Outside of becoming a franchisee of a money transfer operator, banks have the following alternatives: Option: Issue: Build a proprietary network Cost Scalability Build a bilateral service with a correspondent Service Use open correspondent banking arrangements
18. 15 Workers’ Remittances Objectives Deliver a robust end-customer value proposition time transparency price transparency ease of use Bring scalability to bilateral bank services Support any type of retail payment product Remain commercially and brand neutral
19. Service framework fit in the person-to-person payments ecosystem 16 Settlement Agent Debtor Creditor Agent Agent Participant Participant Bilateral Contract Bilateral Service Level Template Market Practices Service Levels, Product Groups, Charges & FX Practices Reference Data Participant and Agent Capabilities and Points of Service Messaging Standards Instruction, Reject, Return & Status Messaging Services FileActStrore & Forward 6.1
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22. Two product groups (account & cash disbursement)
29. 18 High-level overview Rules + Guidelines Architecture Ref. data beneficiary sender FileAct S&F ISO UNIFI 20022 Distribution network sending country Distribution network Receiving country MT cover payment CB CB Settlement End-to-end service level
30. 19 Competitive pricing: EUR 0.03 to 0.08 txn Plus annual recurring fee of EUR 1,000 per participant 1 1 not included in business case
31. 20 What you need to get started? Business: Business Agreement with counterparties Application: Capability to process ISO 20022 (XML) SWIFT: FileAct processing capabilities Alliance Gateway release 6.1 or higher SWIFTNet Link release 6.1 or higher
32. 21 Benefits Robust end-customer value proposition time transparency price transparency ease of use Scalable bilateral bank services Any type of retail payment product supported Commercial and brand neutrality Bring your services and your brands to your customers, efficiently!
33. 33 service participants, 13 certified live ABSA Bank Limited ZA Banco Africano de Investimentos AO Banco BHD S.A. DO Banco BISA BO Banco Bolivariano S.A. EC BancoDavivienda ( Bancafé ) CO Banco de Guayaquil EC Banco del Austro S.A. EC Banco do Brasil BR BancoNacional de Fomento EC BancoSolidario EC Banque Centrale Populaire-Maroc MA BBVA Bancomer SA MX China Construction Bank CN Citigroup US Citigroup UK Codesarrollo EC FinancieraCambiamos CO FirstRand Bank Limited ZA Giro y Finanzas CO Habib Bank PK ICBC CN ICCREA IT ICICI Bank Ltd IN Ivobank UK La Caixa ES Macrofinanciera CO Millennium BCP PT Nedbank ZA Russlavbank RU Standard Bank of South Africa ZA Standard Chartered HK Wall Street Exchange Centre LLC AE 22
Define workers’ remittancesMarket sizeCustomer Reach: estimated 200 million migrants worldwide. 66% send money home regularlyReceive side family groups average 4 to 5 personsTaking send & receive side together, remittances touch 650 to 800 million consumers (1 in 10 to 1in 8 of the worlds population)Financial flows in the region of 400 billion USDDirect revenue from transaction fees, foreign exchange around 15 billion USDTransaction flows 1 to 1.5 billion transactions per year – relatively small compared to domestic marketsAverage transaction value about USD 300. This does not match the idea of high value for banks, but it is high value for the user considering the amount of money that they are prepared to give up for the services. Providers’ Shares Estimates:Money Transfer Operators 20% +Banks 20 to 30%SWIFT <10%
So why are remittances important for banks?It’s not just about the transaction revenueRemittances are a turnkey product to a massive consumer marketBanks need to understand the specific needs of these clients to build the relationship, serve them better, and ultimately cross-sell other productsContrary to some beliefs, the consumers are not all unbanked poor without proper IDProfiles range from white-collar workers to rural poor. Many users of remittances services are banked or underbankedThere is a big opportunity to provide more services to existing clients as well as win new customers.There is also a social aspect:Channeling more funds through formal financial institutions can make more capital available in receiving countries. More capital investment is key to addressing underlying issues in many developing economies that are big receivers of remittances;It’s also a way to promote financial inclusion – bringing basic financial services such as insurance, savings and credit available to those who need, and improving their lives.
There are four main options available to banks to build-up their remittance network.Proprietary – build up a proprietary network of branches or subsidiaries in target corridors to serve customers. The obvious issue here is the cost.Bilateral – an alternative is to work with a partner that has an existing retail infrastructure. Many banks do this and achieve very good service levels. However, the big issue is that each business agreement and the technical platform to support transactions tends to be tailored to an individual partner. As a result these services don’t scale well as banks try to build out their business network.Traditional correspondent banking is an alternative. However, it is not well geared for person-to-person transactions. The perceived quality by consumers is low as there are issues with delivery timeliness, lack of clarity on exchange rates applied, or unexpected fees being levied on the receiver (e.g. Lifting Fees & BENE Deduct). These issues result from a lack of any clear market practices for cross-border, person-to-person payments. Becoming a franchisee of a money transfer operator service is of course an option. While good service and a broad network is provided, the downside is that franchisees commercial control is limited in terms of branding, pricing and foreign exchange rates and spreads. The driver, therefore, for workers’ remittances development at SWIFT is to leverage the extensive correspondent banking network that exists today, and to make the bilateral service model efficient and scalable.
Workers’ Remittances 1.0 brings considerable benefits to banks compared to using existing correspondent banking or proprietary services.End-customer value proposition: The overriding objective of workers’ remittances is to allow banks to provide their retail customers with payment services that deliver the following attributes:Time transparency: the initiating customer needs to know when the beneficiary will receive the payment;Price transparency: the initiating customer needs to know how much the payment will cost end-to-end, including fess and foreign exchange costs where relevant. There should be no surprises in terms of unexpected deductions from the principle sum of the payment on the beneficiary side;Ease of use: the services should be easy to use. The complexity of the interbank clearing and settlement system should not be exposed to the end-user.Scalability: Workers’ Remittances 1.0 delivers a set of tightly defined market practices, messaging standards and messaging services that are tailored for the specific requirements of person-to-person payments; This provides banks with a highly standardised platform that can be used to communicate with multiple counterparties;This allows banks to scale up their person-to-person payments business across new geographic corridors with ease. You no longer have to develop a bespoke proprietary channels to suit a specific counterparty.Any-type of retail product:An issue with many services currently deployed is that they are mono-product in nature, e.g. cash to cash, or card-to-card services;Workers’ Remittances 1.0 allows banks to deploy any payment product at either end of the transaction;This provides a very high degree of flexibility in the commercialisation to end-users, but does not undermine scalability and STP benefits;In addition, the tight service definition reduces the time required to agree a new contract with a counterparty.Commercial and brand neutrality:As SWIFT is not a counterparty in the transaction, there is no “middleman” between the bilateral pairs of banks.This gives banks full freedom in terms of pricing to end-users, foreign exchange spreads and branding;This level of independence allows banks to bring their services and their brands closer to their customers.
Workers’ Remittances 1.0 comprises five core components that, together, deliver a comprehensive framework for interbank clearing and settlement of person-to-person payments.These can be divided into two groups: the business components and the technical components:Business ComponentsBilateral Business Contract: provides a Service Level Agreement template and Bilateral Master Agreement checklist for banks. Advantages of the templates are: Banks can choose the service options they wish to offer. Promotes consistency across both the business and technical definition of the services Reduces the time and cost of negotiation new business agreements. Market Practice Rulebook: outlines the general rules and guidelines that all service participants must respect. The purpose is to ensure that all participants can offer a consistently high level of service to their customers. Key areas that the market practice rulebook deals with are:Participation: Two types of participants are defined:Participants (SWIFT members): that are connected directly to the service, andParticipants’ Agents (SWIFT or non-SWIFT): these can be financial or non-financial entities that offer retail payments services directly to end-users on behalf of a participant.Participants are obliged to ensure that their agents are compliant with applicable laws and legislation and that the service conditions are applied throughout the full value chain of the transaction .Products: this section is designed to ensure that Time transparency to the end-user is guaranteed: three service levels are defined (a) Standard 2 day delivery (b) urgent same day delivery, or ( c) instant – delivery within 15 minutes.Any product can be used at the front-end: two product groups are defined based on delivery to the beneficiary (a) credit to a financial account, or (b) non-account based delivery, e.g. cash at counter. Charging Practices: this section is designed to ensure a maximum level of price transparency to the end-user, and that various mechanisms of dealing with foreign exchange rates can be interoperable. Key points are that the DEBT charging principle is the default for the service (initiator pays all charges); the “instructed amount” is the amount delivered to the beneficiary; and where foreign exchange is included in the service package, the instructed rate and the instructed amount is respected by the beneficiaries bank.Technical Components:Messaging Standards:The service utilises the existing ISO 20022 payments clearing & settlement messages as the basis. Workers’ Remittances subsets are defined for three key flows: payment instruction, rejects and returns, status reports.Highly tailored for the market. E.g. standardised coding is to support notification and delivery options such as: home deliver of cash; forward paper instrument; SMS and e-mail notifications.A comprehensive set of examples on the use of the messages is provided in the service package. Reference Data: The reference data service allows banks to exchange, in a standardised way, information about their settlement arrangements, product and processing capabilities, and branch and agent network. It does not contain commercially sensitive data and is only available to the participating banks.The service contributes to marketing: banks can easily make available to their customers information about the point-of-service locations reachable to their correspondent banking network;Ease of use and Straight-through processing: if well integrated to the front-end systems, branch tellers or customers can “point and click” to the destination they want to send money to, and the interbank routing information can be automatically filled into the payment instruction.Messaging Services: The service is supported on the FileAct Store and Forward Closed User Group. This provides the cost efficiency of a bulk payment platform, but at the same time can support instant payments where necessary.This slides provides a high-level overview of the Workers’ Remittances service architecture:Inner circle: Service Participants connected directly to the FileAct Closed User Group exchanging files of remittance payments and reference data.Outer Circle:Includes the Participants’ Agents acting as distributors at either end of the transaction – market practice rules and guidelines extend here.Settlement Agents: bilateral direct settlement is recommended where possible, however, cover payment settlement using traditional FIN MT messages is supported. Guidelines are provided. There is no impact on FIN MT set-up.End-customers:The Service Levels (Standard, Urgent, Instant) are defined from point of initiation to value-to-beneficiary. Not and interbank timeline.Rules for charges and foreign exchange transparency extend to end user. However, SWIFT does not get involved in the charges or foreign exchange spread levels. This is a matter for bilateral agreement.
The benefits of Workers’ Remittances: Enables banks to deliver a consistently high level of customer service in terms of time and price transparency and ease-of-use. Brings scalability to bank bilateral services across both the business and technical aspects of service development. Offers banks a very high level of scope for customisation toward the end-user by allowing any type of product to be deployed, without compromising scalability. There is no third-party dictating branding, pricing or foreign exchange arrangements between the participants. This allows banks to bring their services and their brands to their customers.