With funding for fintech startups having fallen precipitously from the days of ultra-low interest rates and a focus on growth at all costs, a reality is setting in: Disrupting the giants of incumbent financial services is no easy task. In many cases, it has proven elusive.

This holds especially true for the juggernaut of international money transfers, Belgium-based Swift. In recent years, Swift has moved to address shortcoming in the speed, transparency and efficiency of its transactions while simultaneously bringing an increasing number of high-performing payments fintech into its orbit. One might say that Swift is gradually co-opting some of its key competition.

As a result, the interbank messaging network is retaining its leading position in cross-border payments and may even grow more dominant in the years to come.

The need for speed

One of the factors that drove so much funding into payments fintechs pre-pandemic and right up until interest rates and inflation skyrocketed was frustration with the slowness of traditional correspondent banking. Swift first responded to this trend by launching Swift gpi, which has been likened to “an Amazon parcel tracking service” for the financial world. According to Swift, about 50% of gpi payments are credited to end beneficiaries within 30 minutes, 40% in less than 5 minutes, and almost 100% of gpi payments within 24 hours.

In addition, in August 2023, Swift said that 89% of cross-border payments processed over its interbank messaging network are completed within an hour, placing its transaction speed ahead of the G20’s end-to-end target of 75% by 2027. In a news release, Swift said that this achievement challenges “misperceptions” that payments must often travel through chains of intermediary banks to their final destination. According to Swift data, 84% of all payments on the network are conducted directly or with a single intermediary.

The G20’s plan for enhancing global payments recognizes the importance of these transactions in the global economy’s growth and the “and how necessary industry-wide collaboration is to achieving tangible improvements,” Swift chief strategy officer Thierry Chilosi said in the news release.

Fintech partners

In addition to boosting the speed of transactions on its network, Swift has also moved to forge or enhance partnerships with ascendant fintechs. For instance, in September 2023, Swift joined forces with the UK’s Wise, one of the world’s most prominent fintechs in the payments segment. Unlike many of its peers, Wise was able to reach profitability early on, carry out a successful IPO and stay in the black while gradually growing its global footprint.

Under the agreement Swift and Wise reached, financial institutions will be able to route Swift payment messages directly to Wise Platform, the UK firm’s infrastructure solution for banks and major enterprises. This tie-up will likely be helpful to banks it that it will not require the embedding of technology incompatible with legacy infrastructure while allowing them to leverage the vast Swift network. Wise foresees this partnership with Swift as “making international payments more convenient, faster and lower cost for banks, without necessitating a major tech build,” Steve Naudé, managing director of Wise Platform, said in a news release.

For his part, Swift’s Chilosi said that “our collaboration with Wise illustrates how Swift can be the bedrock from which the whole industry can innovate.”

Then in Oct. 2023, U.S.-based payments and financial technology provider Fiserv joined the Swift Partner Program as a platform partner. This move will allow Fiserv to enhance support for Swift gpi and provide better API connectivity for cross-border payments. The combination is a good one: It marries the breadth of Swift’s network and the strong trust it enjoys in the global financial community with Fiserv’s global technology footprint.

Web3 and CBDCs

Looking ahead, we expect Swift will accelerate its involvement in the emerging area of Web3 payments and central bank digital currencies (CBDCs), even though it is still uncertain that blockchain-based transactions ultimately offer enough benefits over traditional payments to warrant the additional investments in infrastructure.

In June 2023, Web3 services platform Chainlink and Swift announced that they would be working with dozens of financial institutions to test how they can connect with multiple blockchain networks. Among the participating financial institutions have been BNP Paribas, BNY Mellon, The Depository Trust & Clearing Corporation and Lloyds Banking Group. While Swift said that the experiments clearly demonstrated that its infrastructure “can provide that central point of connectivity” for the whole financial ecosystem, questions remain about regulatory clarity on tokenization.

With regards to CBDCs, Swift said in September 2023 said that three central banks/monetary authorities – including the National Bank of Kazakhstan and Hong Kong Monetary Authority – are beta testing its solution for interlinking CBDCs while 30 financial institutions are experimenting with the solution in a new sandbox. Swift is concerned that current CBDC development in different countries could lead to fragmentation and thus has prioritized ensuring interoperability.

Thus far, much of the hype about digital fiat currencies has yet to translate to anything concrete, but we believe that Swift wants to ensure that it is not at a disadvantage if global adoption of CBDCs were to accelerate. To that end, Swift will be closely watching the progress of the mBridge project of the Bank of International Settlements (BIS) and the central banks of mainland China, Hong Kong, Thailand and the United Arab Emirates. MBridge’s most recent milestone occurred in January when the UAE made its first cross-border payment using the system.

According to China’s Digital Currency Research Institute (DCRI), mBridge transactions take seven seconds and cut cross-border payment costs by 50%. Some of the project’s boosters even claim that if adopted, it could cut out correspondent banking altogether.

While the speed and cost of mBridge transactions seem impressive, the project remains in a pilot phase, and any cross-border payments network that excluded the US dollar would likely face serious limitations.