A conversation with Christian Westerhaus, Global Head of Clearing Products, Cash Management, Deutsche Bank.

What are the correspondent banking issues SWIFT gpi is attempting to overcome?

One of the key challenges that SWIFT gpi overcomes is the lack of tracking and traceability capabilities when transacting cross-border payments.

Corporates have long lamented their inability to track the status of cross-border payments, which can lead to poor predictability over cash flows and complications with suppliers if a payment is not received. From the correspondent bank’s perspective, this lack of visibility results in more time and resources being allocated to handling investigations and complaints.

In addition, before SWIFT gpi, correspondent banks could not effectively offer full visibility over transaction charges and FX rates applied. Typically, charges applied by a bank would have been deducted from the original transaction amount – thereby creating a challenge for corporates when reconciling received and invoiced amounts. FX fees, meanwhile, became obscured in cumbersome transaction chains, leaving corporates uncertain about a transaction’s cost. So, while correspondent banks have invested significant resources to enhance cross-border payments for financial institutions and corporates, the advent of SWIFT gpi acknowledged that there was still room for improvement.

To your mind, how successful is SWIFT gpi in overcoming those pain points?

In my view, SWIFT gpi could potentially solve many of the payment industry’s pain points. It effectively connects all parties in the payment chain of the correspondent banking ecosystem, leading to operational efficiencies and better client service. The standard thereby increases the speed, simplicity, convenience and transparency of payment services, which in turns is making payments effortless – while encouraging better client relationships and attracting more business, as clients (it is hoped) will choose to route higher volumes of payments via SWIFT gpi-enabled institutions.

What has been the corporate response to SWIFT gpi at Deutsche Bank to date?

Deutsche Bank went live with its USD gpi services in October 2017, followed by EUR gpi services a month later. By default, we enable SWIFT gpi for high-value commercial payments in these currencies, provided the next bank in the payment chain is also live with SWIFT gpi.

Thus far, the response has been positive. In particular, the Bank has complemented SWIFT gpi with its existing client services. For instance, SWIFT gpi payment information is available in the Bank’s online platform, allowing the client to view a payment’s status almost instantly. Similarly, payment investigations can be conducted in this way, too. The Deutsche Bank investigator can quickly check the payment status via the gpi Tracker – and provide details of the credit to the beneficiary’s account at the beneficiary bank. All this can be achieved in a matter of minutes, rather than days.

How close is the industry to achieving the critical mass of adoption for SWIFT gpi/realising the full benefits?

To date, the uptake has been steady, but more can be done. By nature, making the standard near-universal will be the best outcome for the payment space. Of course, there are limitations because of the resources needed to become SWIFT gpi-ready. But as increasing numbers of institutions go live, it is hoped that those banks currently on the fence will see the benefits.

Should the onus for encouraging more banks to sign up for SWIFT gpi be more on banks or corporates?

The onus for encouraging banks to become SWIFT gpi-ready should fall on the banking community –after all, it is a zero-sum gain. Indeed, global clearers such as Deutsche Bank also have a responsibility to promote awareness in the market. As part of the initial gpi Vision Group (10 largest transaction banks) this is exactly what we are doing. That being said, pressure from corporates is pushing everyone in the right direction, too. Last year, six leading Swiss corporates signed an open letter declaring support for further SWIFT gpi adoption by financial institutions. Of course, this pressure can be persuasive. Banks may find that corporate clients gravitate towards banking partners that can provide SWIFT gpi-enabled services.

Do you foresee blockchain disruptors such as Ripple challenging SWIFT gpi? Could we even see this in 2018?

There is little doubt that disruptors such as Ripple are in the market to try and win a slice of the cross border payments transfer market. However, challenging gpi and replacing gpi, which has also been widely discussed, are two different things. Replacing the current Correspondent Banking model with blockchain / distributed ledger technologies (DLT), is unrealistic, certainly in the immediate future. Two issues need to be considered here; reach and applicability. In cross-border payments the most important aspect is reach. Even the best technology is useless without it.

Furthermore, one should not forget that the current model has a proven track record certainly in terms of stability, trust and reach and standardisation. Yet, it can be optimized. This is the beauty of gpi as it combines the network and innovative technology to provide a better cross-border payments experience to the industry as a whole.

Blockchain /DLT can though play an important role in the future in terms of further optimisation and this has recently been demonstrated by SWIFT itself in collaboration with banks. Indeed, a number of banks, including Deutsche Bank, took part in a recently concluded Proof of Concept (PoC) for Nostro Reconciliation utilising a private permissioned blockchain in a closed user group environment. The results showed that DLT could indeed provide the functions needed for Nostro account reconciliation, including among others „real-time event handling”, transaction status updates, full audit trails, visibility of expected and available balances.

That said, we are still in the early stages in terms of general applicability of blockchain / DLT in relation to payments. Indeed, there are a number of issues that need clarification certainly in terms of governance and legal framework which all takes time.

How does Deutsche Bank monitor/assess correspondent banking disruptors such as Ripple?

Deutsche Bank is constantly monitoring the market and developments. As such, we are in dialogue with banking disruptors but will only engage where we see long term benefits not only to ourselves as an institution, but more importantly, for our clients. As a leading USD and EUR clearing provider[i], clients expect us to actively steer these future market development discussions.

[i] According to SWIFT Watch Traffic: https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/watch-traffic