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SWIFT’s evolution in digital trade: Balancing trade API-ness?

How is SWIFT’s own digital trade evolution progressing? Will corporates, banks and vendors be on board and does the organisation risk competing with itself? TXF looks to history and asks more questions than it can get answers to at the moment. Will a pivot toward APIs be an answer in trade?
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It’s been a busy summer for followers of SWIFT – the Society for Worldwide Interbank Financial Telecommunication. On 12 August SWIFT published an information paper on digitising international trade which speaks volumes about the bank-owned organisation’s view of its part in digitising global trade. According to the report, SWIFT ‘digitised more than $2 trillion in documentary trade’ in 2020 and despite the drop in physical global trade last year amid the pandemic, had a 72% rise in the use of its own digital trade channel (corporate to bank). But how is SWIFT’s own role evolving in what it calls the need for the ‘now and how’ of trade digitisation? Is it ultimately going to be competing with itself or its member banks in trade? Where is the strategy heading?

“Trade is a complex and large ecosystem spanning a myriad of actors, but also interactions with other products and services that SWIFT enables, such as payments and FX,” Louise Taylor-Digby, head of trade strategy, SWIFT tells TXF. “We recognise that these elements are inherently interconnected. Instead of taking a silo-ed approach, we have an opportunity to collaborate in an increasingly automated and interconnected trade environment.”

The words are bold and positive. According to SWIFT’s digitisation report: “We are transforming the SWIFT platform, expanding our capabilities beyond messaging and beyond documentary trade. We are adopting an application programming interface [API] and partnership strategy that will complement our existing assets and capabilities, and enable us to help tackle the challenges presented by digital islands that have come to characterise the trade ecosystem. Providing common services that the community has historically invested in individually, saves the industry time and money, and helps innovation to scale.”

Over the next two years, SWIFT plans to expand its capabilities to provide transaction management services, through what it calls, “a next-generation digital platform that will offer a set of common processing services that banks have historically invested in individually. This is part of our vision to make business frictionless, unlock the power of richer data, and offer important benefits for trade.” 

According to SWIFT, the new platform, which is ISO20022 compliant, will facilitate both Message Type [MT] and MX messaging [MX is the XML-based replacement for MT messages], and will support the use of APIs. “The platform offers the agility needed to work in a trusted, standardised manner across different channels, depending on the community's needs; while ISO20022 and APIs which are both important enablers for interoperability, play a key role in our vision to create an ecosystem of value-added services and partnerships, around our standardised, scalable, and interoperable platform.” 

Meanwhile, in the messaging and documentary trade space, also in August, several fintechs including Finastra and Surecomp were given accreditation for SWIFT-ready compliance. Warning – this is going to get a bit acronym heavy. This is in the runup to the 21 November deadline for banks and companies making guarantee and standby letters of credit (LC) transactions via SWIFT’s digital ‘trade envelope’. This deadline concerns the latest update of the MT standards (and most trade related MTs start with a (Category) seven) including MT 798 financial messaging standard release 2021. That trade envelope including MT 798 is the corporate to bank documentary trade channel that had that 72% increase last year. [Note too that FileAct and MT 759 messages were made free for six months in the height of the pandemic to facilitate LC presentation].

Lessons from the past?

SWIFT’s own history with digitising trade (or at least advancing less paper-heavy trade finance) has taken it down certain cul-de-sacs, a word that sounds nicer than dead ends. Its Trade Services Utility (TSU), the matching application that underpinned the Bank Payment Obligation (BPO), SWIFT’s own attempt at an alternative instrument for trade settlement, is but a memory, albeit an expensive one, that was discontinued in December 2020. Observers of the TSU project note that it was not fully digital (more a smart contract solution), and was not driven by what corporates wanted (they weren’t consulted) and banks actually wanted/needed (though a lot of vested interests were at play in its evolution and ultimate demise).

The BPO itself does continue robustly in certain markets (notably Japan, Turkey and Germany where it principally meets the needs of large suppliers along certain supply chains). “TSU was the Betamax option to the VHS, and arguably a concept before its time,” says one observer who does not want to be named. “But you can’t blame SWIFT for its failure, that was down to its members, and the rules governing TSU were too specific to it. SWIFT has largely ignored trade since [they announced TSU’s demise].”  

That latter is too harsh, and with David Watson (formerly of Deutsche Bank) as chief strategy officer since last summer and Taylor-Digby leading trade strategy at SWIFT since January 2020 (and sitting as vice-chair of the ICC Banking Commission since August 2021), the momentum seems positive. SWIFT asserts it is revamping its strategy with a vision for complementarity and partnership in its approach to digitisation. Tellingly, in the conclusion of SWIFT’s digitisation report, there is an oblique reference to the past: “What role will [SWIFT] play? The challenge before us in digitising trade is not to build another closed-loop trade platform. History has shown us that such an approach does not work. Trade digitisation is not about domination; but rather it is about collaboration and interoperability, which can be enabled through common standards and legal harmonisation. Technology is an enabler, but technology alone is not enough.”

Nonetheless, a lot of constituent banks in the SWIFT network have been, and continue to be, investing in closed loop trade platforms.

APIs in treasury…and trade

APIs are certainly a major part of SWIFT’s tech strategy to engage corporates. In July, in the treasury/cash/payments world, SWIFT launched SWIFT Go for SMEs and consumers to enable small-ticket cross border payments and, importantly, a payment pre validation service in real time through APIs via its Global Payments Initiative (gpi). The first platform release of SWIFT’s global payment API platform is a while away though – slated for November 2022. Can gpi be a useful parallel for SWIFT in the trade universe?

Making digital trade reassuringly boring is part of the appeal for end users – banks and corporates, and creating a more appealing (in terms of being both cheaper and simpler) offering for corporates in particular, not simply for large multi-banked multinationals, would be a bonus. For the most part, corporates are really not that excited (to be fair, they don’t really care) about the trade tech to connect to their banks and how it’s done, more that it will be easy, cheap, transparent, secure and timely. SWIFT has a wide network of banks connected to it, but significantly fewer corporates, and those, particularly the ones that are using the digital trade envelope, are often large multi-banked multinationals using it via corporate platforms and banks.

It’s complicated out there in the MT vs API debate

The mood music in the trade industry is that use of APIs are the future for trade, but these are early days. Ultimately there are still quite a few unanswered questions. If SWIFT makes a major pivot toward APIs for trade, where will documentary trade messaging end up and how is SWIFT’s approach compatible with those closed-loop blockchain systems that member banks are spending money on too? How commercially viable is SWIFT’s strategy for itself and its members? Does SWIFT need APIs in trade, and more challengingly, do trade APIs need SWIFT? Who will be setting the standards for APIs – will it be the ICC/Digital Standards Initiative (DSI), the banks, SWIFT itself?

Payment APIs are one thing, and that space is certainly busy. Trade APIs are a more junior beast altogether, they are very new and very few, developed by larger banks and fintech vendors. How APIs could work in collaboration with SWIFT and ERP providers (using fewer, more simple user fields in language-independent data formats such as JSON rather than XML/ISO) is being explored and it can make them more attractive to corporate users.  

Banks and others have invested in trade blockchain networks such as Contour (which started life as Voltron), which could be competing with MT 798. Other APIs developed by fintechs may not run along SWIFT’s rails at all. The we.trade blockchain network backed by IBM and 12 European banks is built with layers of APIs.

Some argue that SWIFT can be a ‘neutral referee’ in cross border payments and in trade, as the APIs develop, others are less convinced. “I think the debate about SWIFT being a neutral entity is a simplistic one. It is not neutral,” says a former banker who does not want to be named.

SWIFT treads the line between the need for member banks to commercialise trade operations and the costly investments needed by banks (and corporates) to take up the trade messaging systems in full, and the fact that over time, documentary trade is falling as a proportion of overall trade. “In many instances, MT 798 works for big branches of banks but perhaps not for smaller branch offices, and MT 798 is still relatively immature in terms of standards,” says the former banker. Banks are also investing in APIs, but they are not a money maker per se in terms of corporate trade.

“MT 798 is technology that is available here and now – it works, so workflow and communications improve – does it capture everything? No. Does it do the majority yes,” says the former banker, noting that MT 798 also doesn’t capture the document presentation element of trade, so it’s not fully digital. “It’s been growing as corporates and tech providers have been using it to communicate to banks.”

For sure, APIs will compete with MT 798, but not at volume yet. MT Category seven trades are not going anywhere fast. After all, some companies are still using EDI/EDIFACT from nearly 40 years ago (some are still using red wax to seal paper trades, but that’s another discussion!). The former banker argues that API standards need to be controlled by banks. There is an argument that SWIFT is a community for banks. Nonetheless, there are a lot of APIs that do not connect to SWIFT and also APIs in the consumer world that also don’t need to connect to SWIFT. “Do banks want SWIFT to be the publisher of standards (even if it wanted to) – my feeling is no, the banks should control their own standards,” says the former banker. No surprise there, then. DSI may well be the appropriate neutral venue to help steer standards, if not own them.

To avoid creating more silos the technologies need to be able to speak to each other, to be secure enough to protect data, to adhere to global legal standards and, finally and, perhaps more challengingly, to know at what point ownership is transferred, who is legally liable/accountable for the transaction at any stage. That last bit is still the stinger.

The trade world is still a very big place. The argument does not have to be binary, more another ‘yes, and’ one. Leaving the last word to Taylor-Digby: “Today, SWIFT facilitates more than $2 trillion in global documentary trade a year, enabling standardisation and interoperability between thousands of banks, as well as corporates, in over 200 countries and territories that form the trade community. Our strategy, as well as our core assets and capabilities – data, standards, identity, interoperability and trust –  allow us to further tackle frictions in documentary trade and beyond.” Continue to watch this space.

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