Retail cross-border infrastructure to
support international remittances –
the role of SWIFT
WorldBank, Washington, 30 May 2007
Michael Whyte
Payments Market Group
Banking Industry Division, SWIFT
WorldBank_Workers'_ Remittances_0507_v2
Slide 1
REMITTANCES
-
background

SWIFT2010 initiative

In 2006 objective to “explore”

Ad-hoc working group formed
–
Two meetings held – April and September 2006
–
Outlined business case and industry requirements: “Multilateral
Framework Approach”
–
Two papers presented to December Board:
–
IR 427: Workers’ remittances research and consultation report
–
ER 1010: Workers’ Remittances Advisory Group: Terms of Reference

Advisory Group composed in 1Q 2007

First meeting held on 30 March 2007
WorldBank_Workers'_ Remittances_0507_v2
Slide 2
ISSUES &
REQUIREMENTS
- SWIFT based P-to-P payments
Issues
For Consumers:
• Lack of price transparency
• Uncertainty of value date
• Too Complex
For Banks:
• Hundreds of market practices
• Low STP
• High processing costs
• Settlement uncertainty
• Low levels of scalability
Proposed Solutions
MUTILATERAL FRAMEWORK
APPROACH
Comprising
1.
2.
3.
WorldBank_Workers'_ Remittances_0507_v2
Market practices
Messaging standards
Technical architecture
For
Authorisation, clearing &
settlement of cross border,
consumer-to consumer
payments
Expected Results
For Consumers:
• Price-transparency
• Value date certainty
• Ease of use
For Banks:
• Clear market practice
• High scalability
• Settlement guarantees
• High STP rates
= Lover costs
Slide 3
SWIFT ROLE
 Facilitate
definition of standards and usage
rules
 Facilitate
the definition of clearing and
settlement market practice
 Design
the common messaging platform for
clearing and settlement
 Design
enhanced messaging solutions (e.g.
message copy) for the clearing and settlement
WorldBank_Workers'_ Remittances_0507_v2
Slide 4
PRODUCT APPROACH
Two generic product groups identified.
Both required, but are separate services from a
technical and business model perspective.
Model
Main product group
BILATERAL
ADDRESSED
Correspondent
Banking
Payment is addressed to specific
disbursing institution
MTO
CPA
(Cash-payout anywhere)
Money Transfer
Operators
Payment is not addressed to
specific disbursing institution
Product variants
Urgent
Pmt
Urgent
Pmt
Non-urgent
High valueadded options
Non-urgent
High valueadded options
Premium
WorldBank_Workers'_ Remittances_0507_v2
Normal
Normal
Commodity
Slide 5
TRANSACTION
FLOWS
Ordering
customer
Sending
Banks
“Addressed”
Settlement
Banks
Disbursing
Banks
Beneficiary
customer
Product sets + processing capability
Pretransaction
Authorisation/
Initiation
Handling Charges + FX rate info
Quote
Authorize
Issue UTIC
Private message + UTIC + time available
Clearing &
Settlement –
Disbursement
File Header Y-copy batch pmts
UTIC + Pay Cash
Credit A/c product
Where’s the money?
Postsettlement
UTIC
Status report
WorldBank_Workers'_ Remittances_0507_v2
Processing Status Reports
Rejects / Returns
Slide 6
TRANSACTION
FLOWS
Ordering
customer
“Cash Payout Anywhere”
Sending
Banks
Settlement
Banks
Disbursing
Banks
Beneficiary
customer
Product sets + processing capability
Pretransaction
Authorisation/
Initiation
Handling Charges + FX rate info
Quote
Authorize
Issue UTIC
Private message + UTIC + time available
Txn Search
Clearing &
Settlement –
Disbursement
Txn upload
Txn download
UTIC + Pay Cash
Where’s the money?
Postsettlement
UTIC
Status report
WorldBank_Workers'_ Remittances_0507_v2
Processing Status Reports?
Returns
Slide 7
ARCHITECTURE
REQUIREMENTS
-
gap analysis
Lifecycle
Requirements
Gap analysis
To develop
Pretransaction
Product Reference Data: means to communicate
products handled, handling charges, and processing
time capability
Foreign Exchange Rate Data: means to communicate
guaranteed execution rate for given time period
To develop
Authorization
Unique Transaction Identifier Code: standard to
generate UTIC at Point of Service.
Needs to be “user-friendly”: customers will need this for
authorization and track and trace purposes.
Clearing &
Settlement
Messaging Standards: ISO XML Credit Transfer
Messaging Services: FileAct Store & Forward
Enhanced FileHeader:
FileHeader Y-copy: multiple central settlement agents
CPA capability: transaction management application
Usage rules
Available
In development
In development
To develop
Postsettlement
Track and trace: processing status reports
Reject/returns: file copied to settlement agent
WorldBank_Workers'_ Remittances_0507_v2
To develop
Usage rules
Usage rules
Slide 8
WHERE
ARE WE?
“Explore”
Board
approval
WRAG
set-up
PHASE
Here
Market research
Market validation
Concept development
Detailed definition
of market practice
& architecture
Bank/Vendor/Regulatory
+ pilot agreements
Concept validation
Solution design
Solution design
validation
Solution build
Pilot
Commercial roll-out
2006
WorldBank_Workers'_ Remittances_0507_v2
2007
2008
Slide 9
QUESTIONS?
WorldBank_Workers'_ Remittances_0507_v2
Slide 10
MARKET
Financial flows
Recorded:
Unrecorded:
facts & stats
USD 250 billion
USD 125 billion
International migrants
200 million worldwide
Consumer reach
Directly and indirectly the market touches
650 to 800 million consumers
Transactions
800 million cross-border transactions in 2005,
based on recorded flows only
Revenues
USD 15 billion in transaction related revenues
Market share MTO’s
Over 20%
Market share banks
20% to 30% collectively
Market share SWIFT
Less than 10%
WorldBank_Workers'_ Remittances_0507_v2
Slide 11
CUSTOMER VALUE
PROPOSITION
Price
Transparency
-
service implications
-“If I pay you $100, how many Rupees will be delivered?”
- End-to-end price transparency is essential
- Banks want choice to offer fixed or floating rate services.
- To offer fixed rate, sending bank needs to know disbursing banks
handling charges and FX conversion rate before txn initiation
Guranteed
Execution
Timeline
-“When will the money be available?”
- Reliable value date to beneficiary is essential
- Sending Banks need to know Receiving Banks processing capability/
SLA’s before txn initiation
Ease of use
- Payment initiation: data required from client needs to be minimal
- Track and Trace required: Disbursing Bank needs to keep Sending
Bank informed of processing status
WorldBank_Workers'_ Remittances_0507_v2
Slide 12
WRAG
OBJECTIVES

-
IR 427 fully supported
Customer value proposition: fully supported
– Price transparency
– Guaranteed execution timeframes
– Ease of use

“Multilateral framework approach”: fully supported
– Very tightly defined market practices
– Technical architecture to exchange authorisation, clearing and
settlement information

Business ambition: realistic and achievable
– 10% share increase
WorldBank_Workers'_ Remittances_0507_v2
Slide 13
MARKET PRACTICES
& ARCHITECTURE
-
WRAG key agreements
Market practice
Charging
practices
- Single message standard
- Tight, unambiguous rules
- Unique Transaction Identifier Code (UTIC)
- Means to communicate processing capabilities, SLA’s
- OUR charge convention only
- No lifting fee’s
- Means to communicate handling charges and FX rates
Settlement
practices
- Competitive settlement space
- Limited no. of settlement currencies (USD, EUR priority, maybe GBP)
- Gross settlement of payments + charges
Product
rules
Architecture
Addressed
Products
Cash Payout
Anywhere
- Syntax: ISO 20022 XML Credit Transfer + related messages
- Messaging service: SWIFTNet FileAct + Header + Copy
- Implementation: Remittances Closed User Group
- Refine customer requirement specifications
- Develop functional specifications
- Business case (build, buy or partner analysis)
WorldBank_Workers'_ Remittances_0507_v2
Slide 14
2006 WORKING
GROUP PARTICIPANTS
ABN Amro
BBVA/Bancomer Transfer Services
Citibank
Crédit Agricole
DZ Bank
Equitable PCI Bank
HBOS
ICICI Bank
ING Postbank
SIA
Standard Bank of South Africa
Turkiye Garanti Bankasi
WorldBank_Workers'_ Remittances_0507_v2
Netherlands
United States
United States
France
Germany
Philippines
United Kingdom
India
Netherlands
Italy
South Africa
Turkey
Slide 15
WORKERS’ REMITTANCES
ADVISORY GROUP
Banco do Brasil
Brazil
Bank of New York
United States
BBVA
Spain
Citigroup
United States
Deutsche Bank
United States
Equitable PCI Bank
Philippines
ICICI Bank Ltd
India
Intesa San Paolo Spa
Italy
La Caixa
Spain
Société Générale
France
Standard Bank of South Africa
South Africa
Standard Chartered
Singapore
Swisspost
Switzerland
WorldBank_Workers'_ Remittances_0507_v2
Slide 16