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A SWIFT note on remittances

A final note on remittances and I've already been taken to task by one reader, who points out that a 'migrant worker' in one country is another country's customer overseas.

This is a key point for some banks, as they enable their customers to migrate and have full financial services whilst working overseas.  That's an opportunity for some …

However, as I responded, the point of workers' remittances in this migrant worker context is that they are either unbanked or underbanked.  It's more about financial inclusion than banking, so it is a slightly different conversation.

And one solution for the underbanked discussed in some depth is SWIFT’s remittance services for banks. It is not surprising we discussed this in depth, as SWIFT are the premier conference sponsor.

The service focuses upon those banks that are trying to build bilateral services or using open correspondent banking services. The difficulties banks experience when dealing in such areas are all focused upon limitations in scalability, timing, price and service levels.

If you have a bilateral agreement, that’s great for the countries covered. But then, if you need to cover new country corridors, a new agreement with another bank is required. Equally, what happens if you’re only transacting four or five times a month?

A high cost for creating something that is basically unused.

On the other hand, if you use open correspondent banking relationships there is no guarantee of service levels, and therefore pricing and processing can vary.

Hence, SWIFT has focused upon creating a technical and commercial framework to solve these issues.

The framework covers everything from the terms and conditions of correspondent bank contracts to best practice rules and procedures to the messaging standards and services based around Fileact store and forward.

There’s a little bit more to it, and you can read all that stuff over here, but the bit that interested me is that the service already has 43 participants with 14 live users including certified payments services providers, such as Wall Street Exchange.

It was stressed that non-bank payments providers are welcome to join the system and so the question came up: “but why would we use SWIFT as you are very expensive?”

The SWIFT guys immediately responded by saying that the pricing is based upon a tiered system of usage volumes, with the most expensive items being priced at €0.08 per transaction down to €0.03 per transaction for the highest volume users.

“That’s reasonable”, came the reaction from the PSP, “is that all of the pricing?”

“Urm, there’s an annual fee of €1,000 to use the SWIFT directory of all participant’s reference data”, the SWIFT guys replied, “and, other than this, that’s about it.”

I think they won over a few more participants this week.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • The fundamental design/solutioning question is whether remittances should be approached by stretching international payments systems, or by extending domestic systems.
    The transaction pricepoint in the remittances market is (arguably) about $5.
    SWIFT is usually linked into the bank’s international payments systems, which have lower scale than their domestic systems, making hitting that kind of pricepoint tough. Correspondent banking was never designed to serve low value payments.
    The alternative model works by interlinking bank’s domestic systems – which operate on a far lower cost/transaction model – through a single global processing centre – in effect a global utility. Indeed, some banks have begun rolling out this alternative approach, sourcing the global clearing from an established third party.

  • Annabel Sykes

    Having a properly functioning infra-structure and affordable fees are obviously vital. However, regulation can impose significant hurdles, especially for the “customer overseas” model you mention. One regulatory model protects a particular country’s nationals, while another protects those present in a particular country (even temporarily). No doubt there are other models. So, if the overseas customer is in a country with a “protect those in this territory” philosophy, the financial services provider in the customer’s home country with a “protect the nationals” approach has two regulatory regimes to comply with. EEA passporting deals with this to some extent, but (for example) the UK’s financial promotion regime and its implementation of distance selling legislation causes significant difficulties for non-EEA providers seeking to service their UK-based overseas customers. This does not make sense in cases where the customer’s home country legislation provides adequate protection to the customer even when the customer is abroad.

  • The big issue with Workers’ Remittances from SWIFT is that it only provides for a “Western Union” style of service ensuring that the banks are “me too” instead of leveraging a complete solution to address both senders and beneficiaries.
    Using the mobile phone number as a Global User ID allows banks to cover the last mile as it allows for the discovery of beneficiaries, communication directly with the beneficiary, and, in the end game, the one-time transfer of the burden of providing settlement details from the sender to the beneficiary. Subsequently, by moving these transfers to a Straight Through Process, banks compete on both price and service instead of providing consumers with what they can already do through other MTO’s.