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Why payments infrastructures are NOT fit for purpose

At SIBOS 2004, Heidi Miller asked tough questions of the payments community.  I often refer back to her speech, particularly the statement that, in the age of the internet SWIFT, “what have you done for me lately?”

This inspired our payments survey, the results of which are now available as mentioned yesterday but, in another key part of her speech, she said the following:

“Let me tell you a story about a friend who lives in Europe and bought a boat in the United Kingdom a few years back. This gentleman is a very well-known former executive of a large global financial services company. He is eminently creditworthy. He had enough money sitting in his U.S. bank account to buy many boats. He had patiently waited months for the boat to be built to his precise specifications. He was ready and eager to take immediate possession.  When the boat was ready, he called his bank to arrange payment. And his bank told him it would take about six weeks to transfer the funds. Six weeks? Think about it: My friend could have sailed to New York, withdrawn the cash from his bank account, had a leisurely dinner, sailed back to the United Kingdom, paid for the boat, and still had time left over for a Mediterranean cruise before that funds transfer would have been completed.”

Now obviously, seven years later, this cannot be the case.

In an age:

  • where PayPal allows global payments in the blink of an eye;
  • where start-ups like Square can move from zero transactions to $3 million a day in under a year;
  • where you can wirelessly send funds anywhere in the world;
  • where African countries have moved from zero infrastructure to most of their GDP moving through mobile payment services;
  • where mobile contactless payments are becoming pervasive as Google enter the market;
  • where real-time payments are a reality in the UK through the Faster Payments Service;
  • where all of the EU’s payments are consolidated through a single ACH;

… surely, this cannot be the case today.

We must be able to organise a simple cross-border payment between two countries as banks?


Well, the answer is surely not.

Whilst the rest of the world moves at lightspeed into real-time connections between individuals, the banks languish in their hamstrung legacy past.

Why am I saying this?

Because in the last week, I’ve been asked to transfer funds from my bank account to an American colleague’s.

It should be a simple transaction, but it’s not.

The reason being that it has to be done through a direct bank transaction through the banking system.

So here’s how it goes.

I go online and try to make the payment.

My online banking service only works with UK sterling denominated transfers.  No foreign payments.

So I ring the call centre and say I want to make an overseas dollar transfer.

They tell me I have to go to the branch.

So I finally, after a few more days, find a chance to walk into  a branch.

Massive queue.

Most of the queue is paying in cheques – why don’t they use the automated machines for gawd sake – and the rest are small businesses cashing in bags of coins.

As I’m fairly impatient, I join the queue at the “Information Desk”, which is unmanned and unloved.

Finally, after about fifteen minutes, a cheerful chappie says: “yes sir, can I help?”

“Sure”, I say.  “I’d like to make an overseas payment.”

“Ah yes”, he beckons.  “Come and sit over here and my colleague will help.”

Obviously, this needs a specialist.

The specialist comes over: “What are you trying to do sir?”

“Well, I need to make a payment of $1:10 (I know) to this American bank account,” I say.  It’s just $1:10 to seal a transaction between our two businesses, but that’s another story.

“Ah well”, the specialist sighs, “we’ll need a form for that.”

He then starts tapping away on the computer.

I keep waiting for “computer says no” but after trying out five or more different forms, he finds the right one for an “American International CHAPS Payment Transfer”.

This is the same form I used to fill in a quarter of a century ago but if it works, why change it as the bank motto goes.

So we fill in the four page form and halfway through he says to me: “is this urgent or non-urgent?”

I ask him what the difference is.

“Ah well, urgent is one or two days whilst non-urgent might take a week for the transfer to take place.”

Wow! And this is in a real-time world.  Fantastic.

“Well, I’ll take urgent then”, I says.

He turns with a tut and explains that urgent is £27 ($40) whilst non-urgent is £20 ($30).

So it’s going to cost me $40 and take two days to transfer $1:10 from my UK bank account to my colleague’s American account.  Whatever.

We carry on through his form until we get to the next question: “What’s their SWIFT code”, the specialist asks.

Well, of course my colleague only gave me his bank account name, number, bank sort code and address.  No SWIFT codes.

“No SWIFT codes?” the specialist says.

“No SWIFT codes”, I respond.

As the specialist rips up the four-page form we’ve just spent half an hour completing, he tells me to come back when I have all the necessary information.

So nice to know it’s changed so much since Heidi Miller asked this question back in 2004.

In 2004, the iPhone and iPad was not even a glimmer and PayPal were still just a start up.  Facebook and Twitter were not even mapped out on the back of an envelope, and Kenya had no idea that M-PESA would represent over 20% of GDP a few years later.

Amazing the difference seven years can make, isn’t it?


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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  • tonyw

    Despite supplying our SWIFT/IBAN… codes we still have some of our US bank customers sending us USD cheques/checks by post which then are sent to our bank and into another arcane process. Of course they can send SWIFT payments for their FX trades so maybe it’s just a ploy to delay giving us our money:-)
    FWIW I find the best bank for handling non-local currencies is our Belgian bank where I can do everything on-line.

  • I know exactly what you are saying I have been doing payments between SA and UK for years and everytime its the same arduous process and random questions and forms, forms, forms!
    Western Union seem to be doing a lot to simplify and mobilise international remittance but the problem always comes down to the reserve bank ( well that’s our problem here in SA )
    Anyways imagine how hard it is for a Malawian living in SA to send money back to his family compares to a “1st world” money transfer; I have someone working for me who is in exactly that situation; for these people it is cheaper, simpler and easier to actually give their cash to someone who physically takes this cash all the way from Joburg to Blantyre! Crazy!
    Thanks for the great post BTW!

  • Chris dont despair, this is the problem that currencycloud.com is solving; in the mean time, sounds like you really need to set up an account at fxcapitalgroup.co.uk (business) and RabbitFX.com (personal)…

  • Chris, it is perhaps a little unfair to lay this at the door solely of the infrastructures – albeit Ms Miller raised it at the SWIFT conference. Most of the infrastructures don’t process payments per se, they don’t handle money and are not licensed to do so. Payments services are offered by banks and payments service providers, and in Europe they must be authorised by (or for the very small ones registered with) the national regulatory authority – the FSA in the UK – as a result of the PSD. Indeed, the PSD resulted in many ‘new entrants’ – most of which were processing payments long before the PSD, but are now regulated. ‘Correspondent banking is not fit for purpose for low value payments’ has been repeatedly stated on the conference circuit; recent market research (search for ‘Earthport and Glenbrook release payments survey results’) reinforces that. As you highlight, there are better ways to do it, and banks can adopt those methods. Infrastructures, who on the whole are owned by banks and exist to serve banks, may not be best placed to innovate, on their own.

  • Rikki

    Sorry if this is a ridiculous question, but why couldn’t you transfer the $1.10 by PayPal (or a similar non-Stone age service)?

  • Chris Skinner

    PayPal was not appropriate as this needed to be a direct bank wire transaction to prove a legal requirement.

  • Sid

    This is li’le unfair statement on the banks. I transfer funds between US, UK, Singapore and India continually. It pains me that it takes 5 wkg days for a minimal charge.I do that using my internet banking and money transfer websites like money2india, quickremit etc.
    If I want payment same day, it takes 1 day if I take li’le pain to walk to another bank and pay cash there.
    Well, over Swift it takes from 2 to 10 wkg days for the banks to transfer funds for their business customers.