The digitalization and application of new technologies to the development of financial services are revolutionizing the way people relate to their money. Not only in Argentina, but in the world, the bureaucracy of the bank branch is being replaced by two or three buttons in a cell phone application.
Fintechs, being more innovative
While banks are innovating towards a better customer experience, fintechs, technological companies dedicated to financial services, are offering new ways to make people’s lives easier by providing credit, investment or payment products in a more agile way. and economic
However, in the area of foreign trade it would seem that this technological revolution is not reaching it, since for decades international banking transactions always end up in the same place: the SWIFT system.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is an organization that has developed a system for exchanging encrypted messages for international communication and transfer of funds. Currently this system is the most used for sending transfers between countries, not only in large volumes but also for small amounts; in other words, both the payment of a foreign trade operation and a family aid go through SWIFT. However, it is an expensive, slow and anachronistic system.
Is it expensive?
It is expensive, because SWIFT works with correspondent banks and intermediaries that carry the message to its final recipient and each bank charges a commission (in addition to the commission of the bank that issues the transfer) for performing this management. It is slow, since a transfer, due to the intermediaries and the opening and closing hours of the banks involved, may take a week to reach its destination, which goes against what the client is looking for in the era of digitalization and immediacy. It is anachronistic, since the first SWIFT message was sent in 1977 (42 years ago) and since then it has grown to become an organization present in more than 200 countries and with more than 11,000 partners connected, according to its website.
In addition, SWIFT messaging traffic is controlled mainly by US banks, mainly due to the need of the system for the presence of correspondent banks in the US market. This makes it almost exclusively the only country that can block an international transfer and has all the information about the hundreds of millions of dollars that are transacted every day at a global level.
In Argentina, for example, both the payment of imports and the collection of exports are made through SWIFT
With the exception of a few cases, the transfers always go through an American bank, the commissions that are charged are percentage on the value of the transfer (with a maximum, fortunately) and, in general, take between 48 and 72 hours, with the operational delays that implies.
Some fintech have developed alternative payment systems
Mainly for individuals and at low amounts, but although in the eyes of the customer the money is not sent by SWIFT, deep down it always goes through there. The model is that fintech opens accounts in several countries or is associated with a local partner. A customer who wants to send money to another person abroad transfers the amount of the transaction and this delivery of an account from his / her account in the country of destination to the final beneficiary to a fintech account within the country of origin. In this case there were simply two local transfers, but there was never an international transfer as it might have seemed to the person who sent or received the money. The transfer by SWIFT appears when the company has more operations in one direction than the other: sooner or later you will have to make a cash compensation with a bank transfer via SWIFT.
Another alternative to solve the pitfall of SWIFT are cryptocurrencies
However, the viability in its use for international payments is very questioned due to three factors: first, the use that is given for speculative and savings purposes, and not transactional as originally thought; second, the volatility in its market value due to the variability of its supply and demand; third, the anonymity and the impossibility of applying regulatory and compliance controls. In addition to all that, it is added that the blockchain technology is still being explored. It is not a closed road, but it must continue to evolve.
Some regions have developed some parallel systems, such as IBAN in Europe or others that have been created in China or Russia. However, today, and despite the growth and technological evolution in financial and banking matters, it seems impossible to avoid SWIFT.
Maybe SWIFT is not the problem
But has not been able to evolve fast enough to find a model that allows to offer faster and cheaper services that bring it closer to the times. Perhaps in the near future we can consider SWIFT as a fintech, although its origins are quite different than the technological companies of the 21st century.
Nowadays fintech and technology allow the international transfer of money at low cost and relatively fast, but always talking about individuals and low amounts. With regard to the volumes of international trade, the costs and times of banking operations will remain, for a while longer, a factor to be taken into account when evaluating an import or export project.
Also published on Medium.