The financial messaging service provider, SWIFT, introduced a new financial service called Payment Pre-validation in July 2021 that improves cross-border real-time payment validation by minimizing frictions, verifying the information beforehand, and reducing the cost stemming from errors or misinformation.

The real-time API-based system of Payment Pre-validation service enables banks to check whether the beneficiary account data matches with the receiving banks before making the payment. Additionally, this system supports initiating banks to confirm beforehand if they entered the correct information in their payment instructions or if the entered data is in line with the prerequisites of the country of destination.

The Payment Pre-validation service increases predictability and reduces time and cost greatly. It is now possible to pre-validate whether the beneficiary’s account is open, can receive money in your preferred currency and the information is correct in cross-border payments. The possibility to confirm all these details in advance or at the early phases of the payment process makes it possible to detect and prevent any issues before the transaction is completed which enables three main advantages:

• Elimination of frictions in payments
• Verification of payee information before the amount is transferred
• Reduction of the cost of data errors and mistakes in terms of volume and amount

1. Elimination of Friction

The ultimate aim and strategy are to provide frictionless and faster global payments. Together with the introduction of Payment Pre-validation, cross-border payments have moved a step further because it enables better efficiency by offering real-time validation to eliminate the frictions in global payments.

According to the data, the cost of frictions in the payments for the financial industry is over $2 billion annually which goes over 700 million transactions. Since the reason for these frictions are mostly simple errors such as entering incorrect account information, they can be easily avoided. Payment Pre-validation makes use of API technology and quality data sources for the validation of essential information before a money transfer to prevent frictions in the system.

2. Verification of Payee Information Beforehand

The pre-verification and validation of the beneficiary information before the amount is transferred is one of the most vital features of Payment Pre-validation service that allows financial institutions to conduct cross-border payments more easily, securely, and instantly. As it boosts confidence among customers because of the increased security, it eventually improves and benefits the whole financial industry by allowing the financial institutions to grow and offer better customer experiences.

3. Reduction of the Cost

The majority of the cross-border payments are non-problematic; however, the minor problematic ones occur because there is an error in the beneficiary information such as misspelling of a name or exchanging account numbers. As these mistakes are noticed in the later phases of the process most of the time, they take extra time and money to fix. With its API-based system, the Payment Pre-validation service of SWIFT solves this issue by confirming account information in between sending and receiving banks at the beginning phase of the payment process. Although there are similar systems that are currently in progress in several countries, what Pre-Validation Service brings to the table is to provide a solution in the broader sense, offering this service to all countries included in the cross-border payments infrastructure system, SWIFT.

Progress and Development of the Payment Pre-validation Service

During the development phase of the Payment Pre-validation service, SWIFT worked closely with financial institutions around the globe and some important global banks have already indicated their interest and commitment in the new service. Since its introduction in July 2021, SWIFT has been working on improving and innovating the service. Additional features such as going beyond prediction by having reference data checks based on millions of transactions at the beginning of a payment process are expected to be provided in the upcoming months.

In the upcoming years, SWIFT plans to evolve the service even further to offer real-time and frictionless payments globally by ensuring end-to-end efficiency, minimal costs and better customer experience.

PayGate™ Maestro adopts Payment Pre-Validation as upcoming service

PayGate Maestro™ is an Advanced Message Management System and provides secure, yet seamless cross-border payment messaging controls across 30 countries. Maestro acts as a powerful central application to integrate financial transactions between systems and provides users with endless development opportunities. This is due to its dynamic flow control and software infrastructure which is open to endpoint development. Payment Pre-Validation Service will be fully adopted by PayGate™ Maestro as of July 2022 to be implemented for banks and other financial institutions.

Gökçe Gence, Solution & Project Director