SWIFT Payment Pre-validation: Streamlining Cross-Border Transactions

SWIFT Payment Pre-validation: Streamlining Cross-Border Transactions

The field of cross-border transactions has always been complicated and faced with constant alterations as a result of ever-changing regulations, various currencies, and different banking systems in play. SWIFT (Society for Worldwide Interbank Financial Telecommunication) has long been at the forefront of supporting these transactions by connecting thousands of banks and financial institutions around the world. The recent introduction of the SWIFT Payment Pre-validation service aims to further revolutionize cross-border transactions by increasing end-to-end efficiency, reducing errors, boosting the pace and improving the overall experience of the end customers.

What is SWIFT’s Payments Pre-validation Service?

SWIFT developed a new service called Payment Pre-validation service which is an innovative solution using an Application Programming Interface (API) that allows financial institutions to verify the accuracy of the account details of the beneficiary, prior to initiating an international payment. SWIFT collaborated with financial institutions worldwide to improve the pre-validation service and will continue to do so to keep enhancing the capabilities of the service. The Payment Pre-validation service promises to eliminate transaction frictions with upfront account verification and to reduce the risk of delays, additional fees, and potential disputes arising from inaccurate or missing information. By conducting these checks in real time, banks can ensure a smoother transaction experience for their customers.

What Changes are Introduced in Pre-validation Service?

SWIFT’s new service introduces several key changes designed to enhance the cross-border payment process including real-time payment information validation, BIC (Business Identifier Code) verification, pre-defined error codes and data quality enhancement.

  1. Real-time validation of beneficiary account details: The pre-validation service allows banks to verify the beneficiary’s account details in real-time, such as the account number and bank identifier code (BIC). This helps prevent waste of time and failed transactions due to incorrect information.
  2. Verification of the receiving bank’s SWIFT Business Identifier Code (BIC): By ensuring that the receiving bank’s BIC is accurate, the pre-validation service aims to reduce the possibility of transactions being delayed or going to the wrong addresses.
  3. Standardized error codes: By setting specific error codes that are pre-defined to be detected easily and quickly, the pre-validation service builds a standardization in identifying problematic transactions before initiating the payment.
  4. Enhanced data quality: As the payment data gets more standardized and structured, the overall data quality enhances because financial institutions are able to process data and settle the transactions more easily.

 Why is SWIFT’s Payments Pre-validation Service Needed?

The challenges of cross-border transactions are still affecting the payments industry negatively by causing delays in payments, disappointments in customer experience, and escalations in operational costs for the financial institutions. The SWIFT Payment Pre-validation service addresses these challenges by streamlining the payment process, reducing the risk of errors, and ensuring a smoother experience for all parties involved. The contribution of this service is invaluable in the digital age where the global economy is growing bigger than ever because of the technological enhancements and the international transactions are increasing in line with this growth.

In addition to improving the customer experience, the pre-validation service also benefits banks and financial institutions in several ways:

  1. Operational costs are minimized thanks to the standardization brought by the service which reduces the costs spent for manual intervention and other operational workload spared for errors.
  2. Pre-validation and real-time verification features of the services enable FIs to detect and mitigate potential risks related to: fraud, financial crimes and compliance issues enhancing the overall risk management process of the entity.
  3. By minimizing the need for manual interventions in the payment processes and validating the transaction data accurately, the pre-validation service provides an improvement in the straight-through processing (STP) rates.
  4. The financial institutions can enjoy increased trust and loyalty from their customers as a result of their increased efficiency, reliability and service quality.

Which Bank is the First to Introduce SWIFT Pre-validation Service?

HSBC is the first bank to launch SWIFT Payment Pre-validation service for its customers in the UAE by introducing real-time checks to match beneficiary names. The initial adaptation of the service covered the inbound payments for both retail and business customers. Then, the pre-validation service was extended to the business banking platform of HSBC which is the HSBCnet for the validation of cross-border payments made to HSBC UK beneficiaries.

 What Does Lie Ahead for SWIFT Payment Pre-validation Service?

As the pre-validation service continues to prove its beneficial effect in the global payments industry, it is anticipated that more banks and financial institutions will begin to adopt this innovative solution sooner than expected. The widespread implementation of SWIFT’s Payment Pre-validation service can lead to significant improvements in the global financial landscape, as cross-border transactions become more streamlined and efficient.

Several developments are likely to emerge in the near future as the adoption of the pre-validation service grows:

  1. Greater expansion of the service: As more financial institutions recognize the value of the pre-validation service, its adoption is expected to extend across various regions and markets. This will cultivate a more interconnected and efficiently working global financial ecosystem.
  2. Integration with other financial technologies: As the technological enhancements in the financial industry proved their efficacy, the SWIFT Payment Pre-validation service may be integrated with other emerging technologies, such as artificial intelligence (AI), machine learning (ML), distributed ledger technology (DLT), and real-time payment platforms. Such an integration can further boost the productivity, safety, and transparency of cross-border transactions.
  3. Regulatory reinforcement: As the support of the pre-validation service for fighting with the financial crimes is evident, the regulators might find it logical to encourage or even mandate its adoption for the financial institutions for the purposes of strengthening compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. Regulatory reinforcement can promote the implementation of the service extensively, leading to a more resilient and secure financial system.
  4. Positive competition among banks to improve customer experience: As the rates of adoption of the service increase among the banks, the customers will come to expect a frictionless cross-border payment experience as the industry standard. This can lead to greater competition among banks, as they strive to provide the best possible service to their customers.

The SWIFT Payment Pre-validation service has a great potential to revolutionize the cross-border payment landscape, making transactions faster, more predictable, and more efficient for both banks and their customers with enhanced fraud detection and standardized data features. As more financial institutions adopt this groundbreaking technology, the global financial system is likely to become increasingly united and safe which will impact international trade and economic growth in the near future in a constructive way.

Serkan Arslan, CAMS, Sales & Business Development Director