As a customer, it looks like payments are becoming easier than ever. With a tap of a card or two clicks in an online store, our money can change hands securely in a matter of milliseconds. On the processing side, however, payments are getting more and more complex as customers want ever-faster transactions, and new technology must be integrated.

TFG spoke with Marianne Demarchi, Chief Executive of EMEA at Swift, to learn about the delicate balance between innovation, security, and interoperability and how to make payments systems resilient to current risks. 

Tensions and fragmentation

Conflicts, tariffs, and sanctions have made the international stage more volatile than it has been in years. International payments providers are both inherently vulnerable to these tensions and a crucial component in maintaining stability, which makes it all the more important for them to adjust and adapt to the shifts. 

The geopolitical turbulence is also bringing instability, which forces companies to be resilient and flexible, especially with stakes as high as these: “This is a situation companies of all types must navigate and ensure that trade, finance, and payments continue to flow freely to the benefit of all communities,” said Demarchi.

The increasing digitisation of trade presents exciting opportunities for increasing growth – but also brings risks of creating frictions and fragmentation. The reduction in global economic integration that comes when systems stop being interoperable is disruptive to every area of international trade, from cross-border payments to international investments to flows of credit. 

A recent study by Economist Impact, commissioned by Swift, highlights the dangers of fragmentation: in the best-case scenario, frictions caused by fragmentation will lead to a 1.2% global GDP loss, which rises to -6%—a nearly £5 trillion loss—in the worst-case scenario. The research also shows that if fragmentation increases, it could hinder global growth so much that nearly 300 million fewer jobs could be created, decreasing financial inclusion across the world.

“The industry is going to continue to be fragmented, not only because of geopolitical reasons, but also because of technological innovations,” said Demarchi. This isn’t inherently negative – rather, the proliferation of instant payments systems fosters competition and gives consumers more choice. However, it is crucial that institutions like Swift ensure that systems can still connect to each other and work together as one ecosystem. 

Evaluating innovation

Even when innovation avoids the risks of fragmentation, payments providers face important tradeoffs between speed and security when weighing up new technology. The Swift network processes millions of transactions every day, 90% of which are processed in less than an hour. At the same time, its worldwide reach means it must have security as its top goal. 

This means that innovation is not incorporated for its own sake, but only when it serves a purpose, said Demarchi. “It’s a balance of how do we innovate without impairing security, and also how we innovate so that it benefits most of the banking community. […] We have unparalleled reachability: we need to make sure that the innovation that we do benefits as many as possible.”

Collaboration with other institutions and countries is crucial to prevent fragmentation and foster meaningful innovation. Achieving things at scale – which means avoiding fragmentation and frictions, increasing global connectivity, and promoting accessibility – can only be done if policymakers, regulators, and companies work together on a shared goal.

For example, Swift has been supporting the G20 roadmap to improve cross-border payments, increasing transparency, speed, and affordability. Shared goals and objectives, like those set by the roadmap, make it possible for hundreds of institutions across the world to work together and experiment without compromising their existing interoperability. 

Investment in uncertainty

Encouraging collaboration is especially important when the global macroeconomic outlook is uncertain. Last month, the IMF revised its projections of global GDP growth, lowering them by half a percentage point and increasing fears of a global recession. Beyond “short-term” trends like recessions, the financial industry must also adapt to global megatrends, like technological innovation and fragmentation. 

For example, the increased uptake of Central Bank Digital Currencies (CBDC) and other digital or blockchain-type currencies risks leading to many isolated markets or closed-loop systems that make international payments almost impossible. This is where Swift’s role as an international payments facilitator becomes crucial: “Swift is technology and currency agnostic: whatever the underlying technology that different systems are using, whether distributed ledger technology (DLT) or traditional technology or other types, […] we can connect and we can operate different types of technologies,” said Demarchi. 

Most CBDCs, still in early stages of development, are conceived as domestic or regional projects. It is up to Swift to ensure that the resulting digital currencies and assets can be exchanged for other digital and fiat currencies across the world, and that the systems supporting them remain interconnected.

A unique responsibility

Swift’s responsibility lies beyond just fostering collaboration. As a cooperative, not-for-profit society, connected to over 200 countries and over 11,000 financial institutions, it has a unique potential to drive change in the global financial sector. 

By introducing global standards, like ISO20022, set to go into effect fully later this year, Swift has been removing frictions and increasing security. Accessibility is also a goal Swift is working towards: for example, by increasing interoperability between US and European banks and wallets in the Middle East and Africa, to ensure anyone, from individuals sending remittances home to companies receiving foreign investment, can access safe, reliable, fast payments. 

“We see our role as a key player to really continue to glue, I would say, the overall financial ecosystem to support global trade and global growth,” said Demarchi. This will become a crucial responsibility as the global situation becomes more tense and divided.