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It could be said that Swift is under attack.

In a changing global payments community, Swift – one of the world’s largest financial transaction messaging mediums – has faced new criticisms from those who say it has failed to keep up with the needs of the global financial market.

Specifically, some believe Swift is proving to be inefficient in the settlement of cross-border payments, due to its inability to manage real-time settlement for any transaction amount and its lack of transparency in settlement risk and payment status.

To address this, Swift has introduced its Global Payments Innovation (GPI) Initiative, which – according to Swift – will allow for same-day availability of funds for business-to-business transfers within the same time zone, payment tracking end-to-end, protected remittance information and improved transparency of fees.

The first phase, which went live in January 2017 and is in use with 12 banks – including the Bank of China, Citi, Danske Bank and ING – will focus exclusively on business-to-business payments. Swift has also promised further enhancements to its cross-border payments system, possibly including the incorporation of a distributed ledger technology proof of concept, in future rollouts.

This move to reform its global messaging service, however, may be too little, too late, in its attempt to catch up toward resolving the global payment clearance, settlement and payment bottleneck, particularly for non-bank customers.

One demographic already working on these issues is the current and former bitcoin remitters, startups that are today using various blockchains to move money internationally.

One such firm, Align Commerce, has made an impression in the fintech world due to its $20.25m in funding.

The firm's CEO, Marwan Forzley, said he sees blockchain and distributed ledgers as a "next generation" opportunity – a car compared to the old banking horse and buggies.

Forzley told CoinDesk:

"Our technology is built on bringing the benefits of new tech directly to the consumer as opposed to waiting on the change to happen through global bank adoption."

The business of small transactions

Cross-border payments have traditionally been the weak link in the global finance chain.

Totalling $26tn in 2014, global payments are equivalent to more than one-third of the global gross domestic product. However, without any consistency or standardization among local infrastructures, most of these funds are locked in the modern-day equivalent of a message-by-bottle system.

To send a payment cross-border, a customer must find and hire a transmitter to handle the transfer, which would have contacts with financial institutions in both the transmitting and recipient countries. Further complicating the process, these banks may have their own intermediaries.

Each of the institutions handling the transfer charges its own fees for the service. The entire process can take up to a week.

While the corporate section of the global market – estimated at $15.7tn in 2014 – can negotiate costs to 1% to 2% of the total amount of the payment, small and middle-sized businesses and person-to-person transactions could see a surcharge of up to 15%.

This series of 'hidden fees' can affect those least capable to deal with it the hardest.

Should a customer hail from an underserved or underbanked community, he or she may not have access to avenues that would otherwise allow for simplified cross-border payments, such as using a transnational bank to transfer the payment using their infrastructure.

This leaves consumers and small businesses prone to international money transmitters, such as Western Union and SwiftPay, whose transaction fees can be both exorbitant and unpredictable.

The emergence of bitcoin remittance companies – which allows consumers to make borderless transactions at a low, controlled cost – has helped to mitigate this issue on a small scale. While Swift has promised to help make cross-border payments more transparent with the GPI, it offers no relief regarding cost for customers that have no access to fee negotiation.

"The vast majority of the world's remittances are not done via banks, but by cash money transfer shops," George Harrap, CEO of Bitspark, told CoinDesk. "This will not affect how they manage their business or transactions."

Hong Kong-based Bitspark is one of the largest bitcoin remittance services serving Southeast Asia, and despite the lack of traction, it still feels it has the best long-term hand, if for a separate market.

"Cost will remain the same as remittance companies batch payments anyway, so – potentially – reductions in wire fees do not affect companies who transfer $10m per transfer and draw down on this balance for small remits," he said, adding:

"The wire fee on $10m is inconsequential."

A continuing problem

Because of this division, as it is today, the Swift GPI is unlikely to influence bitcoin remittances in a significant way.

Alan Safahi, the CEO of ZipZap, which raised $1.1m in 2014 to fund the expansion of the company’s cash-to-bitcoin service, agrees.

"ZipZap uses a combination of traditional (Swift) bank payment rails and blockchain technologies to find the least expensive and most efficient transfer option. The Swift GPI is primarily for B2B payments, so it will not impact ZipZap's current business flow," he said.

This, however, may change once phase three of the GPI launches.

While Swift intends the product to improve global payment transaction recording for its member institutions, it's feasible that GPI-inspired innovations may show up in other blockchain-enabled fintech applications.

For example, Swift is a member of the HyperLedger Project, whose Fabric project may form the underpinning for future cross-border frameworks.

However, as Swift GPI does not offer real-time processing, but offers real-time reconciliation of its 'nostro' account balances, GPI doesn’t address the needed changes to cross-border payments – particularly, for non-bank customers.

As Ripple stated on its Insight blog, GPI is more of an attempt of a financial giant to stay relevant than a true effort toward modernization.

The company states:

"Swift's GPII does not address the antiquated infrastructure that makes real-time settlement a constant challenge ... it merely makes a minor adjustment to its current settlement requirements."

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