What trends are you currently seeing in the capital markets?
Capital markets are under pressure. Institutions are faced with challenges including regulatory compliance, the higher cost of capital, the tightening squeeze on fees and margins, in tandem with demands from customers for greater transparency and real-time data.
One of the major issues is post-trade costs. A cause of inefficiency in post-trade operations in the pre-global payments innovation (gpi) marketplace was the lack of information about the status of a payment once it was released. When a payment began its journey from the payer to the payee, there was no way of knowing whether it had reached the beneficiary, what fees and charges were deducted, or whether the payment was altered along the way, until it arrived—or failed to arrive.
With this in mind, capital markets firms have been increasingly looking to new technology and services to help improve transparency, cut costs and boost profits.
With capital markets under pressure to cut costs and find new sources of revenue, how are intermediaries adapting?
Many realise that early resolution of problems likely to cause a payment to fail—through real-time sharing of information—cuts post-trade costs and risks. Thus, there has been growing interest in technology and services which help them adapt to and solve these issues.
Despite collaborative efforts and new technology such as distributed ledger technology, this problem has not been fully solved. In fact, distributed ledger technology (DLT) projects have shown that, although they have the potential to transfer assets efficiently on DLT networks, the simultaneous delivery of payment remains challenging.
How is SWIFT playing a part in intermediaries adapting? How has SWIFT gpi helped market players?
SWIFT gpi is live and being used around the world. Every day, payment transactions with a total daily average value of $300 billion are sent via gpi. More than 3,500 financial institutions are signed up for gpi, including all of the largest global custodian banks and investment banks.
They and their customers are already able to track and trace payments made in the capital markets, and network effects are accelerating the rate of adoption.
It does not require revolutionary changes to technologies and processes. It instead upgrades existing systems, making it much easier for intermediaries to adopt.
What other challenges are you seeing in the asset servicing market?
As spreads continue to come under pressure, firms are increasingly looking at new ways to cut costs and boost profits. Historically, the focus has been on investing in the fastest technology to improve execution and customer-facing activities.
This has improved productivity, reduced costs and transformed the speed and efficiency at which trades can be executed between participants all over the world.
The next logical step is to look at improving back-office processes, which can be costly and opaque. For example, cash payments that cannot be reconciled are a major source of unnecessary costs for intermediaries and clients. Cash breaks often occur for a number of reasons including the instructions containing inaccurate or inadequate information or unexpected charges or fees were deducted along the payments chain, causing a mismatch in the amounts.
The solution to this specific problem lies in getting complete visibility allowing potential problems to be detected and resolved earlier in the process. Pre-validation also minimises the risks of inbound and outbound payments containing inaccurate information.
Tools such as gpi also reduce the time spent investigating and reconciling unmatched payments and gpi case resolution helps resolve client queries faster.
Furthermore, buy-side firms are increasingly demanding real-time information to maximise yield. Real-time transparency, not only on settled payments but also those in-flight, enables institutions to optimise the timing of cash invested, and thus make more timely and accurate investments.
With this in mind, we expect to see increasing interest and demand for services which add transparency, create efficiencies and cut costs in post-trade operations.
