The Russia-Ukraine war will disrupt cross-border payment systems and threaten the dominance of SWIFT, predicts a new report by the Economist Intelligence Unit (EIU).

The study, which outlines a number of predictions for the next five years, also anticipates that countries will seek to interlink their national fast-payments systems which will reduce intermediaries and bring down the cost of sending money abroad.

Countries across Southeast Asia, for example, are already in the process of interlinking their fast-payments systems to allow travellers across the region to purchase goods and services by scanning quick-response (QR) codes.

The Economist research group said that after the disruption in local retail payments, consumers increasingly want a similar change in cross-border payments, driven by real-time settlements, APIs, and Open Banking.

The vast majority of cross-border payments are still facilitated by a correspondent banking network underpinned by SWIFT’s financial messaging service.

The Belgium-headquartered network is currently used by over 11,000 financial services institutions across 200 countries.

After the outbreak of the Russia-Ukraine war, the US and other major powers removed Russia from the SWIFT network and banned card payment channels.

The study says that this added to trends that were already apparent, suggesting that even prior to the war SWIFT had faced criticism over “inflexibility and lack of transparency”.

There has also been a retreat of correspondent banks from the network, with figures from the Bank for International Settlements (BIS) showing that correspondent banking relationships dropped by a quarter between 2011 and 2020, despite the volume of cross-border arrangements increasing substantially during the four year period.

While Russia, China, and India do have nascent SWIFT alternatives, the EIU warned that setting up and scaling a full-fledged alternative bank-messaging system would be expensive and time consuming.

"It would also have limited real-world impact, given the prevalence of dollar-denominated cross-border flows," says the report.

The EIU said that SWIFT would remain the dominant network only if countries and lenders come together to improve the Belgian network.

The research also suggests that between 2022 and 2026, the number of ATMs will either stagnate or decline, while debit and credit cards will struggle to maintain market share as mobile payment platforms become increasingly popular. It predicts that the growth in digital payments will soften over the next five years.

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