FX International Payments
By Elena Malykhina
Businesses are frustrated by a combination of policies and processes at correspondent banks and architecture limitations of the global payments system, according to the survey, which polled 300 treasury professionals from international businesses of all sizes in 18 different industries.2 Sixty-four percent of treasurers said they want real-time payments tracking, while 42 percent are looking for instant payments.
Gaining visibility is also at the top of the list, since reconciliation errors are a big part of international payments inadequacy. Forty-seven percent of treasurers said they want visibility on the cost and deductions from a transaction. In addition, businesses want more control once a payment has failed. It can be very time consuming and costly to pinpoint and fix those problems. Sixty-one percent of treasurers find the length of time it takes for rejections and investigations challenging.
The survey also found that 86 percent of treasurers are looking for efficient payment processes and effective customer support when choosing a bank for cross-border payments. They cited competitive pricing and transparent charges, and extended global coverage as other important criteria for choosing a cross-border payments banking partner.
While there has been much technological innovation in the financial sector, the survey found that businesses want underlying problems with cross-border payments solved first before embracing new technology. In fact, innovation is a low priority for companies below $500 million and all those above $1 billion. However, firms between $500 million and $1 billion are much more in favor of innovation.
Part of the issue is the fact that large companies don't see their cross-border payment security needs being met by "fintech" companies, which are mostly small startups focused on innovations like cryptocurrencies.3 According to the survey, this is an area where banks can benefit because they "have more stringent standards to meet and they have much greater resources to ensure security than almost any other kinds of company globally."4
For this reason, just 8 percent of corporate treasurers are using alternative providers to their current banks to make cross-border payments, and 55 percent have no plans to do so.
A different report from McKinsey & Company echoes the findings from the SWIFT/EuroFinance survey. Business-to-business (B2B) cross-border payments make up almost 80 percent of all cross-border payments revenues, and this segment is expected to grow even further as the economic role of small and midsized enterprises (SMEs) expands, the McKinsey report found.5 McKinsey said there is a need to overhaul core banking platforms so they can be updated in real-time.
Cross-border payments of the future will not be based "on legacy systems and old-school correspondent banking"; instead, they will use "future-proof digital technologies and industry standards that promote cross-country integration and greater transaction efficiency," according to the report. This would allow banks to reduce the need for manual intervention in investigations and reconciliation, in addition to enabling real-time information exchange.
Banks are already turning to more efficient networking technologies – such as blockchain – with the capability to bypass existing infrastructure and connect banks directly across country borders. Blockchain, for example, stores blocks of identical information across its network and, therefore, it cannot be controlled by any one entity and has no single point of failure.6 Some versions of blockchain technology could enable services similar to correspondent banking.7
SWIFT, a global member-owned cooperative and provider of secure financial messaging services, is among the organizations that are addressing the existing problems in this space. In January 2016, SWIFT launched its global payments innovation (gpi) initiative to increase the speed, transparency, and end-to-end tracking of cross-border payments.8 More than 110 banks from Europe, Asia Pacific, Africa, and the Americas are part of the SWIFT gpi, which in its pilot stage is being used to send thousands of cross-border payments.
As part of the gpi initiative, SWIFT is also exploring different possibilities for blockchain and distributed ledger technology (DLT). In January 2017, SWIFT launched a proof-of-concept to help banks reconcile their nostro databases in real-time,9 using a private blockchain in a closed user group environment. The blockchain has specific user profiles and strong data controls, where data access is strictly governed. Six banks will test and validate the blockchain application, which is currently under development.
According to multiple surveys, international businesses want financial institutions to address real-time tracking and other inefficiencies that exist today for cross-border payments before they pursue potential innovations.
Elena Malykhina is professional writer who has covered science, technology and business for more than 10 years. Her work has appeared in InformationWeek, Scientific American, Newsday, The Wall Street Journal and Adweek, as well as through the Associated Press.
1. “SWIFT and EuroFinance survey reveals corporate wish list for enhancements in cross-border payments,” SWIFT; https://www.swift.com/news-events/press-releases/64_of-corporate-treasurers-ask-for-real-time-payments-tracking
2. “The future of payments, a corporate treasury perspective,” SWIFT; https://www.swift.com/node/138896
3. “Fintech and blockchain – a new wave of startups in the making?” Geektime; https://www.geektime.com/2017/08/17/fintech-and-blockchain-a-new-wave-of-startups-in-the-making
4. “The future of payments, a corporate treasury perspective,” SWIFT; https://www.swift.com/node/138896
5. “Rethinking correspondent banking,” McKinsey & Company; https://www.mckinsey.com/industries/financial-services/our-insights/rethinking-correspondent-banking
6. “What is Blockchain Technology? A Step-by-Step Guide For Beginners,” Blockgeeks; https://blockgeeks.com/guides/what-is-blockchain-technology
7. “SWIFT and EuroFinance survey reveals corporate wish list for enhancements in cross-border payments,” SWIFT; https://www.swift.com/news-events/press-releases/64_of-corporate-treasurers-ask-for-real-time-payments-tracking
8. “SWIFT unveils industry’s first ever cross-border payments tracker,” SWIFT; https://www.swift.com/news-events/press-releases/swift-unveils-industry_s-first-ever-cross-border-payments-tracker
9. “SWIFT explores blockchain as part of its global payments innovation initiative,” SWIFT; https://www.swift.com/news-events/press-releases/swift-explores-blockchain-as-part-of-its-global-payments-innovation-initiative