Take the Quiz: International Payments

Here's one way to catch up. What follows are 10 questions that let finance professionals test their smarts on facts and trends from last year (2017) that may well affect their jobs.

1. Which country has the largest market for mobile payments services?

A. India
B. U.K.
C. China
D. U.S.

ANSWER: C. As of 2016, the value of China's mobile payments market reached $5.5 trillion – nearly 50 times that of the U.S. mobile payments market. The rapid growth of e-commerce and increase in smart phones in China has fostered the development of the country's mobile payments market. Additionally, credit cards haven't been ubiquitously adopted as they have in the U.S. and Europe, further cultivating the market for mobile payments.

2. Technological advances are adding more and more complexity to international payment systems and processes across the globe. Which of the following solutions has been shown to effectively mitigate the global fragmentation of international payments services?

A. POBO/ROBO
B. Payment Hubs
C. E-Wallets
D. All of the above

ANSWER: D. Pay On Behalf Of (POBO) and Receive On Behalf Of (ROBO) structures allow large companies to establish a single entity to make or receive domestic and international payments on behalf of the entire business. This reduces the need for local companies to uphold foreign currency accounts. Payment hubs, generally used by larger businesses, are centralized platforms where all of a business's financial information is united, making it easy to streamline and standardize payments processing. In addition, SMEs often use e-wallets to reduce the complexity associated with widely diverse international payments systems.

3. True or false: Faster payments often leads to faster fraud.

ANSWER: False, so far. When the U.K.'s Faster Payments system pioneered 10 years ago, online banking fraud losses nearly doubled in a year. But the following year, banks were able to flatten the growth of fraud associated with faster domestic and international payments services. As of 2013 in the U.K., fraud in payment services was considerably lower than cards and only slightly higher than checks. In addition, the U.S.'s National Automated Clearing House (NACHA) reported that no financial institutions reported any increase in fraud from Same Day ACH as of February 2017. To add further protection, many banks are in the process of revamping their anti-fraud systems for real time, such as bringing aboard adaptive behavioral analytics to detect anomalies in the short time frame in which they may occur.

4. This major pan-European payment system, launched in November 2017, enables instant transfers in euros between participating countries within the Single Euro Payments Area (SEPA), helping businesses collect payments with greater convenience.

A. Blik
B. SCT Inst
C. iDeal
D. Same Day ACH

ANSWER: B. SEPA's SCT Inst is the first European cross-border instant payment service. Initially announced in 2015, it went live in late 2017, with increased adoption expected through 2018. According to the European Payments Council (EPC), SCT Inst payments should go through in no more than 10 seconds. Currently, instant international payments up to 15,000 euros are transferrable, but that limit could increase after annual review. The immediate effect of SCT Inst gives businesses the opportunity to collect payments from customers quicker than before, but over time may provide other advantages like helping businesses manage credit more effectively.

5. ____________ is/are beginning to reshape the financial services landscape by introducing new ways to instantly communicate and share information among international payment service providers, banks, and financial technology (FinTech) companies.

A. APIs
B. Bitcoin
C. Chatbots
D. Virtual Reality

ANSWER: A. Application programming interfaces (APIs) are now extending beyond the realm of technology-based companies and into that of the financial services industry. As the expectations of consumers rise, the more they expect payments to occur in real time; so FinTech companies are creating application-based solutions to meet these demands. According to some experts, APIs in this context have potential to change the financial service structure from a monolithic model built and controlled by banks to a landscape where other companies provide bank account access via APIs.

6. True or false: Blockchain, also known as distributed ledger technology (DLT), can act as a complete and irrevocable record of all international payment transactions, offering full traceability.

ANSWER: True. When making a payment in bitcoins, transactions are collected in encrypted "blocks," which are then validated by other bitcoin users. These validated "blocks" are then connected to a "chain" of blocks, with each block containing a coded reference to the immediately prior block, creating a "blockchain." The result is an absolute, secure record of transactions able to be accessed from a distributed network of computers, also known as DLT.

7. What fiscal stratagem is designed to encourage multinational corporations to transfer their overseas profits to their home country by offering temporary reduced tax rates on those profits?

A. International Tax Relief
B. Patriarchal Tax Vacation
C. Bilateral Tax Treaty
D. Repatriation Tax Holiday

ANSWER: D. Over 40 percent of companies worldwide have complex cross-border links that, on average, involve three separate jurisdictions in nations with "tax haven" status. Multinational companies that earn money overseas may be less inclined to bring income to their home country if they will have to pay higher tax rates. By introducing a Repatriation Tax Holiday to temporarily reduce tax rates on those profits, multinational entities may be more likely to repatriate income that would otherwise remain overseas.

8. What has been considered a leading cause of India's recent shift towards electronic payment services and mobile payments?

A. Political unrest
B. India's demonetization initiative
C. Brutal cyber-attacks affecting Indian ATMs
D. Cash was being burned faster than it could be printed

ANSWER: B. In late 2016, India's Prime Minister announced the country's two highest denominations would cease to be legal tender in order to combat counterfeit currency and illicitly earned money. At the time, 98 percent of consumer transactions were performed in cash but electronic payments services cropped up immediately to combat the nearly cashless society. Millions of Indian citizens who did not previously have bank accounts or credit cards began using mobile payments due to convenience.

9. Also known as the "Lego" of financial industry messaging, this standard helps organizations communicate information across a wide spectrum of financial services applications through a flexible, three-layer approach.

A. ISP 22002
B. STP 10011
C. IFRS 9
D. ISO 20022

ANSWER: D. ISO 20022, a financial messaging standard defined over a decade ago, is beginning to see widespread adoption for both international and domestic payments solutions. ISO 20022 is a structured and rich messaging format that makes it easier to automate the processing of financial messages. It functions using three layers: an overarching business model defining processes and who is involved, logically defined messages and the information they contain, and the syntax of each message, in languages such as XML.

10. Regulatory ____________ are being used as a "safe space" for companies to test new FinTech services in a live environment for a limited time to accelerate the process of bringing innovative products to market, such as new payment services.

A. Playgrounds
B. Sandcastles
C. Sandboxes
D. None of the above

ANSWER: C. Regulatory sandboxes, first implemented in the U.K. in 2015, are taking off across the globe, acting as technology accelerators to promote FinTech innovation. Different countries are using different approaches, but are all still in the early phases. If successful, the sandbox approach could help hasten the introduction of new financial technology services like mobile payment solutions, at both consumer and B2B levels.