During our Finextra webinar, “Cross-border Payments: 4 Steps to Maximise Cross-border Payments Success” hosted in association with Bottomline, panellists explored the chequered past of cross-border payments and the attention that this business is garnering amid the modernisation of the movement of money.

Charles de Rougé, head of SaaS solutions, Bottomline Technologies; Marco Hughes, managing director, Europe payments product, global payments solutions, HSBC; and Jayakumar Venkataraman, managing partner, Europe, financial services and insurance, Infosys Consulting also discussed the role correspondent banking has in facilitating a more efficient way to manage cross border transactions.

What must be considered when innovating cross-border payments?

Initiatives that have evolved over the years must be extended to keep pace with innovation and support the significant increase in global trade, while also considering the impact of Swift gpi and ISO 20022. However, as de Rougé highlighted, the sentiment that cross border payments are difficult is a “view of the past.” Correspondent banking may have a slightly tarnished image, but there are multiple ways individuals can utilise cross border payments today, including remittances, which should be considered.

Building upon de Rougé’s points, Hughes added that “the complexity around currency conversion and the lack of a direct banking relationship that some banks have belays the fact that it sometimes might feel slow and archaic, but that's a myth. Certainly, within our own business and we look across the Swift network, the vast majority of transactions go straight through and are seamless. And it's that 1% - which I kind of get it if that is your payments it's 100% of your world - that are not straight through processing.”

Hughes added that the three initiatives that are key to innovation and improving the market are Swift gpi, Swift Payment Pre-validation, and the increased blending of cross border payments into domestic rails, such as the UK Faster Payments scheme. Venkataraman agreed that while significant progress has been made, there is still more to be done.

Referencing a BIS report and Swift gpi data, he mentioned that the average turnaround time for a cross border payment is eight hours, 36 minutes. The median turnaround time is about an hour and 38 minutes. Further, the average cost for repairing payments that have fallen into a repair queue and must be manually uplifted is about $12 per payment instrument.

Venkataraman continued: “It's a multi-dimensional topic. It is fundamentally subject to the geopolitical considerations and not the least of which was what we saw with the Russia-Ukraine situation, when certain countries were disconnected, and cross border infrastructure were split. We also then look at customers and what the customers want in terms of ease of access, cost, transparency, turnaround time, and then the sending and receiving banks, and also the multiple payment corridors that exist.

“Cross border problems are not uniform. Cross border problems are not consistent across various corridors. And lastly, I think we should also look at what are some of the alternative arrangements that are emerging in the space and as market participants, not just as banks, we all need to be cognisant of some of the emerging alternatives to see how overall we may achieve a lot more efficiency and effectiveness,” Venkataraman said.

How is the industry responding to further improvements?

Picking up on Venkataraman’s points, dé Rougé stated that Swift gpi has revolutionised the cross-border payments after being introduced in 2019. Today, it processes payments at a value of $420 billion daily, which is approximately half of the overall worldwide cross border traffic that is conducted on Swift. While around 50% settles in less than half an hour and 90% in less than a day, de Rougé agreed that “it is not perfect, but it is much better than what we used to have, which was three to five days.”

He continued to say that true improvement can only be achieved with “regulatory initiatives combined with the willingness from banks to modernise and change their ports of payment, or to add a layer of complexity to legacy infrastructure. Many will set up a digital bank on the side with new technology, but with the vision to transfer payment flows to new entities,” – but this will depend on the size of the bank.

Alongside this willingness, there is a necessity for banks to manage cross border payments in an efficient way because it is this that gives them the competitive advantage. Central banks are very much in control and modernising processes can help banks, as de Rougé said, “get over the bar and get to a point where there is an instant connection between domestic payments and cross border funds.”

A poll to the audience revealed that 39% see legacy infrastructure as their company’s greatest barrier to adoption of instant payments, with 30% considering lack of resource and prioritisation as an obstacle, 16%, the cost and hassle of implementing new payments rails and 15%, the lack of a business case.

Encouraged by the adoption of Swift gpi, the volume of traffic is increasing but correspondent banks are still wrestling with issues. Hughes mentioned that “people are confused as to why emails can arrive so quickly, but somehow payments take a little bit longer and a lot of that is to do with the currency conversion, and the huge impact with regards to differences in regulation. We can't underestimate the impact of that.

“And as a corresponding bank, our network has grown over the last 50 years. Just imagine that there's a huge roadmap where roads have been built. Relationships have been built between one party and another party in the chain to deliver a payment into a cross border location where perhaps you, as a bank, you don't have a presence. It really is hard to understate the impact that Swift gpi has had in surfacing to the top where there are bottlenecks in that road network,” Hughes said.

Hughes continued: “What we're seeing now with the improvements within the corresponding banking network and how we make payments is that the increased use of instant payments is removing the payment itself from being front and centre of that agenda. And thereby allowing multiple players, ourselves included, to value add.”

On this added value, de Rougé pointed to ISO 20022 and said that “there is more to come with enriched data that we don’t know yet, we have not filed yet and that are yet to be discovered, to be finalised. Once we finally crack that nut and be in a position to say they are all interconnected with these enriched data flows, we will see added value use cases open up and emerge.”

How can banks manage the different timelines for Swift gpi, ISO 20022 and the G20 roadmap for enhancing cross border payments?

ISO 20022 is the new universal payment format, according to de Rougé, but he acknowledged that there are variations, there will need to be adjustments and a consideration that regulations in Europe will not be the same as those proposed by the US Fed and the G20. To achieve success, de Rougé advised “central processing where you can have one point of connectivity and connect to multiple rails,” but this platform can no longer be isolated as has been mandated by ISO 20022.

Hughes added to this and stated that these initiatives present “an opportunity to connect and improve straight through processing from the objective and you know that it's going to arrive in the destination before you send that message and what Swift has provided there is an ability for us to do that in a structured way, rather than a bilateral way.”

Regarding domestic rails, “it's up to the teams themselves to be able to enable that and offer it; not every market in the world does do that, because they're expensive, and for international payments, they set up a framework of regulation and governments around that. So, for a market to move, that is a significant shift for the compliance regime within that market,” Hughes furthered.

A second poll question to the audience revealed that 34% consider poor quality of data and loss of data as an issue, 20% believe slow or unknown speed arrival is the greatest painpoint when sending cross border payments and another 20% perceived the cost of maintaining so many nostro accounts to be a problem. Hopefully with the enriched data that ISO 20022 will bring, data concerns will be a thing of the past. 

Watch our Finextra webinar, “Cross-border Payments: 4 Steps to Maximise Cross-border Payments Success” hosted in association with Bottomline here.