Individual jurisdictions around the globe are pressing for both faster and more efficient cross-border payments.
China’s central bank, for instance, took steps last month to boost the efficiency of cross-border transactions involving Chinese parties by lengthening its clearing window time span. In the U.S., Same Day ACH became a reality in 2017 after the National Automated Clearing House Association (NACHA) introduced its faster payments infrastructure to the market. In addition, innovators the world over are exploring how technologies like blockchain could address payments speeds and efficiency on an international level.
Payments experiences are far from ubiquitous from market to market, however, and a global payments settlement agency is now pressing for faster cross-border payments at a global scale.
The Committee on Payments and Market Infrastructures (CPMI) published a new report this month calling for cross-border payments to accelerate. Those payments, according to chairman Benoît Cœuré, “are vital for growth and financial inclusion.”
The rise of cryptocurrencies and blockchain emerged from the need for a better way to transact that is not currently offered by the traditional banking system, he explained.
“The emergence and use of cryptocurrencies across borders signals to central bankers that our current payment systems are too expensive and slow,” Cœuré added in a statement. “Action is needed to put better arrangements in place.”
While cross-border payments are often marred by greater risk exposure and logistical complexities, the current technological landscape does not warrant the lack of speed and efficiency in global payments today.
“Although competition and innovations such as mobile or eBanking have made these payments more convenient, the bulk of clearing and settlement for cross-border payments still goes through traditional correspondent banks, which struggle to handle the higher-volume, lower-value retail payments,” the CPMI noted in its report.
While the CPMI’s research highlights the challenges of consumer retail payments, the need to address friction in cross-border corporate payments is just as imminent, especially as B2B payments can involve a greater degree of complexity.
“Due to the broad differences among businesses, B2B use cases vary widely and can involve large payments by multinational corporates for raw materials, semi-finished goods and wholesale products, as well as smaller and less frequent payments by small and medium-sized businesses [SMBs] or non-government organizations [NGOs],” the report stated.
Today, the CPMI said, electronic funds transfers (EFTs) are among the most common method for handling cross-border B2B payments, as are checks via international bank drafts. Card networks have also taken measures to increase their presence in the B2B payments market.
The diverse nature of B2B transactions means the complexities involved in facilitating faster payments across borders can be amplified. The CPMI noted the differences in how various corporate parties prioritize their payments needs, for example, with some demanding speed more than transparency, and others prioritizing predictability and transparency.
“The weight that different end-user types attach to these characteristics may differ depending on the frequency, urgency, purpose and size of their cross-border payment activities,” the report stated. “…While the B2B payment category includes businesses of all sizes, [SMBs] and NGOs may have different needs and face different challenges, often closer to those of individuals than of multinational corporations.”
For small companies, that includes issues surrounding logistics, data security and protection, and the ability of these factors to coordinate with the actual payment itself.
Card payments may be able to address many of their needs simultaneously, but in conversations with industry participants, the CPMI said it’s clear that “card payments for cross-border eCommerce may not always be a viable option in jurisdictions where the major card networks have a less developed market presence, or if sellers do not accept card payments due to the high costs associated with them.”
This is a particularly large challenge in B2B transactions, with suppliers, often SMBs, reluctant to accept the high interchange fee associated with cards.
To address these issues, the CPMI recommends greater transparency in the cost of cross-border transactions, with initiatives from players like the World Bank Group’s RPW database enhancing the availability of pricing information for payers and payees. Financial literacy is also key, while regulatory initiatives to address a decline in correspondent banking relationships — critical to cross-border payments — may also help.
Efforts to innovate and encourage standardization in global cross-border payments have also emerged as an important piece of this puzzle, the CPMI noted, pointing to SWIFT’s gpi as one example of an international effort to not only promote faster, more efficient global payments, but also do so in a way that every jurisdiction can participate.