The modern-day financial services landscape has a need for speed, and one of the slowest areas of the market can be seen in cross-border payments.
Remittance and peer-to-peer payment technologies have accelerated transaction speeds for consumers tired of waiting days for money to move across borders. Increasingly, the financial services industry is targeting sluggishness in corporates’ cross-border payments, too, through technologies like blockchain and the development of faster payment rails around the globe.
With correspondent banking relationships on the decline, financial institutions are looking for new — and faster — ways of moving money around the world, too.
Some solution providers like Ripple are introducing new ways to bypass the correspondent banking system entirely. Others, like Visa B2B Connect and SWIFT gpi, aim to transform it. Regardless of how, these technologies and their innovators share common goals: to accelerate and streamline cross border payments.
Spain-based CaixaBank is one financial institution investing in some of the newer payment infrastructures and rails available today. Earlier this year it was one of six financial institutions in the country to signed up for gpi, while the bank also recently implemented Europe’s TARGET Instant Payment Settlement (TIPS), while embracing regulations and trends like General Data Protection Regulation (GDPR) and Open Banking.
Beatriz Kissler, general manager of CaixaBank-owned GDS Cusa, recently told PYMNTS in an interview that for the financial institution itself, these new services support cross-border payment optimization, making it easier to assign payments to correspondent banks that make the most sense and promote the greatest efficiency.
This, of course, means faster global payments.
But what Kissler noted was that for corporates, it’s not just speed they’re seeking when transacting globally.
“Besides increasing the speed funds are credited to [a] beneficiary, perhaps even more important is that gpi makes it even more predictable when this will happen,” she said. “From our customers’ perspective, it helps to improve their commercial relationships.”
B2B payments are full of friction that lead to delays in vendors receiving payment. There are many causes for that problem, including businesses’ ongoing use of paper checks and the traditional mail to send payment. There is also the issue of corporates delaying their payment terms to vendors and paying invoices late beyond agreed-upon terms.
Delayed and late payments undoubtedly put a cash flow crunch on corporates. Yet increasingly, businesses are voicing their frustrations less at the lack of speed, and more at the lack of predictability of when money will land where it should.
While services like gpi, Faster Payments or Ripple’s RippleNet accelerate transaction speeds, the visibility of that transaction is what companies value most, said Kissler, including visibility into the status of a payment, any foreign exchange conversions applied at any given point, and any fees. In the case of gpi, she noted, the service requires that banks provide notifications about fund delivery and confirmation, another key benefit for businesses.
She also pointed to the service’s stop-and-recall, fund confirmation and enterprise resource planning (ERP) integration capabilities as a few examples of enhanced features key to addressing business payment needs.
Preparing Banks And Businesses
With the number of faster cross-border payments solutions on the rise, financial institutions have to prepare both themselves and their corporate customers for the change.
“Many recent payment developments, such as Real-Time Payments, PSD2, Open Banking, payments based on DLT and, of course, gpi, are dramatically changing the payments ecosystem,” she noted. “We are seeing a lot of worldwide initiatives to make the move to real-time or almost real-time payments. Sooner or later, these systems will need to interoperate to better fulfill the needs that our customers will demand from us.”
Banks’ adoption of these services is not necessarily easy: They must identify use-cases for a service, adjust its treasury management operations, and adjust the way it both executes outbound payments and credits incoming ones to its corporate customers. Kissler noted that CaixaBank also had to make decisions about which foreign currencies to prioritize and retrain staff in both its middle and back offices as part of a diligent transformation.
The corporate clients, too, need to be informed of these changes, with Kissler calling the education of its commercial base “crucial.”
“All actors — not only banks — need to update their systems to adapt to real-time payments,” she said. “From the bank’s point of view, transit from batch processing to real-time processing is not a minor issue.”
Financial institutions are also faced with the back-office adjustment of supporting an always-on service like gpi or Faster Payments, forcing them to enhance their liquidity management strategies, she said.
As the pace of payments innovation accelerates, banks will face rising operational hurdles.
According to Kissler, the rise in FinTech service providers has introduced a significant pressure point for traditional FIs to improve their services and remain competitive — an industry force not going away anytime soon.
And as financial service providers consider the logistical challenge of on-boarding into these new services, rails and infrastructures, they must take into account not only the technology they’ll be able to offer, but the value-added features of these services that meet the increasingly complex demands from corporate clients.