Faster cross-border commercial payments are within reach thanks to global initiatives from the private and public sectors, and to growing consensus among FinTechs and financial service providers that businesses need faster movement of funds, too. Case in point: there are now more than 57 different real-time payment rails operating (or about to operate) across more than 72 countries in the world today, according to the inaugural PYMNTS Simplifying Cross-Border Payments Playbook, a collaboration with SWIFT.
The multitude of faster payment systems at play, however, means money moves differently from jurisdiction to jurisdiction, often adding friction as funds move globally.
Like consumer payments, cross-border B2B transactions face a multitude of challenges, many of which link back to the legacy inter-banking system that obscures visibility into where funds are at any given point of time — not to mention tacking on extra costs, too. But demands for capabilities like movement of transactional data and compliance across jurisdictions can be significantly more complex for high-value corporate transactions.
“Countries around the globe employ unique cross-border payment standards, and transmitting funds and data in such a fragmented environment requires a great deal of translation, coordination and cost,” the Playbook explains. “Reliance on legacy payment systems can further exacerbate the frictions involved in sending money between cross-border trading partners, making such business-to-business payments slower, more cumbersome, and more expensive for both senders and receivers.”
The complexity of managing a patchwork of proprietary payment systems across markets prohibits corporates on both the sending and receiving end from obtaining visibility into where funds are as they move geographically. And in the legacy inter-banking system, a lack of insight into which banks are moving funds can mean surprise fees only realized after a transaction has settled.
But cost isn’t the only consequence of a lack of visibility. Without businesses able to predict when money will land where it should, buyer-supplier relationships can suffer. That’s particularly true, according to BNY Mellon Treasury Services Director Carl Slabicki, when business partners are unable to share transaction data across borders, too.
“If [companies] are contacted by suppliers that never received payments, for example — and without remittance data to track — they are forced to contact their banks only to be referred to yet another bank,” Slabicki told PYMNTS, pointing to the friction linked to the inter-banking system and the need for multiple banks to handle a single transaction.
“It used to take a day or two to track that [payment] down, and then all of a sudden it would come back a couple of days later missing some money from the principal,” he added. “And it’s all because Bank Three found a comma missing in the name.”
Finally, among the largest headaches of this lack of transparency is the risk of non-compliance, especially as regulators ramp up their fraud strategies while developing faster payment capabilities.
The challenge, though, emerges when funds bounce between several financial institutions, thus subject to local regulation at each point in the process.
As cross-border transactions accelerate, service providers are exploring how to address these issues linked to a lack of transparency by moving data in real time, too.
Adoption of the ISO 20022 payments messaging standard enables businesses and financial service providers to automate and streamline transmission of data between each other, PYMNTS’ Playbook noted. APIs similarly enable direct integration with parties regardless of physical location.
When service providers are able to obtain and move transactional data along with a payment — and move data as fast as the money moves — B2B companies can address many of the friction points connected to their cross-border operations, from compliance and cash flow predictability.
“The ability to track-and-trace transactional data in real time is a key feature of any modern payment system,” the Playbook stated. “Not only can easy access to this data reduce the cost, increase the speed and enhance the security of cross-border payments, but the transparency such data provides is, in itself, a value-added feature.”