The pandemic has highlighted the importance of fast and efficient cross-border payments.
Citi Global Head of Cross-Border Payments Amit Agarwal told PYMNTS in a Masterclass that the pandemic has accelerated trends across the B2B, B2C and P2P spaces that were already in place, underpinned by the growth in eCommerce activity, well before the coronavirus upended daily life.
“Oftentimes what happens in the consumer payment space can be the precursor for things to follow in the B2B or B2C space,” he said.
By and large, he said, the rise of the middle class and a more digitally minded demographic across the globe has spurred a worldwide population that is, increasingly, buying goods and services online, particularly through marketplaces.
The methods through which they transact are changing, too, he noted, as consumers are becoming increasingly comfortable with digital means of payment, such as through digital wallets.
“If consumer payments are almost becoming ambient or abstracted from the actual experience of buying or consuming a product or a service, that behavior increasingly is becoming present in the B2B payment domain as well,” Agarwal said.
There’s a ripple effect, where corporate treasurers whose companies are becoming digital and global are increasingly examining corporate payments, pivoting to digital, faster transactions.
Against that backdrop, traditional wire-based payment methods may have staying power, as firms look to engage their entire ecosystems and penetrate new markets. But as companies start to assess the efficiency and resiliency of existing shift supply chains and operating models, many companies are also seeking new methods of payments to unlock even greater efficiency. Digital wallets and even online debit cards are seeing increased traction for cross-border payments, both paying from and paying to, he said.
To streamline and speed up those transactions, said Agarwal, technology and easy access to new payment methodologies is key.
“The emergence of [application programming interface] API-enabled payments solutions are materially shifting the way payments are being experienced,” he said.
As services become increasingly digital and global, APIs can connect companies of all sizes to always-on, 24/7 payments infrastructure as payments wind their way through time zones and currencies. The banking infrastructures in those countries and the treasury systems inside those countries must be “always on,” too.
Agarwal noted that Citi’s clients (across a network spanning more than 95 countries) who are “relatively more mature in terms of technology readiness” are increasingly using APIs to externalize their front ends and applications to their end customers to provide a real-time and engaging end-user experience.
“Then they’re also using bank API layers to connect their applications to the bank applications and services,” he said. “Through APIs, we enable our customers to provide their customers with access to Citi’s entire network and capabilities. This is underpinned by real-time data that is then even further enhanced through the integration with instant payment market infrastructure.”
With the technological upgrades of various backend functions that support cross-border payments, said Agarwal, automation can smooth or replace manual tasks, removing friction and unlocking opportunities for greater cost controls and a truly digital customer experience.
“It’s quite common that when companies have to make cross-border payments, they need to present documentation to substantiate the purpose of those payments,” he said.
These documents could take typically the form of invoices, bill of lading, custom forms, tax declaration forms, and so on. And these requirements vary from country to country.
“Companies have to produce these documents, and the entire workflow is manual,” he noted.
Through machine learning (ML) and advanced technologies, he said, “we can truly start to create a cross-border payment experience, which end to end is very digital and real time.”
Delving a bit deeper into payment types, he said that P2P payments are seeing a “phenomenal amount of innovation, and the number of providers in this space have continued to increase.”
Traditionally, he said, the process has involved individuals walking into a neighborhood money transfer store, conducting a (primarily) cash-based transaction, and with the delivery of funds taking a number of days. Fast forward to the present, and digitally savvy players, including banks like Citi and FinTechs, have been changing how P2P (cross-border) payments are done, moving away from batch or end-of-day processing, to real-time settlements.
There’s another tailwind in place, he said: “In many markets around the world, governments are enabling innovation through licenses for digital-only banks. They don’t have any branches. One of the services that these digital banks typically start with is cross-border P2P remittance. This is an attractive business in terms of margins, and at the same time serves as a base for new customer acquisition, laying solid foundations for offering broader services.”
Eventually, he added, digital banks can offer those same consumers loans or credit cards (which has typically been a focus for brick-and-mortar banks).
The Shift To Real Time
Touching on the speed of payments, Agarwal pointed to a continued embrace of real-time payments and a move away from the batch-based processes that have been in place for decades.
Citi, he said, “has large government and multilateral organizations, financial institutions, non-bank financial institutions like insurance companies, traditional corporate, but also digitally-native fast-growing eCommerce players, as well as payment intermediaries across its entire spectrum of institutional clients. Our clients are starting to benefit from the emergence of cross-border instant payments across a range of large and small [even micro] transactions.”
He pointed to insurance companies as an example, noting they have traditionally sent paper-based checks across borders.
“That method is now increasingly becoming less cost effective,” he said, and “does not provide a good customer experience, and during the pandemic has been prone to significant disruption.”
Citi has been seeing a trend where insurance companies are now looking for more digital cross-border payment methods, whether through payments into digital wallets or just moving from checks to cross-border wires and ACH. In another example, fast-growing digital companies have latched onto paying online influencers to use their products in different parts of the world — but need to be paid in their home currencies, in large-volume micropayments. Having the right banking partner to support such high-volume, low-value payments, where speed is often of the essence, is critical to ensure effective cost controls and supply chain efficiency.
Online platforms, too, he said, need “the ability to pay merchants on demand in their local currencies into payment methods of their choice,” which “means that they need to have a payment solution that they can scale up globally and have all the functionality to be able to reach out [to] the merchants in different parts of the world.”
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