Cross-border Payments

Moving Money X-Border In The Age Of ‘Business As Unusual’

Making cross-border payments work — across currencies and across time zones — is no easy task.

The challenges are myriad, marked by (to name just a few) legacy systems; new domestic, faster payments rails; and the need to manage and mitigate fraud risk.

Add to those challenges the impact of the coronavirus pandemic and the mass embrace of working from home — itself a logistics and operational challenge for financial institutions (FIs) — and complexity becomes exponential, even daunting.

But as global software provider SmartStream’s Vincent Kilcoyne, executive vice president, and Roland Brandli, senior vice president of Payment Programs, told Karen Webster in a webinar titled “Why SWIFT GPI Is The Beginning, Not The End Of Moving Money Cross Border,” there are expectations and deadlines to be met even as financial services, as an industry, is evolving at a head-snapping pace.

Where We Are Now

As Kilcoyne said at the outset of the conversation, these days, “it’s business as unusual.”

Organizations, grappling with the continuing pandemic, are facing a new reality of having to send huge levels of staff — from the top down — to work from remote locations or work from home.

Many of those firms, he continued, do not have the level of support for “homeworking” engineered into their legacy infrastructure — not from a technological perspective and not from an operational perspective.

That lack of tech infrastructure flexibility puts a strain on any business and especially on financial services firms.

In addition, as Kilcoyne said: “If we look at the payments arena and the payments world, it has a very interesting challenge in that yes, we’re all moving towards faster and real-time payments, but the detailed understanding of the mechanical operations of that — as a business — tends to reside in people who’ve been in that world for 15 or 20 years.”

In other words, the experts are off premises, at home, perhaps not as accessible as they once were. This remoteness curtails the ability of an FI to respond to exceptions when, as Kilcoyne said, everyone could be in one office, in a single location, working together to address failed payments, which can cost 40 euros ($43.61) per transaction or more to amend.

The cost of business is going up, said Brandli, in terms of both time and money, and FIs are being restricted by manual processes and fragmented customer relationship management (CRM) systems.

Add it all up, said Kilcoyne and Brandli, and the industry spends 21 billion euros ($22.9 billion) annually on remediation of failed payments and failed processing, as 2 million payments fail in Europe alone each day. The time available to fix SWIFT messages is two days; the time to fix real-time gross settlement (RTGS) payments is the daily cutoff; to fix faster payments is two hours; and instant payments a scant two minutes.

As Brandli noted, in examining payments firms’ back offices, 80 percent of costs and 100 percent of risk derives from exceptions.

Where We Need To Be

To combat and avoid those unacceptable costs, a holistic and heuristic approach, through advanced learning software, can help reduce error rates and the amount of time needed to remedy errors when they do occur.

Automation, and learning software such as is offered by SmartStream, said the executives, also can address challenges that will be extant long after COVID-19 is in the rearview mirror. In every firm, eventually and surely, younger workers will replace older ones, and there remains the need to keep the back-office current, and of course there are costs inherent in training those new workers.

“We put experience into the software which will allow it to be automated even more,” said Brandli.

And, Brandli and Kilcoyne told Webster, as 2020 progresses, as instant payments loom and PSD2 takes root, FIs will increasingly find it necessary to renew their technology stacks. Tech professionals will have to examine ways processes can be moved to the cloud, and how managed services can be leveraged, all in a bid to streamline transactions and improve transparency.

Banks will need to shift their mindsets from a simple “return on investment” toward a “return on excellence,” especially as they have to compete with tech-nimble FinTechs.

Brandli noted that new global payment standards are driving accelerated processing windows and the need to overhaul infrastructure.

Although cross-border payments via Swift’s ISO 20022 migration, originally set to roll out by November 2021, have now been set back a year and are expected to come by the end of 2022.

Different payment formats tied to different rule books mean that there must be an interdisciplinary approach to payments and payments rails.

“That isn’t changing,” said Brandli. “We might even push those deadlines out potentially, but the fact is that change is going to come. That in itself is a huge amount of work because payment rails and core banking systems will have to be updated.”

In the meantime, said Kilcoyne, FIs are doing everything they can to restore business as usual even amid a recession and pandemic.

Said Kilcoyne: “A lot of organizations have responded to the situation. They have battened down their operations. They have got the organization on a stable footing.”

On the other side of the challenges and headwinds that exist now will be a financial services industry that has been transformed.

Banks, said Kilcoyne, “will be no longer prepared to accept delays in information; they will want solutions that have been designed to live in the real world, in the near time, that will be able to give actionable decisions within an actionable timeframe.”


New PYMNTS Study: Subscription Commerce Conversion Index – July 2020 

Staying home 24/7 has consumers turning to subscription services for both entertainment and their day-to-day needs. While that’s a great opportunity for providers, it also presents a challenge — 27.4 million consumers are looking to cancel their subscriptions because of friction and cost concerns. In the latest Subscription Commerce Conversion Index, PYMNTS reveals the five key features that can help companies keep subscribers loyal despite today’s challenging economic times.