According to the new Simplifying Cross-Border Payments Playbook, there are five key criteria that an ideal cross-border payment solution should meet: speed, security, compliance, transparency and ubiquity.
Currently, there are 57 real-time payments rails operating in more than 72 countries, with even more under construction.
So, what’s the problem?
Ubiquity. None of these 57 systems is universally applicable – at least not yet.
Different regions have their own unique payment rails, and no two abide by the same regulatory framework.
Last week, seven European payments operators announced the European Mobile Payment System Association initiative, a new pan-European network focused on cross-border mobile payments.
The seven firms and payments networks include Danske Bank A/S’s MobilePay, which operates in Denmark and Finland; Belgium’s Bancontact Payconiq; Bluecode, which operates in Germany and Austria; Norway’s Vipps; Switzerland’s TWINT; Portugal’s SIBS and Sweden’s Swish.
Other initiatives are being spearheaded across regions. In June, the Chinese digital payment player Alipay and a handful of European mobile wallets announced a partnership to promote QR code payment interoperability.
How Cross-Border Payments Are Made
According to the Real-Time Payments Innovation Playbook, 26 percent of cross-border businesses rely on international wire transfers, while the next most common method is by paper check (20 percent). Electronic bank transfers (16 percent) and regular ACH (11 percent) are also popular.
Most of these commonly used methods don’t meet many of the criteria set forth in the Simplifying Cross-Border Payments Playbook. Transparency is lacking in wire transfers and speed isn’t a primary feature of international ACHs. Companies sending cross-border payments want to see where funds are in the payment process and don’t have time to manually intervene.
There is a great deal of interest in enabling real-time payments. One-third of companies surveyed in the Real-Time Payments Innovation Playbook planned to implement them within the next three years.
Security was the most cited important feature of real-time payments (79 percent), while transparency (72 percent) and speed (70 percent) also made the top three. A majority (61 percent) regarded the flexibility and standardized nature of global data formats to be a benefit of real-time payments, which speaks to the importance of real-time payments for cross-border.
Businesses that use real-time payments are more competitive, as the technology is becoming the standard for global commerce.
Compelled by pressure from the consumer space, domestic payment rails are being upgraded rapidly to keep pace. Today, cross-border payments are seeing a similar revolution as a host of new solutions is emerging to ease friction and provide greater end-to-end transparency.
Some of the most commonly used cross-border digital payment solutions employ application programming interface (API) technology, which can facilitate the exchange of information between otherwise disconnected systems. APIs serve as bridges connecting national or regional real-time payment rails. Each scheme is designed to operate within its country’s unique regulatory landscape.
API-based payment solutions can also help alleviate cross-border payments frictions by serving as payment-vetting mechanisms. In an interview with PYMNTS, Citi’s Global Head of Payments and Receivables Manish Kohli explained how APIs that pre-validate payments data can reduce errors and costs while improving speed.
In July, SWIFT released its first set of guidelines for financial institutions using the ISO 20022 payments messaging standard to complete cross-border transactions. ISO 20022 has the potential to promote efficiency in the correspondent banking community and modernize cross-border transactions, though some believe ISO 20022 and APIs are not compatible.
Last week, SWIFT launched a new API standard for the pre-authorization of funds. These new developments underscore the importance of collaboration in reaching a cross-border payments standard.
“In the Nordics, we know the benefits of collaboration in the standards space. We have built the world-leading BankID service and the Swish payment method,” said Kirstine Nilsson, Swedbank’s head of business infrastructure, consumer payments and cash management. “The banking industry must come together for the benefit of the digital economy to standardize retail and wholesale banking APIs.”