TCH’s Immediate X-Border Payments Pilot Eyes Payroll, Remittances

Breathless anticipation of blockchain and central bank digital currencies (CBDCs) aside: There’ll always be a place for the correspondent banking system.

As Russ Waterhouse, executive vice president for product development and strategy at The Clearing House (TCH), told PYMNTS’ Karen Webster: The existing real-time payments networks and correspondent banking system is moving to meet expectations for fast, accessible cross-border payments.

While the jury is still out at the Federal Reserve about the development and deployment of the digital dollar, and Facebook’s Libra is dead in the water, CBDC- and blockchain-driven cross-border payment methods are often solutions in search of a problem.

However, there’s a real need to spruce up the domestic payment options in place today and improve cross-border payments, in part by improving the messaging that flows between banks and across borders. As he noted to Webster, consumer expectations are changing, and the stage is increasingly being set for a wider embrace of immediate cross-border payments.

As reported late last month, a pilot program called IXB (immediate cross-border payments) between TCH, EBA Clearing and SWIFT, with the support of two dozen banks at present, will leverage instant payments and real-time messaging into a variety of new use cases.

Read more: Cross-Border Real-Time Payments Pilot Launched by EBA, SWIFT, TCH

TCH’s payments networks clear and settle in excess of $2 trillion daily through wire, ACH, check image and real-time payments — so there’s a natural on-ramp into IXB for businesses and consumers when the pilot moves to into production beginning next year.

The pilot has been a year and a half in the making, Waterhouse said, and the urgency is there to meet consumers’ demands for digital innovation. TCH and other payments networks are seeing increased competition from the Xooms and the Wises of the world that are starting to take share.

Even the brick-and-mortar players — the bank branches and Western Union — are starting to see a shift of transactions into the digital realm. As Waterhouse told Webster, “We’re seeing a clear shift to digital when it comes to cross-border payments.”

The IXB proof of concept (POC) began last year, which he likened to a lab experiment. Now, what’s different is that TCH is beginning to do it at scale — building a commercial product with the banks.

There will always be a need for the Citis, the J.P. Morgans and the Societe Generales of the world to provide a suite of trade services and liquidity. The pilot, he said, proves that a U.S. or European bank on opposite sides of a transaction can make payments without a traditional correspondent relationship, or could deliver their own liquidity and pay out in multiple “destination” currencies.

The end result is better synchronization of payments, sidestepping the batch processes that have been a hallmark of ACH systems around the world.

Trade Corridors — and Messaging Upgrades

“We are focused on euros/dollars right here and now,” Waterhouse told Webster, “but we have also started to look beyond that corridor to identify the logical next extensions.”

He pointed to the sterling/dollar and sterling/euro corridors as important corridors for consideration, given their roles in global trade flows.

“The challenge here is that the U.K. is on an old ISO format,” he said. As a result, the messaging friction must first be solved — SWIFT is enabling this ISO migration to happen across high value systems, he added, which might be part of the solution. Another corridor of interest is Canada.

Waterhouse said that the original POC informed changes to RTP messaging specifications to include additional messaging fields, addressing the pain points inherent in cross-border payments today. He added that, ultimately, the IXB will tie into high remittance corridors.

The Near-Term Roadmap

TCH, EBA and SWIFT, he said, have been meeting with pilot banks to focus on endpoints and use cases at a customer level, to chart the “long path” to get those attributes in place.

As for the use cases, Waterhouse said they encompass “anything” that can be run across a real-time system. The initial, natural first steps would involve consumer payments and B2B payments.

But down the line, he said, large disbursements and requests for payments will be natural fits. TCH, he said, has seen more than 14 billion transactions across traditional bill payment channels — so real time and cross-border initiatives make sense as stakeholders re-imagine bill pay.

Those transactions, he said, “are fully reconciled to the biller — and irrevocable, so they will not be dealing with failed transactions.”

Related: Businesses Tap Real-Time Payments to Power Cash Flow Management

The Longer-Term Roadmap

“We will introduce requests for payments,” Waterhouse said, though at present, those transactions are not part of the pilot. “And the RTP network has utility whether it’s for consumer payments or for business payments.”

That level of interaction may be in place by the end of the year, he said. Those options could include payroll, including gig payments and mass payouts to remote workers. He noted as an example that Uber is paying drivers around the globe with transactions sourced in U.S. dollars but paid out in other currencies.

“That’s a use case that will be front and center,” he predicted. As more banks join the RTP network, digital cross-border payments will become a natural extension of their product offering.

Of IXB, he told Webster, “This is something that will be mainstream — providing customer value, scalable, resilient, repeatable … all the things you’d expect in a payment system.”