By Anders la Cour, Chief executive officer, Banking Circle

Cross border payments are still too slow and too expensive, and this is limiting the growth and productivity of numerous businesses by taking up valuable resources. Given the current pressure on firms, resolving these challenges is an important lever to pull to help businesses access new opportunities and get back to growth.

Global regulators have argued that the key to quicker and cheaper cross border payments lies in streamlining anti-money laundering checks, longer central bank opening hours and linking national systems. While joining-up national systems can play a role in speeding up international payments and reducing costs, this is not necessarily the quickest or most effective route. By providing new technological solutions, financial infrastructure providers are an increasingly vital part of the ecosystem helping banks and payment businesses improve cross border payments for their clients.

Can efforts to join up national payment systems address the challenges associated with cross border payments?

One of the main reasons behind the cross border payment challenges is the fact that many different countries have varying and often non-interoperable payment systems and technologies in place. While some nations have invested heavily in new real time payment (RTP) schemes, others are still reliant on decade old technologies for batch processing of payments.

Even where countries have real time payment schemes in place, these do not tend to be interoperable. Within the European Union, for example, various players have implemented different RTP schemes that do not communicate with each other. This means that in order to reach as many receivers as possible, banks or other end users have to connect to each scheme separately.

For their part, initiatives like P27 – which focus specifically on improving the cross border and national payment rails – are unlikely to work on a global scale because the challenge of ensuring interoperability between different regional schemes would remain. And, with multiple countries involved, they may also take a long time to get off the ground. As to the suggestion from the regulators about longer central bank opening hours, this will only help speed up cross border payments if banks have direct access to a large network of different local clearings.

So what does that mean for the future of cross border payments?

Because they are focused on developing the technology to process payments directly, and to  integrate to a vast network of local clearing and payments schemes, financial infrastructure providers give banks and payment businesses the ability to provide their customers with faster and cheaper cross border banking solutions. All without the need for them to build their own infrastructure, correspondent banking partner network or wait for different national payment systems to be joined up.

The technology behind the future of cross border payments

Central to the proposition offered by financial infrastructure providers is building a super correspondent banking network that bypasses the traditional payment rails and enables financial services providers to make payments at high speed and at low cost. Where payments cannot be processed through the proprietary network, the financial infrastructure provider connects directly to the national clearing systems to create the shortest possible route for the payments.

One of the main complexities behind cross border payments is crossing the different settlement schemes and technology layers. Even when schemes use the same ISO standards, the actual implementation may vary. Financial infrastructure providers remove this complexity through their internal processing engine and by providing one interface layer to their clients enabling them to use the same taxonomy, formats and technology endpoints for all payments regardless of what national schemes the payment eventually goes through to settle.  The complexity of choosing the best route for the payment, and converting to the format needed for that particular settlement route, is handled by the financial infrastructure provider.

By using decoupled architecture, financial infrastructure providers can also easily update or replace individual pieces of architecture with limited impact on the rest –which means they can quickly add more functionality (such as connecting to direct clearing in new geographies).

Considering the many challenges facing businesses in the current climate, it has never been more important for financial services providers to address the cross border payments issues that have been hampering business potential for years. Whilst we welcome any initiatives to improve payments systems, we can’t wait for national efforts to join them up. And more importantly, we don’t have to. Financial infrastructure players are constantly investing in the technology, and building the infrastructure and connections, to enable banks and payment businesses to offer cheaper and faster cross border payments to their customers.

 

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