After decades of stagnation, international payments have seen remarkable growth in recent years, arguably more than any other finance vertical. As our economic environment continues to fluctuate and customers demand improved experiences, we need to give cross-border payments our full attention.
In FinTech Finance News’ recent Virtual Arena, we explored the roles played by correspondent banks and technology innovation in the transformation of international payments.
Joining us on the panel discussion were Abhish Saha, CEO of Sandstone Technology, Simon Lynch, founder of Cymonz, a leading technology enabler of international payments, and Simon Eacott, Natwest’s head of payments.
Back in the day, if a customer wanted to make an international payment, say to a family member overseas, they had to take their cash to an outlet to remit funds; they were essentially using the banking network and it could take a long time to move the funds.
Simon Eacott is well versed in the topic. Natwest has a range of cross-border capabilities and the bank is responsible for approximately one in four payments made in the UK, across many different systems.
As Simon says, payment networks were – and are - always going to be complicated. They have to be safe, resilient and reliable every time, requirements which are magnified when payments go cross border. That introduces different kinds of routing, different regulations across jurisdictions and different time zones.
The value chain is huge, he says, with many different connections - not to mention, many banks are hindered by legacy technology. No wonder data flow has been sluggish in the past. And no wonder we’ve had high costs, high complexity, low transparency and uncertainty. (We still do, to a degree, Simon believes. Some customers still experience reconciliation issues.)
There have also traditionally been challenges around liquidity and credit affecting productivity. Spot rates must be managed and customers need to control supplier payments, especially with large tickets. In the past, they haven’t necessarily been able to log in and pay all their suppliers across all regions if they were operating under a limited network.
Huge strides have been made in this area. Simon Eacott cites the explosion of new technology, with the growth of real-time systems, and more interoperability across different payment systems as drivers. The process has evolved – rapidly - to a point where we’re able to use payment rails in infrastructure to move money quickly and efficiently from one market to another.
Rather than being dominated by a small number of established networks to deliver international payments, we now have a wide choice. We don’t have to tolerate money moving slowly through banks. We also have far greater predictability and transparency around how much the end beneficiary is going to receive, an important point made by Simon Lynch.
The increasing weight of regulations, including anti-money laundering (AML), has forced change in this vertical. We also have a plethora of non-bank players providing solutions for specific market niches. Bear in mind, we’re in a phase where we’ve got an ecosystem of fintechs, tech companies, and banks working together to support the customer journey.
Rather than looking at each other as threats, banks and non-banks are learning to collaborate and partner up, even if they remain competitors in some contexts. Simon Eacott spoke about how NatWest works with a number of third parties, including their recent partnership with Vodeno around embedded finance, which will allow the bank to offer more banking-as-a-service and payments-as-a-service.
Simon Lynch points to the opportunity for banks and tech players to come together, using payment rails, to create a system that works for the customer even as rapid economic changes are occurring. Banks, especially smaller institutions, would ideally be able to find the right off-the-shelf technology that integrates easily with their systems, so they don’t have to go and build it themselves - though they need to be careful they’re not giving away their customers.
Importantly, initiatives like ISO 20022 have standardised data which enables more straight-through processing. There’s another big opportunity around the quality of the data in, the quality of the data out, which allows banks to connect to other payment rails.
Abhish Saha agrees with Simon Eacott when he says: it’s about being where your customers are, being on the platforms they’re on, and making the payment at the back end of it almost incidental. Institutions must look closely at the whole customer journey and see where their own strengths are - whether that’s consumer trust, settlement, lending, etc., and the value that other partners - fintechs or otherwise, can bring.
Overall, the changes in international payments mean providers can now offer far higher service levels and better user experiences to eliminate decades-old pain points.
The speed and transparency of transactions have improved, and we have the ability to do more with the payment. As we know, the digital experience has, for a lot of institutions, and a lot of institutions’ customers, become even more critical than the in-person version, so we have to get it right.
Simon Lynch has vast experience here. He was in the international payments business a decade ago and notes that it’s a lot easier to self-serve now, online and with apps. We’re at a point where it’s becoming more like “a domestic payment feel” for the end user, he says - they can transact 24/7, 365 days a year, across different time zones. The established providers like SWIFT, which today networks 10,000-odd banks, have moved with the market too, and continue to grow their capability set.
The market for international payments is getting bigger, driven not just by migration and travel, but also the B2B supplier payments element. Simon Lynch talked about the example of Visa launching their B2B Connect product, which is tokenised on blockchain. They’ve also purchased companies like Earthport, originally a UK company, which has excellent local clearing ability.
In Abhish Saha’s view, there’s still plenty of room for more players, especially if they cater to localised or regional needs. New entrants can compete for many different segments with different use cases and requirements.
One area where new players can definitely compete is on cost for customers. According to Simon Lynch, some customers are moving away from banks because the disruptors have brought down costs – and providing really good services at the same time. The traditional banks shouldn’t be too worried though. Many customers want to do their international payments as part of their overall banking experience. If they transact away from their bank, it’s adding an extra step, which takes more time.
Increasingly, banks are also starting to offer their customers the same disruptive payment technologies as their competitors, to keep customers inside their bank ecosystem. It’s becoming a core piece of their offering, and a way to keep customers engaged.
Simon Eacott believes that customers are going to expect payments to be embedded in their business. Standardisation of the data will surely help achieve that outcome. In Australia, the banks are already looking at attaching invoices to payments, off the back of the enhanced data. In the UK, new payments architecture will enable not just fast and instant payments, but much richer data. More services can then be developed, not just by banks, but by the whole financial ecosystem.
So it really is moving at pace, and it’s about more than just the underlying transfer of value; it’s what banks do with that, and how they embed payment rails in the customer experience.
There are regulatory compliance issues at play here, there’s new technology transforming the process, but ultimately, customer expectations are driving change, bringing a really exciting opportunity.
Operationally, there are still a lot of moving parts with international payments, even if a bank or non-bank uses a common set of rails. For smaller banks that don’t have the ability to build their own networks, or the qualified, experienced staff to monitor and manage risk, the kinds of partnerships Simon Lynch spoke about are critical.
Sandstone Technology can provide a best-in-class front end that handles the many nuances of international payments for the user, and a network that will reach the end points where consumers want their money to land. And with the monitoring component, including regulatory checks and reporting – Sandstone solutions can ensure users are staying within the rules, and not putting the bank at risk of fines or reputational damage.
With these solutions, customers can also improve time to market, and take advantage of opportunities sooner.
Sandstone Technology offers a range of solutions that focus on digital banking - from mobile apps and internet banking, to bank-facing tools that help support customers’ digital experiences, along with a suite of lending solutions. Having these functionalities enables banks to keep their customers on their platform, rather than hopping off and using other international transfer providers.