Cash & Liquidity ManagementPaymentsSWIFTNational real-time payment systems spur on push for global equivalent

National real-time payment systems spur on push for global equivalent

Cross-border payments put under spotlight, with this year’s G20 making it a priority

As more countries and regions develop their own internal real-time payment networks, the seamlessness of those solutions is putting pressure on governments to create a similar set of standards for cross-border payments.

“More and more countries are implementing real time or faster payment systems domestically, which is a significant upgrade and change from the previous payment systems,” says Thomas Olsen, partner at Bain & Company.

“Those domestic real time systems are having a big impact. [Governments] are now thinking about how to connect a domestic real time payments system between countries and eventually cross border.”

Earlier this year, the G20 had made enhancing cross-border payments a priority, last month the Financial Stability Board (FSB) published its phase 3 roadmap to achieve this over the next few years.

“They’re interested in how cross-border payments links to trade flows, to GDP performance and to the collection of taxes,” says Ed Adshead-Grant, general manager of payments and cash management at Bottomline.

But given the long history of cross-border payments and the correspondent banking network, Adshead-Grant says it’s difficult to make wholesale change.

“Payments is one of those areas where it’s hard to rip and replace. Rather it’s incremental ideas. The G20’s interest adds weight to other pressures in updating correspondent banking, to make it faster, easier, cheaper and more transparent.”

As the pandemic changes the way businesses operate and accelerated the digitalisation of other processes, the automation of cross-border payments is imperative says Olsen.

“There’s a lot of pressure on the automation side for companies both in domestic and cross-border payments. Cross-border was already quite digital but not as automated.”

According to the Bank for International Settlements (BIS), 60 percent of cross-border payments require manual intervention. Olsen believes one of the issues that prevents further automation of cross-border payments is the inability to reconcile those payments with other systems.

“For businesses it’s reconciliation with accounting systems, inventory systems and CRM systems. One big takeaway view is that this whole payments question is increasingly not so much a payments question as it is a software question. How can you integrate payments into all the software and all the workflow that your company is doing?”

One of the goals set out by the FSB’s roadmap is to increase and enhance the data quality of cross-border payments. Through initiatives like ISO 20022, Adshead-Grant says he expects the ‘flavouring of payments’ where industry specific data can be embedded within a payment.

“You’re going to have a lot more machine-readable data attached to the flows that are very API friendly. For example, you might have a healthcare payment that has all the attached documentation such as the practitioners involved with the payment. That kind of industry flavoring of the payments, I think will become a norm going forward with ISO 20022.”

Olsen agrees adding the integration of data is the next big step in making cross-border payments more efficient.

“That’s the really the next frontier for all payments. To make them more efficient you need to integrate them with accounting software, other types of enriched data, so that basically is all automated together rather than having to reconcile it all manually.”

While most banks would benefit from adopting ISO 20022, the speed at which they do so will depend on their individual circumstances, says Olsen.

“Some banks are very keen to do it fast because [payments] is a large part of their business. In other use cases it’s not that much of a priority. Some banks would prefer to it later rather that sooner because of the cost and headaches transitioning would cause.”

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