Real-Time Payments Are Ready, But Much of the World Isn’t

The cost, time and experience upgrade that digital payments promise cross-border senders and receivers may be crystal clear to some, but it hasn’t happened yet. Even though there’s every reason to get it done with all speed, holdouts abound in parts of the world that still love to deal in cash.

Diving into this complex topic from the B2B and C2C perspectives, Shaunt Sarkissian chief markets officer at The Bank of London Group led a panel discussion with guests Brian Johnson, CFO of MoneyGram and Ajay Gopal, founder and CEO of FinTech Tinvio, in which the difficulties of going cashless came into stark focus, as did the manifold benefits.

With Sarkissian noting that tolerance for cross-border payments pain is wearing thin, Johnson explained why from the perspective of one of the world’s original near-real-time money transfer companies. Behind its famed “10-minute service” are piles of cash to fund its network of 4,000 agents, and to that kind of operation, the shift to digital can’t happen fast enough.

“The nuance for us is that we settle with our agents on a T+1 one basis, so we’re only distributing money to the receive market once the transaction has been picked up,” Johnson said. “With a lot of our business [now] migrating to a digital receive, if you are landing funds into a bank account in a foreign country, oftentimes the regulatory environment requires you to have pre-fund with those banks.”

That’s a boatload of working capital that MoneyGram would rather not have to supply.

On the B2B cross-border side, Gopal said “it’s very different. Payments are already digital to some degree because no one’s carrying cash across the border with a pony. Everyone’s using financial institutions which are using the SWIFT frameworks and so on. I think here the missing piece is how do you make these cross-border payments more accessible and affordable?”

Johnson said that speed, affordability and accessibility find MoneyGram “trying to leverage blockchain technology [or] other types of real time payment rails to augment our own working capital needs, but also drive a better consumer experience.”

Benefits and Barriers

Putting aside the core money movement aspects, Gopal cited ancillary benefits of digital payments and real-time rails, saying “the value of a digital payment is not so much the fact that it’s just digital, but all that you can achieve because it’s digital: the automatic reconciliations, the bookkeeping, etc. So those automations, those workflows, that reduction of errors, those are all only possible because of these advancements and technologies.”

The messages and data volumes riding along with real-time volume of data can be turned in “more tangible user experiences like, hey, this transaction can now automatically reconcile against this invoice, which then gets booked in your accounting system this way,” he said.

It’s always easier said than done as Sarkissian joked about the difficulties card issuers had adding card verification value (CVV) numbers to cards back in the day. With messaging standards like ISO 20022 coming into the picture, payment and payment details travel efficiently together, the goal is to retire legacy rail issues and hard cash exigencies.

At present, MoneyGram uses a net settlement engine to predict how much cash is needed in-country and “a massive foreign exchange trading platform from a volume perspective. We’re trying to land funds just in time so that we don’t have a lot of foreign exchange risk, but that we have sufficient funds on hand to settle with agents.”

Always-on blockchain-based transfers hold immense appeal here versus a network of agents who may require huge working capital outlays during long holiday weekends and the like.

From the Tinvio perspective, operating in Southeast Asia, cash is still king, which makes serfs of the region’s microbusinesses who must collect cash and process everything manually.

Noting that it’s “not a problem that business understand or face” because to them cash in hand is “real time,” Tinvio’s go-to-market is to acknowledge problems around order management, invoices and inventory “which all somehow tie back to payments because it’s a transaction between you and another party. We then try to get them to move and facilitate those ancillary value propositions on the platform and then pack payments on the back of it.”

“There’s a huge mindset barrier to cross in this region especially, where cash is still the predominant method of payment,” he said. “How do you shift someone from cash digital? Then to think cross border, it’s another leap altogether.”

The Give and Take of Government Action

As the conversation turned to CBDCs and the impact digital currencies may have on a C2C platform like MoneyGram or a B2B platform like Tinvio, it’s clear that much complexity remains.

Johnson illustrated, saying, “there may still be a need for physical cash on one side where it could be a digital currency on the send perspective. But our goal, which is why we want to be on the cutting edge of innovation, is to be an intermediary or to create that interoperability between those fiat currencies or digital currencies, if they end up ultimately being that.”

Be that as it may, the panel concurred that digital is the way things need to go, and Gopal said it ultimately falls to governments to initiate that change. Until they do, it’s all about workarounds.

“It sets the mandate for the entire economy,” he said. “Instead of just printing cash or running a printer, now they’re actually looking at how innovation ties into the entire monetary policy, which is something that probably hasn’t been done since Keynesian times.”

He added that “the governments are finally doing something about it, and I think it’s good for us builders, because we now have currency that’s finally digital that we can interact with in a format that we can control, exchange data with, and create applications on top of.”

On talk of governmental action, Sarkissian raised the specter of regulation and the complexities of cross-border jurisdictions as it pertains to payments. Johnson said this can be a good thing, as many FinTechs “come at it from an ‘act first, think later’ perspective.”

“That’s where you get yourself in trouble [when] you haven’t really gone through the appropriate regulatory framework to figure out how to operate in that country or region.”

Gopal noted the KYB pressures regulation put on companies like Tinvio, but conceded the necessity, saying, “I can’t even imagine how it happened back when, trying to get someone to go down with an ID card or something. I think it’s manageable, but yes, startups like myself have to adopt a more ‘think first, act later’ approach. It’s a learning curve for us as well.”