PYMNTS-MonitorEdge-May-2024

Three-Day Weekends Are Relaxing — Three-Plus Days for Sending Cross-Border Payments Is Anything But

cross border payments

—Cross-border transactions are growing rapidly, thanks to digital transformations and new international settlement rails.

But there still exist a host of international payment frustrations and reconciliation frictions due to ongoing and historical round-peg, square-hole operational bottlenecks between those businesses transacting across borders with each other.

Not the least of which is how long it takes for international transactions to settle.

Fortunately, many industry leaders tell PYMNTS this situation is about change — for the better.

That’s because several future-fit efforts to improve cross-border payment systems are well underway, including next generation real-time payment (RTP) initiatives from SWIFT, ongoing development and experimentation of blockchain-based solutions that include international central bank digital currencies (CBDCs), and more digital-first platforms and solutions that aim to remove historical cross-border frictions while streamlining and expediting the payment journey.

Still, moving from an international payment landscape made up of two- or three-day cycles to a 24/7/365, always-on environment may seem daunting to many businesses who have structured their working capital and cash flow forecasting strategies around the persistent inefficiencies of cross-border money movement.

With so many new options on the horizon, interoperability between emergent and historical payment platforms and systems will be crucial to smoothing out and streamlining payment flows.

The Move to Streamline and Speed Cross-Border Payments

Although payments systems have been around for centuries, building a reliable, modern and scalable system is rife with challenges and needs to meet the “three F’s,” Shruthi Murthy, head of engineering at Modern Treasury, told PYMNTS. Payment systems need to be “fast, fraud-free, and have low fees when it comes to the transactions themselves,” she explained.

One area that certain firms believe shows promise in evolving cross-border payment realities is in leveraging blockchain’s distributed ledger technology to help make cross-border transfers and anti-money laundering (AML), know your customer (KYC) sanction screenings more efficient by decreasing the number of days they take to clear, while simultaneously making information sharing easier — increasing payment visibility along key transaction touchpoints.

“The problems that the promises of blockchain are already delivering on include reducing the cost to move funds, increasing the speed with which you can move funds, increasing transparency, all while increasing the availability of being able to move funds 24/7/365,” Brendan Berry, head of payments products at enterprise crypto provider Ripple, told PYMNTS.

Global businesses frequently transact within multi-country and multi-currency environments, making it critical that finance departments continually test future-fit solutions to optimize their cross-currency workflow without disrupting their existing operations.

“For the banks and corporates adapting to and adopting real-time payments, connectivity to managed payments services through an application programming interface (API) enables some ‘future-proofing’ against regulatory and process changes while making sure new demands and use cases are served as they arise,” Mark Staunton, head of customer success in North America at Form3, told PYMNTS.

See also: International CBDC Aims to Unify Fragmented Digital Currency Landscape

Solving for Historically Prevalent Frictions

Currency volatility is “a substantial risk for any business, especially global [ones],” Roman Tazetdinov, head of geo expansion at Worldline, told PYMNTS, and many cross-border transactions get bogged down by the foreign exchange (FX) settlement process, especially if additional approvals or verifications are required.

That’s because many cross-border payments are also cross-currency payments, creating illiquid currency pairs that continue to face limitations, such as high costs, slow settlement times, lack of access to market solutions, and limited transparency.

Compounding this is the fact that international payments are frequently subject to time zone differences between the multiple financial institutions involved in a cross-border transaction, something that can result in banking coordination and communication delays along the payment chain.

Facilitating cross-border transactions that don’t get hung up in the FX settlement or correspondent banking processes offers an attractive and efficient modern way of facilitating global transactions, as does removing manual clerical work around the payment occasion.

Depending on the two parties involved, many cross-border payments still involve a manual review of payment details, manually conducted fraud checks, and more human-led processes that can severely slow down the overall payment timeline when added to other bottlenecks.

Still, as the world becomes ever more connected and digitized, promising shifts in the industry point to a technology-first landscape where cross-border payments become rooted in a better, more efficient data exchange that empowers real-time settlements and automated regulatory control frameworks.

PYMNTS-MonitorEdge-May-2024