Evolution of cross-border payments piles pressure on banks

Banks are under increasing pressure to keep up with technology in the cross-border payments space and risk suffering reputational damage if they are found to be the laggards in the payment process, says Intix chief marketing officer, Andre Casterman.

“Increased transparency in the cross-border payments process through initiatives like Swift GPI is putting pressure on banks to keep up because they need to be able to process payments faster and offer additional notifications to tell Swift where the payment is in their own processing,” Casterman says.

“Banks that are not able to keep up are going to lose out,” he says.

Advances in cross-border payment technology, primarily through platforms like Swift GPI, are taking cross-border payments closer to real-time while improving transparency and visibility through the process.

Casterman says this means that corporate clients increasingly expect to have total visibility over their payments in much the same way that a consumer has visibility over an order on platforms such as Amazon. The rapid acceleration of visibility in the consumer space has to some extent fuelled the rise in expectations in the cross-border payments sector, he adds.

“Our expectations when transacting as consumers are now very high because we don’t expect not to know what is going on,” Casterman says.

“Payments need to be processed faster and the information about the payment needs to be delivered to Swift in a continuous way to offer customers the transparency they expect. Not following these trends is a big risk for banks because if they don’t update their systems to keep up, they are at risk of being considered the weak link and being side-tracked in the market.”

A poll by Volante Technologies found that legacy technology was the main concern for 65 percent of respondents when preparing for implementing Swift GPI, and Casterman adds that the transparency developments of the platform present new problems for banks stuck with legacy technology systems.

“In the past, banks could afford to take a few hours, sometimes a few days to process transactions while having manual processes to recover payments because their internal issues were not visible.

“Now, with the monitoring of flows that Swift performs amongst the banks in the bank-to-bank and correspondent bank space, they’re monitoring all of those issues. Late transactions, failed transactions are all reported to the correspondents. So, as soon as a bank fails to respect the service levels, Swift makes it visible and you have no opportunity to hide.”

Monitoring system needed to manage risk

 

If you’re not aware of a problem, you can’t solve it, says Casterman. This is the crucial problem that Intix looks to solve for banks, providing a monitoring solution at both the transactional and individual level so banks can respond to cross-border payment challenges before they get out of hand.

“Knowing there is an issue is 50 percent of the solution,” says Casterman. “If there is an issue, you can promptly react and know exactly, thanks to technologies like Intix, which transactions are either at risk of failing the service level or have already failed. You can therefore size the team required to address those issues.”

Casterman adds that the pressure on banks will only increase at the move towards real-time cross-border payments soon becomes the norm. And with real-time payments, the need for continuous monitoring systems in turn becomes more apparent as response time must speed up.

He also expects regulatory pressure to increase over time despite the current pressures being driven primarily by market forces. But as domestic payments are already “very mature”, there are signs in the UK and Nordics that the regulators will start to mandate better handling of cross-border instant payments, Casterman says.

Ultimately, he believes the changes in the cross-border payments space is being driven by cultural shifts. The simple expectation on a consumer level of visibility and transparency has seeped into the corporate market and the pressure is on to get up to the retail consumer standard of service.

“Banks serving large corporates are always a step behind retail banks,” he says. “Technology is even more important at the retail level because of the high volume of transactions handled. Yet still, the concentration of payment activities with the top 10 banks means they also handle massive flows.”

“Today is transparency. Tomorrow, the pressure is on speed,” Casterman adds.

“If you have a payment that takes a few days or gets lost, you need to know where it is because then you’re solving part of the problem. It’s already putting pressure on banks and because of their lack of operational excellence, it will get more and more visible.”

 

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