The Future of Real-Time Global Payments
Immediate settlement of cross-border transactions has proven an elusive goal, but technology continues to move corporate treasuries in that direction.
One of the hottest topics in finance and treasury continues to be the payment—how to transfer funds more cheaply, quickly, and safely. This conversation becomes even more interesting when the topic is global payments, since cross-border payments remain costly and inefficient in every region of the world.
As companies increase their global reach, cross-border payments become a necessity, stimulating demand for better payment solutions. In the coming years, the technologies and processes supporting the global payments space will be transformed by digitization, artificial intelligence, and blockchains. Existing capabilities, such as ISO 20022 XML and SWIFT GPI, can be expected to continue yielding benefits for multinational finance professionals, as well.
Let’s take a look at the current state of these innovations.
SEPA and XML
XML messaging in ISO 20022 format is not new to treasury; these messages are widely used in treasury reporting and payments, including for credits and debits in the Single Euro Payments Area (SEPA). Still, ISO 20022 has room to grow as a global payment messaging standard.
Within North America, EDI and NACHA payment formats remain popular. This is fine for transacting within North America, but different formats are required for cross-border payments as well as for sending local payments in other countries. The result is that a global treasury must support a multitude of payment formats—but this could be avoided if treasury were to harmonize all payments to XML PAIN (based on ISO 20022). Some enterprise resource planning (ERP) and treasury management systems support XML PAIN (and XML CAMT for cash management), simplifying the implementation and ongoing support of treasury and payments technology.
Regardless of whether payments or other treasury data is transmitted via FTP, SWIFT, EBICS, or API to an organization’s banks, convergence to XML messaging formats is fundamental to improving payment efficiency. Leveraging XML ISO 20022 standards is akin to communicating in a common global language.
APIs
Application programming interfaces, or APIs, have existed for well over a decade, but they are relatively new to treasury. In North America, corporate treasury and ERP systems typically rely on FTP host-to-host connections to receive bank reporting and for straight-through processing of payment transactions. Companies with global banking relationships typically use SWIFT to connect.
APIs offer an alternative to FTP connections, providing a more robust interface that shares data in closer to real time. APIs will also enable those banks which are currently reachable only via SWIFT to offer their business customers choices on how to connect with their bank platforms. This may provide corporate treasury teams more scalability in how they connect to their banks, as well as potentially reducing connectivity costs because development of bank interfaces will be more standardized.
But the big win here is the potential for real-time bank connectivity. Using APIs, banks will be able to offer two primary benefits:
- Instant communication with treasury management and ERP systems, for both processing of payments and receiving payment confirmations.
- A wider array of payment choices, including services such as Zelle and Paypal along with blockchain providers such as Ripple.
This latter development will make treasury management systems and banking portals into multi-channel payment platforms, enabling a true payment factory experience for treasury, finance, and shared services teams.
Real-Time Payments
Instant payments, delivered and settled in real-time, already exist in many countries around the world. In the consumer space, real-time payments enable us to send money to the bank accounts of friends and family via apps on our phones. In Kenya, mobile money transfer service M-Pesa has turned cell phone networks into a widely used payments medium. The service’s digital wallets can virtually store value without the need for a bank account.
In the business community, particularly for business-to-business payments, adoption of similar technologies has been slower. Only this year have real-time payments started to work their way into corporate treasury, with formats such as SEPAInst (for SEPA-formatted instant payments over networks such as TIPS in the Eurozone) and the The Clearing House’s Real Time Payments network in the United States.
In 2017, SWIFT introduced its global payments initiative, or GPI, which was designed to speed up the settlement of cross-border payments to same-day, or even faster, settlement. The initiative also introduced a GPI tracker, which delivers better visibility into exactly where each payment is between the initiating, intermediary, and beneficiary banks. GPI also improved transparency into the cost of cross-border payments, a sore point for many treasurers who were previously unable to achieve cost predictability when sending a payment internationally.
Despite all these achievements, SWIFT GPI does not actually deliver real-time payments, which is why SWIFT has simultaneously worked with governmental and central bank authorities to support connectivity to domestic real-time payment networks. By connecting SWIFTNet to multiple domestic real-time payment networks around the world, SWIFT proposes to build bridges between localized instant payment schemes, effectively creating a global web of real-time payments connectivity. The strategy shows promise and has the potential to offer significant advantages to corporate CFOs and treasurers.
Ripple, on the other hand, is one of the few distributed-ledger (or blockchain) settlement systems that is specifically targeting corporate payments. The platform’s creators see cryptocurrencies and distributed-ledger technologies as a means of transferring funds more efficiently. While many think of Ripple as a non-bank payment channel, the organization also offers a bank-to-bank technology that is purely an alternative to SWIFT for interbank payments.
One of Ripple’s proposed services uses a cryptocurrency as a source of liquidity which enables the company to offer less expensive (or free) payments alongside a promised real-time settlement of funds in fiat currencies. Users of the service are not required to actually hold a balance in the cryptocurrency (Ripple manages the entire transfer), which eliminates a concern of many corporate treasurers that using a blockchain-based payment solution exposes them to cryptocurrency price risk. Ripple has other models as well—services that don’t use cryptocurrencies at all—which further points to the idea that it is the blockchain technology, rather than cryptocurrencies, that offers a more efficient alternative to the correspondent banking model.
There remains work to be done, as the blockchain and distributed-ledger proofs of concept must evolve into payment networks that can support mainstream transaction volumes. The use of cryptocurrencies must also be ironed out, given the price volatility of digital currencies and the lack of liquidity in these “sources of liquidity.” However, the early versions of distributed-ledger systems do demonstrate these technologies’ potential to develop into an alternative payment channel that may help corporates solve the elusive cross-border, real-time payment conundrum.
Artificial Intelligence
Robotic process automation (RPA), powered by artificial intelligence, will soon be a reality in finance and treasury. While robotic software applications for finance will initially target labor-intensive treasury processes such as reconciliations and generation of accounting entries, there are applications for payments as well.
Treasury bots will allow a full digitization of the payments workflow, including:
- digital signatures and real-time notifications of workflow steps;
- electronic documents and authorizations;
- verification of identity, payment policies, and bank accounts; and
- instant-alert workflows if payments remain unconfirmed or are rejected.
Further, robotic software can improve protections against fraud and unauthorized payments via capabilities such as:
- digitization and mapping of the organization’s payment policy;
- payment channel optimization;
- fully automated payment screening, not just against global sanctions lists but also against internal payment policies and rules; and
- evolution of fraud-detection rules by using machine learning algorithms to identify exceptions and to generate new rules without human input.
While many of these individual capabilities already exist within some treasury management systems and specialized payment applications, a solution that incorporates all these automated workflow elements is the next step in payments technology. A complete digitization of payments is necessary to eliminate manual work and ensure consistency in applying internal risk governance to corporate payments, which reduces risks of decentralized and uncontrolled payment workflows. As the frequency of payments-fraud incidents continues to rise, CFOs and treasurers must digitize all corporate payments to protect their data, money—and jobs.
The Future of Payments
The future will feature quicker and cheaper payments that are more resistant to fraud. Although multiple payment technologies are currently competing in areas such as cross-border payments, the next few years promise real-time connectivity between banks and internal treasury or ERP systems; real-time delivery and settlement of payments, both domestically and internationally; and a more automated, robotic workflow that reduces the internal costs of managing payments while further improving audit and controls.