Connect with us

Finance

CROSSING THE RUBICON: WHY CROSS-BORDER PAYMENTS ARE PRIMED FOR TRANSFORMATION

Published

on

Indranil Bhattacharya, Senior Payments Architect, Icon Solutions

 

As global trade, investment and commerce have boomed over recent decades, cross-border payments have become foundational to the world economy. The Economist reports that some $140 trillion moved across borders in the past year and, according to the Bank of England, this is estimated to reach $270 trillion by 2027 as globalisation marches on. Traditionally, financial institutions have used correspondent banking capabilities to facilitate cross-border transactions. The correspondent banking model emerged in the late 19th century and comprises intermediary ‘correspondent’ banks that facilitate the exchange between banks in different jurisdictions. Payments are then settled using central-bank operated domestic or regional payment systems (such as RTGS for high-value payments and ACH for low value payments). The result is a worldwide network where customers can make a payment in any currency, anywhere in the world.

Yet, despite the ongoing growth in cross-border payments, correspondent banking is in retreat. The World Bank reports that 75% of banks have significantly declined their correspondent relationships. In its place, alternative payment ‘rails’ – the underlying digital infrastructure that enables money to be transferred from one account to another – are emerging as financial institutions look to realise the potential of truly frictionless cross-border payments.

 

Indranil Bhattacharya

Understanding the limitations of correspondent banking

Over recent years, the development and rollout of real-time domestic and zonal payment systems (such as SEPA) have transformed customer expectations for payments. This has only served to highlight three significant issues with cross-border payments, in that they are expensive, slow and lack transparency.

This is primarily due to the inherent complexity of the cross-border payment and settlement process. The nature of the correspondent banking model means there are multiple entities involved in the execution of a single cross-border transaction. This is coupled with an alphabet soup of compliance headaches, including anti-money laundering (AML), counter-terrorist financing (CTF) and know your customer (KYC) requirements, alongside a patchwork of divergent technical, operational and regulatory standards across different jurisdictions.

The results are predictably bad. Consumers don’t know when a payment will complete or what fee will be imposed. Commercial banks lack visibility and must rely on cumbersome manual operations to process transactions. Central banks are inadvertently creating barriers as only the largest commercial banks have the capacity to join multiple local schemes (such as domestic RTGS) given the differing membership and technical requirements. This creates the need for a number of intermediaries to complete cross-border payments, compounding complexity.

 

Enhancing legacy infrastructure with ISO 20022

However, attempts to address these challenges are constrained by the outdated legacy infrastructure that underpin the correspondent banking model. In the search for a safe, efficient and inclusive international system for cross-border payments, attention has turned to enhancing the underlying payment rails to support increasing volumes and resolve the complexity associated with correspondent banking.

One significant step forward is the ongoing migration to the ISO 20022 messaging standard. ISO 20022 enables standardised, relevant and enriched datasets that are directly associated with the payment message, supporting the delivery of accurate and complete payments data

This will simplify end-to-end payment flows, and make it easier for banks to port a domestic or geographical zone payment to the most suitable and cheapest cross-border payments rail. More complete and accurate data will also support automation and ease compliance, making cross-border payments faster and more transparent

 

Alternative rails for cross-border payments

But in parallel to enhancements to these bank owned rails, the emergence of alternative rails that lie outside of the traditional banking infrastructure are facilitating the movement of richer, more integrated transaction data between parties.

For example, products from OFX, PayPal, Remitly and Wise already allow for easier, cheaper and faster transfers than legacy rails. And Visa Debit leverages Visa’s vast networks to connect directly into the ACH systems of the 100-plus countries and territories in which it operates, generating significant cost-savings that can ultimately passed on to end-users.

Elsewhere, Ripple has demonstrated the use of a distributed ledger as a payment rail. This provides a system for the direct transfer of funds that settle in almost real-time, and is cheaper, more transparent and more secure when compared to the current system.

Given the ability of these emerging alternative rails to reduce costs and increase speed and transparency, we anticipate wide adoption from payment service providers and, eventually, that the correspondent banking model for cross-border payments will be replaced. Instead, most cross-border payments will be achieved through a combination of rails including connected central infrastructure like RTGS, card-brand and non-bank solutions, and blockchain-based exchange mechanisms.

But for customers, the actual mechanism used is unimportant. What matters is that banks can provide a range of cross-border payment solutions that allow customers to pick and choose based on specific requirements or demands. They can then, for example, opt for low-cost rails or providers that offer specific services such as real-time FX, with the bank or payment provider using the most appropriate mechanism to fulfil the request. Although this model may fragment the value-chain in the backend, the actual customer experience will be seamless.

 

Preparing for the next-generation of cross-border payments

With cross-border payments primed for transformation, banks should move quickly to identify the requirements and strategy needed to move to next-generation cross-border payment workflows.

In the immediate short-term, this involves prioritising strategic ISO 20022 migration to reap the benefits of enriched, standardised datasets.

Looking further ahead, the focus must be on building the flexibility and agility to support the rapid and concurrent adoption of multiple alternative payment technologies. Banks should look to increase technology reach by striking partnerships with Payments as a Service (PaaS) providers to deliver a range of value-added options for cross-border payments, meaning that enabling easy connectivity with third-party providers via APIs will be integral. More broadly, the onus will be on developing a flexible, open, data-focused, cloud-based architecture and supporting business operating model.

By taking these steps, banks will be ready to seize the opportunities presented by truly frictionless global commerce.

 

Business

IS SCARCITY OF TALENT THREATENING THE UK’S FINTECH CROWN?

Published

on

To be attributed to Rafa Plantier, Head of UK and Ireland at Tink

 

From the Square Mile to Canary Wharf, London has been the historic centre of global finance, with long-established trading exchanges and trusted financial institutions. In the digital era, it has also ensured that it’s moved with the times to become a thriving hub for fintech.

But the UK financial services sector is now at an inflection point. In the past year, London’s position as a global fintech leader has been under threat. Earlier this year, Amsterdam overtook The City as the largest European share trading hub. The European Banking Authority moved from London to Paris. And Dublin, Paris and Frankfurt are all competing to win a greater share of the European financial marketplace.

The culprits of the shift are the twin challenges of the pandemic and Brexit, combined with the speed of technological transformation in financial services – disrupting the traditional flow of people, capital and ideas. So the pressing question for the industry is: how do we maintain and, more importantly, accelerate momentum to retain London’s fintech crown?

The answer revolves around one key thing — people.

 

Diverse talent drives innovation

Attracting the best talent is crucial if the UK financial services sector is going to continue to thrive and retain its global position as the preeminent financial centre.

In February 2021, the Kalifa Review laid out a strategy and delivery model for the UK to lead the fintech revolution, covering five key areas. These included skills and talent, investment and international attractiveness and competitiveness. But what became clear was that access to the right level of highly skilled talent was one of the biggest challenges for UK fintech, with barriers spanning both domestic skills shortages and the need to access foreign talent seamlessly.

As a native Brazilian in the UK, working for a Swedish-owned fintech, I understand these challenges as well as anyone. I love London, but we must recognise that fintech firms need unique talent and skills, and such a talent base can’t be met by a single city – not even one as resourceful as London. Not only do fintechs require technology and data specialists, but also experienced managers with good knowledge of high-growth companies and financial services.

As someone lucky enough to have worked with startup and scale-up fintechs across the world,  I understand the unique grounding that comes from being a part of a high-growth global company. That’s why I believe it’s vital that we attract people from across the world with commercial experience at ambitious, rapid-growth businesses — so they can bring this experience to bear on the UK financial services sector.

At the same time, many companies face renewed pressure to create new services and products to meet expectations for growth. That is why it’s critical that the UK has access to people with the right technical skills in areas such as software engineering, DevOps, Cybersecurity and data science.

Put simply, having the smartest minds delivering the best products is good for everyone. It drives efficiency, productivity,  growth and, ultimately, prosperity.

 

The UK is open for fintech

The UK should be proud of being a fintech pioneer and the driving force behind legislation that helped usher in the era of open banking. There is now an exciting opportunity to take this even further. Having access to a diverse pool of talent and skills will empower the financial services industry to create innovative products to tackle complex social challenges, such as better B2B payments, financial inclusion and climate change.

The good news is that the UK government clearly recognises the role the industry has to play in driving growth and innovation. The 2021 Autumn Budget reaffirmed commitments to reskill the nation. With £3.8bn budgeted for skills and a formal criteria for the long-awaited Scale Up Visa, the Chancellor announced a set of proposals that will support the breadth of our sector — from startups right through to unicorns and incumbent banks. This will be essential for fintechs like ours to continue to trailblaze and for the UK to differentiate itself on the global stage.

In an increasingly competitive global landscape, and to sustain momentum, we must keep talent avenues open to attract the best of the best in the industry. As one of the fastest-growing areas of the UK economy, the benefits of nurturing UK fintech to drive productivity, growth and lead the UK’s post-pandemic recovery, cannot be overstated. 2021 has seen a surge of activity in the industry and I am eager to see what London’s fintech sector can achieve in 2022.

Continue Reading

Business

THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT

Published

on

By

THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT

Jennifer Sims, Senior Consultant at Xledger

 

The world of finance software is evolving quickly, but with many new software contenders entering the market it can be a mindfield for organisations. Many finance teams are already using multiple accounting apps and software packages for bookkeeping, payroll and invoicing to service individual needs. Whilst it may work fine for now, this segregated approach isn’t sustainable for long-term growth. The world is swiftly moving to agile, automated ways of working. As a result, there is a growing need to choose suppliers that can fulfil multiple functionalities within the one platform.

Financial software is evolving at such a pace that it can be difficult to keep up. Changing up a finance solution is a big step and ease of migration can be a substantial factor in determining which solution provider to go with. But how do you choose a solution that will grow with your business and still offer something innovative in five or ten years down the line? The fear is always that non-techie organisations will end up falling behind, but in such a highly concentrated industry, how do you decide which solution would work best for you?

 

Cloud-first: the term that makes all the difference 

You could find a ‘cloud-based’ service with an application that comes with automated audit trails to make it easier to meet compliance and record-keeping obligations, for example. But for a solution to offer all of the many future benefits promised by the cloud, it needs to have been built specifically for a cloud environemt from the outset – ie. not an on-premise built system that has been later adapted. Cloud-first services (true cloud) were always intended to leverage economies of scale, cope with live updates, be accessible from anywhere with an internet connection, and to scale rapidly, to name just a few of the many benefits.

When we talk about innovation in financial technology, we’re not just talking about software that makes it easier for the financial controller to create reports. If eliminating reliance on Excel spreadsheets is the only tangible benefit you have to really shout about, you are missing out on the real deal. With ‘true’ cloud finance software the sky is the limit.

Finance and accounting technology needs to directly meet the needs of the finance function and support the wider business needs.  When looking at accounting software platforms you’d be hard pressed to find one that doesn’t now promise ‘cloud-based’ enterprise resource planning (ERP) capabilities. The cloud is nothing new, but it’s the way that a solution harnesses this environment that makes a real difference. And here is where there is a need to read between the lines.

 

Automate more with true cloud 

Historically, repetitive and manual tasks are typical of the finance role – from invoice postings to expense claims handling – these can overwhelm the finance team. Research by Xledger[1] has found that an enormous 91% of CFOs and finance decision makers are carrying out at least one of these repetitive tasks as part of their job. What’s more, senior finance leads are averaging a whopping 25 hours per week carrying out repetitive and manual tasks, compared with 15 hours for other finance decision makers.

A modern, true cloud finance system can enable your business to automate repetitive tasks and provide one source of truth so that teams can make informed business decisions that will help to scale a business. Bank reconciliation, dashboard creation and reporting are just some of the tasks that can be handled automatically.These capabilities are aiding overtasked finance teams and saving hundreds or thousands of hours a year.

Whilst different companies are at different stages in their digital transformation what is clear is keeping up with the latest technology is fundamental to the future success of an organisation.

Xledger is a true cloud finance solution. The basics include invoicing, robust general ledger accounting, detailed slice and dice reporting, purchase orders, billing, VAT reporting, and cash and bank payments. It also adds process and structure to the enterprise with procurement and inventory, budgeting and forecasting, and project accounting. Users are always on the latest version of the software and with regulation more stringent than ever today, Xledger is ISO 27001 accredited.

Choosing the right provider for your financial ERP solution comes down to whether it has the fundamentals right. When hosting all of your vital data in the providers’ own servers, it should evidence a highly tested security process that comes with backup services as standard.

As our demand for technology capabilities grows and as ERP models progress, innovation will become the structure for growth – and there is no end to the possibilities.

 

Continue Reading

Magazine

Trending

Business25 mins ago

IS SCARCITY OF TALENT THREATENING THE UK’S FINTECH CROWN?

To be attributed to Rafa Plantier, Head of UK and Ireland at Tink   From the Square Mile to Canary...

SET YOUR BUSINESS UP FOR SALES SUCCESS IN A POST-PANDEMIC WORLD SET YOUR BUSINESS UP FOR SALES SUCCESS IN A POST-PANDEMIC WORLD
Business2 days ago

SET YOUR BUSINESS UP FOR SALES SUCCESS IN A POST-PANDEMIC WORLD

Dean Fiveash, Head of FinTech Sales, IFX Without doubt the Coronavirus pandemic impacted every aspect of our lives and fundamentally...

THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT
Business2 days ago

THE EVOLVING TECHNOLOGY NEEDS OF THE FINANCE DEPARTMENT

Jennifer Sims, Senior Consultant at Xledger   The world of finance software is evolving quickly, but with many new software...

HOW RETURNS ABUSE AFFECTS RETAILERS HOW RETURNS ABUSE AFFECTS RETAILERS
Business2 days ago

HOW RETURNS ABUSE AFFECTS RETAILERS

By Aaron Begner, EMEA GM at Forter   Accompanying the significant growth in ecommerce over the past 12 months, is the...

TINTRA PLC FINALISES JOINT VENTURE WITH ARTIFICIAL INTELLIGENCE PARTNER TINTRA PLC FINALISES JOINT VENTURE WITH ARTIFICIAL INTELLIGENCE PARTNER
News2 days ago

TINTRA PLC FINALISES JOINT VENTURE WITH ARTIFICIAL INTELLIGENCE PARTNER TO BUILD INDUSTRY CHANGING REGULATORY TECHNOLOGY

Innovative fintech company, Tintra PLC(https://tintra.com/), has formed a joint venture with award-winning Artificial Intelligence and Machine Learning business, TMC2, via...

CELLPOINT DIGITAL PARTNERS WITH VYNE TO ENABLE INSTANT OPEN BANKING PAYMENTS FOR MERCHANTS CELLPOINT DIGITAL PARTNERS WITH VYNE TO ENABLE INSTANT OPEN BANKING PAYMENTS FOR MERCHANTS
News2 days ago

CELLPOINT DIGITAL PARTNERS WITH VYNE TO ENABLE INSTANT OPEN BANKING PAYMENTS FOR MERCHANTS

The partnership will allow CellPoint Digital customers to incorporate Vyne into its payment ecosystem and access instant payments without a...

WHY A MULTI-ACQUIRER STRATEGY IS KEY TO GLOBAL GROWTH WHY A MULTI-ACQUIRER STRATEGY IS KEY TO GLOBAL GROWTH
Business5 days ago

WHY A MULTI-ACQUIRER STRATEGY IS KEY TO GLOBAL GROWTH

As online business grows exponentially, finally fulfilling the internet’s promise of a ‘global village’ in which anyone can buy and...

Business5 days ago

TAKE THE NO-CODE LEAP TO DIGITAL INNOVATION WITH A FUSION TEAM

Chris Obdam, CEO, Betty Blocks   In the last couple of years, a new sector has emerged alongside enterprise financial...

Finance5 days ago

HOW FINANCIAL ORGANIZATIONS CAN PROTECT THEIR DATA

Yuval Wollman, President, CyberProof and Chief Cyber Officer, UST   Top executives from Wall Street’s largest banks pinpointed cybersecurity as the...

Top 105 days ago

IF IT’S A LOSS, YOU’RE TOO LATE – WHY THE INSURANCE INDUSTRY NEEDS TO FOCUS ON FIRST NOTIFICATION OF RISK

Simon Dicks, Insurance Channel Manager EMEA, Lytx   Insuring commercial fleets can be an expensive business. Average repair costs have...

Business5 days ago

IDENTITY SECURITY IN THE ERA OF SOX

By Steve Bradford, Senior Vice President, EMEA, SailPoint   The Sarbanes-Oxley Act (SOX) is a federal law that mandates practices...

News5 days ago

EXPERIAN LAUNCHES VERIFICATION SERVICE TO SUPPORT FASTER, MORE ACCURATE LENDING DECISIONS

Work Report™ is the UK’s first service that automates the digital sharing of payroll information on behalf of the consumer...

News6 days ago

TENUREX AND ELUCIDATE PARTNER TO INCREASE FINANCIAL INCLUSION WORLDWIDE

TenureX and Elucidate have announced a strategic partnership with a mission to increase financial inclusion worldwide and tackle the laborious...

Banking6 days ago

WHY THE TIME IS NOW TO BANK BEYOND BORDERS

by Lili Metodieva, MD of Monneo   As our world becomes more interconnected, so too does the need for banking...

News6 days ago

PAYCAST PARTNERS WITH MARQETA AND MASTERCARD FOR NEW MARKETPLACE PAYMENT SOLUTION

Paycast will leverage Marqeta’s modern card issuing platform and the Mastercard network to empower marketplaces with payment solutions that help...

Finance1 week ago

HOW FS ORGANISATIONS CAN USE API-DRIVEN DATA AUTOMATION TO JOIN THE OPEN BANKING REVOLUTION

By Steve Barrett, Senior Vice President, International Operations at Delphix    Technology is rapidly transforming all industries across the world. However, for the...

Banking1 week ago

IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING

Eugene Danilkis, CEO at Mambu   We are living in an experience economy, and banking is no different. Customers need...

Banking1 week ago

WILL CHALLENGER OR TRADITIONAL BANKS WIN THE SECURE CARD PAYMENTS BATTLE?

By Vince Graziani, CEO, IDEX Biometrics ASA   Challenger banks have shaken up the payment ecosystem in the last decade....

Banking1 week ago

TOP ITALIAN BANK ROLLS OUT FIRST OF ITS FULLY DIGITAL BRANCHES WITH AURIGA

Banca Carige Smart, the new intelligent branch model enabled by Auriga #NextGenBranch solutions , combines digitalisation with a human touch...

Banking1 week ago

HOW BANKS CAN PROTECT THEMSELVES AGAINST RANSOMWARE

Jay Ralph, Managed Cloud Global Sales Lead at SoftwareONE   We’ve seen a slew of high-profile ransomware attacks in 2021. From hackers...

Trending