Cross border payments: fact or friction?

Tom Scampion, CEO of Global Screening Services (GSS)


10 years ago, the fastest way to transfer money from country to country was to deliver it yourself. Over a decade, a dramatic shift has taken place, and now the average time of completing cross border payments is just two hours. Whilst this is a significant improvement, it is still not fast enough to keep pace with the rapidly evolving requirements of both businesses and individuals in the international payments space.

Industry-wide consensus around the necessity of speeding the process has acted as a catalyst to innovation. The Financial Stability Board (FSB) has set targets to improve cross-border payment corridors by the end of 2027: in a similar fashion to the domestic transfer of monies, the aim is for international payments to complete in less than 10 seconds.

But, in this ambitious push for faster payments, it is vital we do not overlook the importance of reducing costs and ensuring equal access for all.

A growing need

Would speeding up the international payments process really have a significant impact on the bottom line?

Undoubtedly yes: current valuations from the likes of EY and Juniper estimated the value of cross-border payments conservatively to be from $30-40 trillion for 2021/2022, with some evaluations even higher. And this mammoth figure is expected to grow further over the next few years, rising by 5% year-on-year.[1]

Business-to-business payments account for most of this growth. However, in an increasingly connected world, more and more consumers are also looking to send money and make purchases abroad. The potential profits to be made from fast, seamless, and simple payments are substantial.

Unfortunately, whilst financial institutions can improve their internal functions and customer interfaces, processing times remain the key obstacle to achieving real speed. Cross-border payments present specific difficulties, being far more complex than domestic payments, with wider systematic challenges to address.

Compared to domestic payments, international payments often have no end-to-end system and they involve multiple intermediaries to perform currency conversion and the settlement of funds. In addition, the (higher) fees are assessed when a payment moves from intermediary to intermediary, with the net amount not always clear until received. These factors compound existing issues for businesses executing payrolls and consumers managing their personal finances internationally, causing friction throughout the payments chain.

The FSB, the BIS (Bank of International Settlements), the CPMI (Committee on Payments and Market Infrastructures) and the FATF (Financial Action Task Force), in conjunction with domestic Central Banks, SWIFT, Commercial Banks, and other market infrastructure players, are all working to address these points. The goal is to make the payments process cheaper and more accessible to all.[2]

But, by far, one of the most difficult sources of friction for cross-border payments comes from the astounding inefficiency in the sanctions screening process.

Friction from sanctions

All banks playing on international markets, from those sending customer payments to the receiving banks, are mandated to carry out sanctions compliance checks before crediting the payees’ account. A necessary preventative measure, sanction screening is often slow and cumbersome.

Multiple banks in the payments chain conduct the same checks against the prescribed lists, which often results in the same high level of false positives. Efforts are inevitably duplicated.

And the problem is growing. Since 2017, the sector has seen a 270% increase in the number of sanctioned people and entities across the globe. With geopolitical tensions rising, including the Ukraine-Russian conflict, further names are being regularly added to already extensive lists.

As mentioned above, the number of cross-border payments is also growing. Scaling the screening process to account for a higher volume of both payments and sanctioned entities will require a significant investment. This may in turn exacerbate existing tensions and frictions, and even potentially exclude some smaller financial institutions from the sector as a result.

Due to the use of fragmented legacy methods, effective (and therefore, compliant) sanctions screening is currently time-consuming and expensive, and yet over 99% of alerts investigated find no clear match.

Replacing these outdated and inefficient methods and avoiding the duplication of effort in the payments chain should be the main priority for financial institutions looking to save time and money in this area.

Action underway

Luckily, some actors are working to address these points of friction. We have already seen, from both public and private sectors, investment to better cross-border transactions, improving the speed, cost and access for such payments by the FSB deadline.

Whilst the sector is slowly cutting the time it takes to perform cross-border payments, there is still much to do in addressing the associated issues with cost and access. CBDCs (Central Bank Digital Currencies) could provide the answer. However, legal and regulatory challenges have slowed progress in this space.

The financial sector cannot afford to rely on increasingly outdated processes and must instead embrace innovation to smooth the rough edges of the payments process. Working together, the industry can deliver faster, safer payments and deliver the improvement all of us want to see.




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