As the global economy becomes increasingly intertwined, cross-border payments are now the key integration for any business looking to tap into that growing stream of revenue.
However, hurdles with this payment type have also increased due to a number of reasons, from high FX rates to constantly shifting regulatory requirements.
Mark Hewlett, COO of Universal Partners, shared some of the secrets that hide behind sustainable operations when it comes to cross-border trade and transactions.
Payment Expert: Would you say that cross-border payments have become more efficient as international trade has increased and economies have become more globalised?
Mark Hewlett: There are a myriad of contributing factors that have made cross-border payments more efficient and transparent. A more globalised economy has certainly helped. The well-known historic frictions presented an opportunity for a number of players to challenge the incumbents armed with newer technology and focused missions.
This has raised the bar internationally with far more partnerships and joined up thinking across the payments business, FMIs, regulators and governments to improve further for the benefit of consumers, SMEs through to corporates. The G20’s CPMI initiative is a good example of this, aiming to increase security, transparency, speed and lower costs by making international payments more transparent and standardised.
PE: What are some of the major obstacles that you’ve seen working with cross-border payments? How would you go about solving them?
MH: We are already solving the major obstacles for our target market. SMEs of all stages are still woefully underserved by banks when it comes to cross-border payments. Whether that be someone to speak to, to understand value dates and cutoffs, to obtain a good intraday rate, to be able to send the right currency to the right country (doesn’t always have to be USD) or to discuss bespoke strategies to mitigate foreign exchange risk.
Ultimately there aren’t many obstacles when you’re working with a partner that wants you to succeed and has done all the heavy lifting for you.
PE: Is Open Banking the next step when it comes to revolutionising the payments journey for customers sending money abroad?
MH: Open Banking has numerous benefits, and we are big believers in harnessing the two sides of Open Banking – account information and payments services. We’re excited by the applications of additional data, making sure that we can understand our client’s business and provide the best solutions at the right time, whilst also helping to reduce false positives. Open banking also enables fast and low-cost payments, further improving our customer’s margins.
As international schemes start to connect, additional benefits for cross-border payments can begin to be realised including lower fees and faster settlement times. However, the need for cross-border payments specialists will in no way be diminished – businesses still need to plan for exchange rate volatility, international trade risk and a myriad of other challenges.
PE: What role do cryptocurrencies play in the freeflow of international money transfers and are they the answer to high FX rates?
MH: It’s clear that cryptocurrencies can be used to move “value” internationally, with numerous payments startups seeing success with this approach. We don’t think they’re the answer to high FX rates, and we’d argue FX rates aren’t high but instead the cost to move money is high. Stablecoins look interesting in certain use cases, providing a known quantity in blockchain form.
However, a familiar set of risks rear their heads, including high rates of fraud, opaque fee structures and a high number of intermediaries. Ultimately, with the vast majority of viable cryptocurrency options priced in fiat currency, FX still comes into play when settling and actually spending.
PE: As global barriers to trade continue to rise, how can cross-border payments specialists provide a solution?
MH: Geopolitical barriers to trade are in a constant state of change, routinely transforming the landscape for international commerce. With the low barriers to trade of the early 21st Century being replaced with more restrictive policies, cross-border payments specialists which focus on bespoke international trade and risk management strategies are still enabling their clients to enter new markets.
It’s key that SMEs and corporates trading internationally have a cross-border payments partner they can trust and available for them when needed offline as well as online. This enables them to navigate the risks and harness the benefits of changing barriers to trade and globalisation nimbly.
PE: Lastly, what do you believe is the role of AI in boosting cross border payments?
MH: AI will enable increases in efficiency with regards to routing, aggregations, behaviour and risk management in the early days. We look forward to seeing the positive unintended consequences and how to build on those.
However, we remain vigilant that the early adopters of any new technologies are more likely to be bad actors, thriving in the low-competition and high-trust market conditions. AI has the potential to fool a lot of businesses into making bad decisions under the guise of ‘first-mover advantage’; it’s best to take a measured approach to adoption of AI in finance.
