Developments in the payments sector are leading to changes in the way cross-border payments are carried out. We are seeing more collaboration between providers and a move away from the traditional models. Businesses are responding to customer demand for a faster and more secure payment experience. Let’s take a look at some of the current trends…
What is it? APIs, or application programming interfaces, are technologies that have been used by industries such as the travel sector for years. It is a software intermediary that allows two applications to talk to each other. APIs are now being used in the financial sector by banks and payment service providers (PSPs).
How does it work? APIs enable providers to open their infrastructures to share data and communicate with one another. More recently as a result of the Payment Services Directive 2 (PSD2), developers and Fintech companies have been using open APIs to access other companies’ data and use it to innovate.
APIs can be used to enable straight-through payment processing on international business payments. It enables finance departments to automatically call on FX rates for their payments from their provider, as well as accessing beneficiary verification tools all with their existing business architecture. In addition, once payments have been sent auto-reconciliation can take place significantly reducing manual processing time.
Improve the efficiency of an accounts payable function by reducing manual input.
Smoother experience as businesses can carry out more tasks within their existing business applications rather than logging into multiple systems.
More simplified and accurate audit and reporting processes.
What is it? Current payments gateways rely on international payments passing through intermediary banks, which may slow the process down, increases cost and reduces payment visibility. With distributed ledger technology (DLT) payments become more or less instant and – due to the nature of the transaction – do not require intermediary banks. A well-known example of DLT is blockchain, with Ripple being one of the bigger names.
How does it work? Blockchain uses a ledger to store each transaction so all parties can see the relevant data and nothing can be altered. There are still regulatory and compliance issues to solve before blockchain becomes mainstream.
Using DLT can reduce costs and improve efficiency, as international payments do not need to pass through intermediary banks.
Payments are generally more secure thanks to increased transparency.
International payments arrive with beneficiaries much faster compared with current payment gateways such as SWIFT.
What is it? Artificial Intelligence (AI) is mainstream now thanks to the likes of Siri and Alexa. It is also helping many companies improve efficiency around their international payment processes. For example, it can help reduce time spent on manual data input and reduce errors so more payments go through successfully. One form of AI called machine learning (ML) can be used to identify and stop fraudulent online payments before they happen.
How does it work? With ML, the system processes a huge amount of data in an instant and progressively improves its “knowledge” about a person or situation. It can be used to work out the identity of the person making the online payment, or more specifically determine whether the person who owns the account is making the payment. It can also help companies decide whether to offer individuals services such as bank accounts or loans.
In the near future, treasury teams may start realising the true benefits of AI. Processing the numerous factors and parameters required to formulate a solid hedging strategy is challenging. Complex business requirements and the many anomalies across global corporate functions paired with a volatile currency market make it near on impossible for humans to make well-informed decisions. ML may be the answer due to its ability to process corporate “big data” alongside market conditions to help advise treasury functions on the most appropriate strategy.
As many payments are now made in real time, and international payments will not be far behind (see below), ML is a vital tool in stopping online payment fraud and cyber attacks.
Machine learning can be used to reduce foreign currency (FX) risk by helping corporate treasury departments process large volumes of data and make more informed hedging decisions.
What it is? Customers are demanding payments take place in as close to real-time as possible. The legacy systems and processes used for international payments make this difficult, but – in theory –the faster the payments go, the lower the risk of currency fluctuations.
Faster Payments in the UK and SEPA instant credit are both examples of instant payments in action domestically and SWIFT are already working on a solution for cross-border payments with their new gpi technology.
How does it work? Cross-border payments can be more difficult to process in real time than domestic payments, not least because of the regulatory layer. However, thanks to many of the innovations discussed here, making international payments in real time is closer to being a reality.
Less FX risk if a payment goes more or less instantly and is not subject to currency fluctuations.
Faster experience for customers who are used to an immediate response with social media and so on.
Real-time international payments should help the financial industry stay agile and competitive.
What is it? Many of the innovations highlighted in this article refer to a more open and transparent network. However, this can lead to issues around anti-money laundering (AML) and cyber security. In addition, many payment providers are not being as careful as they should with KYC (Know Your Customer) checks, as we have seen in some recent high-profile AML cases.
Increased customer confidence as data is more secure.
Payment providers with high levels of AML compliance have less chance of incurring a penalty from the regulators.
Nvoicepay syndicates thought leadership content from our partners. This article originally appeared on Cambridge Global Payment’s blog.