This piece is posted in Finextra and asks the question about straight-through processing in x-border payments. The first response to the question is to ask how one defines the word ‘ever’. Members of CEP will be well versed in the complexities of x-border, even in the simplest of remittance cases.
Our most recent report on the subject of x-border called out that in terms of commercial payments (those for goods and services), about 84% of the uses are B2B, an even more complicated set of circumstances and a space where a number of improvements are underway. The author is experienced in the subject matter and offers a couple of cause and effect scenarios.
‘According to SWIFT, 2%-5% of cross-border payments are subject to a search or investigation, leading to a delay within the payment being completed…..The source of such friction varies, including internal and external factors. for instance, each country to which a correspondent bank sends payments can have its own rules, regulations and requirements for data. Understanding the various requirements globally requires a high level of experience. Problems also can occur when clients fill data fields with the wrong information or within the wrong format. Because there’s no single, global regulator overseeing cross-border payments, there are many various formats and peculiarities. This fragmentation means cross-border payments are difficult to automate.’
Solutions are harder to come by but new methods and system are being rolled out, including the de-facto global messaging standard ISO 20022, now found in all new domestic real-time payments rails and eventually for x-border connectivity between these rails (i.e.; P27).
One area not covered in this posting is the potential for blockchain-based networks to fill in parts of the space with stablecoin currency, which was recently covered in these pages. The author goes on to discuss three steps that banks can take to improved x-border delivery, which includes SWIFT gpi, field pre-validation and ISO 20022 adoption, with some detail.
‘…Financial institutions also can reduce friction by implementing dedicated platforms for cross-border correspondent payments. Such a platform can enable a bank to route payments quickly and efficiently to the acceptable correspondent and automatically populate that payment with the right data within the correct format so as to process it straight through.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group