Cross Border Payment, Clearing, and Settlement Systems -Update October 2019
There have been several new developments in Cross Border Payments Solutions landscape.
- Interbank Cross Border Payments
- Retail Cross Border Payments
Interbank Payments
- Ripple
- SWIFT
- SWIFT GPI
- JPMCoin
- IBM Blockchain World Wire {BWW}
RIPPLE
From {https://digital.hbs.edu/platform-digit/submission/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system/}
Cross-border payments today are inefficient, expensive and opaque.
The Global Interbank Financial Telecommunication Company (SWIFT) established in 1973 is still the most widely used method to send cross-border payment using the transmission of financial messages via the international SWIFTNet network.
However, the SWIFT financial messages do not hold accounts for its members nor make any form of clearing or settlement. It essentially only sends payment orders which need to be settled by the correspondent account that the institution has with each other. For this reason, each financial institution needs to have a banking relationship to exchange banking transactions.
This is why it requires 6 players linked up – payer, payer’s bank, payer’s bank’s correspondent, beneficiary bank’s correspondent, beneficiary bank, beneficiary to complete cross-border payments.
[1]
There are many obvious drawbacks of such system:
- Cross-border payments can be expensive and sometimes even charged a percentage fees
- Extra fees such as “lifting fees” or correspondent banking fees by intermediary banks are common
- Bank keep the money for extra time and delay the payout “float money theft”
- Exchange rate can have big spread
The high processing costs, lengthy settlement times and a poor customer experience prevents many new usage scenarios such as on-demand, low-value cross-border payment or mobile wallets. It is estimated that $1.6T per year for all parties in the ecosystem has spent yet unable to meet today’s cross-border payment need[2].
Ripple Labs (formerly OpenCoin) launched in 2012 with a mission to build a cross-border, interbank payment and settlement network using the concepts behind bitcoin. Ripple offers sub-second cross-border payments with automated best pricing from its network. As payments are nearly instant, it helps to remove the credit and liquidity risk from the process, lowering overall costs considerably.
How is it done?
The core of its solution is RippleNet, a single, global network of banks that send and receive payments via Ripple’s distributed financial technology — providing real-time messaging, clearing and settlement of transactions.
RippleNet utilizes a subset of blockchain technology used in bitcoin. It uses the consensual validation of encrypted hashes to secure the messages across the Ripple network but does not hold the ledger, unlike bitcoin. Ripple names this open, neural protocol Interledger Protocol (ILP). ILP allows Ripple to connect existing bank ledgers, similarly to how banks connect their core system to the SWIFT network.
SWIFT GPI
From https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/
Challenges in cross-border payments
Cross-border payments usually pass through several banks until the funds have been transferred from the payer to the account of the beneficiary. This is referred to as correspondent banking. This results in four obstacles that are virtually insurmountable for treasurers as things stand today:
1) Time: Traditional cross-border payment orders can take several days from being released to being credited – way too long for efficient cash management.
2) Transparency: Several correspondent banks can act as intermediaries between the bank initiating the payment and the beneficiary bank – an impenetrable banking jungle that causes treasurers sleepless nights for security and compliance reasons.
3) Tracking: Today, treasurers neither know where a specific payment is located nor when it will be credited to the beneficiary – an incalculable business risk and a situation that often leads to time-consuming queries, trying to chase a payment.
4) Remittance data: Remittance data is often altered somewhere along the line or information is lost. Sometimes the amount eventually credited to the account does not match the initial payment order because correspondent banks have deducted fees, resulting in a tedious reconciliation process once the money has arrived.
SWIFT global payments innovation – SWIFT gpi
In January 2017, SWIFT introduced the gpi Service that can be used to process global payments in a fast and traceable manner. The objective is for every one of the around 10,000 SWIFT Network banks to be able to offer money transfers within 24 hours with continuous end-to-end tracking and complete transparency along the entire payment chain by the end of 2020. This transparency and efficiency is made possible by using a specific gpi reference, the Unique End-to-End Transaction Reference UETR.
How the Unique End-to-End Transaction Reference (UETR) works
You can compare the UETR to the tracking number of a parcel: The sender issues a unique, unalterable reference that shows you where the order is located at any one time. This reference ensures complete transparency as well as fully digitized and therefore speedy processing. In addition, the sender is automatically notified of any payment status changes. Conventional transfers often drop off the radar for quite some time, and you’re left wondering where your money has gone, not to mention the effort it will take you to retrace and reconcile afterwards.Conversely, gpi transfers generate an abundance of messages that keep you up to date on the status of your payment.
The same applies to the respective bank departments who can also trace corporate payments, enabling them to react to queries much faster. Some banks have integrated functionality in their online banking applications that enables corporate clients to track their gpi payments. Not a bad idea – the only downside is that most corporates use more than one bank for their international payments, which would mean checking several banking portals. This is why a bank-independent treasury management system such as tm5 is a much more elegant solution. All tracking and status information converges in one centralized hub, no matter how many banks are involved.
SWIFT gpi for Corporates (g4C) – new dynamic and transparency in treasury
In November 2018, SWIFT launched the SWIFT g4C project in order to enable corporates to directly benefit from the gpi technology. The objective was to offer corporates a solution for initiating gpi payment orders directly in their payments system. BELLIN was selected as one of the Early Adopters and was the first TMS provider with a client live on g4C. The pilot phase has been completed and the technology is fully integrated in the tm5 treasury management system and BELLIN’s SWIFT offering.
What does this mean for banks and companies?
The role of banks
Banks must be able to process certain information in order for it to be included in gpi payment orders. More than 280 financial institutions worldwide, including 49 of the TOP 50 banks, have agreed on a standardized SLA. With so many banks participating, communication is guaranteed. i.e. funds are transferred quickly from one bank to the next. By now, most banks have started processing cross-border payments as gpi payments.
The role of companies
The UETR is crucial for processing gpi payments. Companies that initiate their own payments, for example through a treasury management system integrated payment solution need to attach this reference to a payment order in line with SWIFT requirements or extend the format of a payment in the right place to include this information. The information transmitted by way of the UETR simplifies reconciliation and can be matched automatically, depending on the system.
BELLIN offers integrated SWIFT g4C technology
The BELLIN treasury management system, tm5, offers integrated SWIFT gpi technology. The system generates the unique and unalterable tracking reference UETR that is required for gpi payments. In addition, tm5 automatically processes incoming gpi status messages, enabling users to check the status of a payment at any time.
Corporates need a SWIFT BIC (Business Identifier Code) to make use of SWIFT g4C technology. They register their BIC for gpi for Corporates and connect financial institutions that offer g4C. All in all, SWIFT g4C unlocks completely new opportunities for automating treasury processes, in turn leading to efficiency gains and increased security.
How will gpi change treasury?
gpi is fast, creates transparency regarding fees and currencies and provides a wealth of information about the location of a payment and other aspects that simplify reconciliation. The SWIFT gpi initiative is clear evidence that corporate payments are moving towards real-time processing. In turn, this will change processes and the way treasurers work.
Retail Cross Border Payments Systems
Retail Payments/Transfers to India
{From ManiKarthik.com}
- XOOM
- Remitify
- Remitly
- Ria
- Western Union
- State Bank of India
- Transfast
- Transwise
- ICICI Bank Money to India
- WorldRemit
- IndusInd Bank
Block Chain Based Cross Border Payment Systems
- AIRFOX
- CIRCLE PAY
- ZCASH
- RIPPLE
- VEEM
- IVY
- GLUWA
- STELLAR
- ABRA
Top Cross Border Payment Companies
{https://www.ventureradar.com/keyword/Cross%20Border%20Payments}
- Ripple
- Seedrs
- CurrencyFair
- Transferwise
- Payoneer
- WorldRemit
- Trustly Group
- TransferGo
- Raisin
- Zooz
- TransferMate Global Payments
- Calastone
- Airwallex
- Hufsy
- InstaReM
- Caxton
- Veem
- nanoPay
- Credorax
- Transfast
- wyre
- Bitbound GmbH
- Currency Transfer
- Earthport PLC
- Bitso
- WB21
- iSignthis
- Currency Cloud
- BitPay
- MoneyTrans
- Moni
- Traxpay
- Qwikwire
- Streami Inc
- PiP iT
- Swych
- HoneSend
- Afrimarket
- Fonmoney
- Lala World
- Flime
- Smart Token Chain
- TransferTo
- EQ Global
- Weeleo
- SimbaPay
- KUARIX
- REMITWARE Payments
- PingPong
- Buckzy Payments
Please see my related posts:
Cross Border/Offshore Payment and Settlement Systems
Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)
Evolving Networks of Regional RTGS Payment and Settlement Systems
Large Value (Wholesale) Payment and Settlement Systems around the Globe
Structure and Evolution of EFT Payment Networks in the USA, India, and China
Next Generation of B2C Retail Payment Systems
Understanding Global OTC Foreign Exchange (FX) Market
Sources of Research:
Ripple wants a piece of the global payment system
https://www.cnbc.com/2019/01/07/ripple-wants-a-piece-of-the-global-payment-system.html
How IBM Blockchain World Wire revolutionizes cross-border payments
IBM
https://www.ibm.com/downloads/cas/YW3W2JPZ
NAVIGATING A WORLD OF PAYMENT SOLUTIONS
WHAT YOU NEED TO KNOW FOR TODAY — AND TOMORROW
George H. Hoffman, CTP, CERTICM, Senior Vice President, Manager, International Advisory, PNC
Kacie V. Johnson, Assistant Vice President, International Advisor, PNC
Click to access navigating-payment-solutions.pdf
Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App
Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App
Ripple and Xendpay partner for cross-border payments
https://www.fxcompared.com/magazine/news/ripple-and-xendpay-partner-cross-border-payments
The Future Of Cross-Border Payments
March 2019
Cross-border retail payments
BIS
A vision for the future of cross-border payments
McKinsey
FASTER, CHEAPER, SAFER: 9 COMPANIES USING BLOCKCHAIN PAYMENTS
https://builtin.com/blockchain/blockchain-payments
Global Payments 2020: Transformation and Convergence
BNY Mellon
Click to access global-payments-2020-transformation-and-convergence.pdf
Top 10 Trends in Payments 2018 : What You Need to Know
Cap Gemini 2018
Click to access payments-trends_2018.pdf
Strategies for Improving the U.S. Payment System
Federal Reserve Next Steps in the Payments Improvement Journey
Click to access other20170906a1.pdf
SWIFT gpi: A New Era in Treasury
Fast, transparent, traceable and system-integrated cross-border payments
https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/
The Use of RMB in International Transactions:
-Background, Development and Prospect
Click to access pdf-rmb-JinZhongxia.pdf
The Cross-Border Payments Landscape
Click to access 9308A_1-2018-9-17.pdf
Swift to test real-time cross border payments in Europe
https://www.finextra.com/newsarticle/33852/swift-to-test-real-time-cross-border-payments-in-europe
Singtel’s cross-border payments system expands to Japan
The Via cross-border payments system has expanded into Japan thanks to a partnership with Netstars.
https://www.zdnet.com/article/singtels-cross-border-payments-system-expands-to-japan/
THE FUTURE OF CORRESPONDENT BANKINGCROSS BORDER PAYMENTS
RUTH WANDHÖFER
BARBARA CASU
PUBLICATION DATE: 10 OCTOBER 2018
Click to access SIWP-2017-001-The-Future-of-Correspondent-Banking_FINALv2.pdf
How are Asian FIs meeting the challenges and opportunities of cross-border payments?
A Survey on Trends in Cross-Border Payments in Asia Pacific
Click to access TAB_DEUTSCHE_BANK_WHITE_PAPER_-_FI_CROSS_BORDER_PAYMENT.pdf
The Inefficiencies of Cross-Border Payments: How Current Forces Are Shaping the Future
Written by Yoon S. Park, PHD & DBA, George Washington University
VISA
Click to access crossborder.pdf
CROSS-BORDER INTERBANK PAYMENT AND SETTLEMENTS
Emerging opportunities for digital transformation
Click to access Cross-Border-Interbank-Payments-and-Settlements.pdf
Global Payment Systems Survey (GPSS)
https://www.worldbank.org/en/topic/financialinclusion/brief/gpss
Beijing creates its own global financial architecture as a tool for strategic rivalry
Govt of Canada
SWIFT Vs. Ripple — The Importance of Speed in Cross-Border Payments
https://cointelegraph.com/news/swift-vs-ripple-the-importance-of-speed-in-cross-border-payments
Visa looks to speed up cross-border payments with new network launch
Cross-border Payment systems: SWIFT, RippleNet or BWW?
Rise of the yuan: China-based payment settlements jump 80%
Data shows Beijing attracting countries targeted by US sanctions
https://asia.nikkei.com/Business/Markets/Rise-of-the-yuan-China-based-payment-settlements-jump-80
http://www.cips.com.cn/cipsen/7052/7057/index.html
SWIFT’s Battle For International Payments
Forbes
EU Cross Border Payments: An evolving concept
Click to access lu-eu-cross-border-payments.pdf
INTERNATIONAL PAYMENTS IN A DIGITAL WORLD
YET ANOTHER BANKING BUSINESS THREATENED BY DIGITALIZATION
SWIFT gpi Time for action
Deutche Bank
Click to access Deutsche_Bank_SWIFT_gpi_White_Paper_December2017.pdf
B2B Payments and Fintech Guide 2019
Innovations in the Way Businesses Transact
Paying across borders – Can distributed ledgers bring us closer together?
- RODRIGO MEJIA-RICART
- CAMILO TELLEZ
- MARCO NICOLI
MARCH 26, 2019
Reinventing Payments
In An Era of Modernization
Click to access reinventing-payments-in-an-era-of-modernization.pdf
WORLD PAYMENTSREPORT
2018
Click to access World-Payments-Report-2018.pdf
Fundamentals of Global Payment Systems and Practices
Click to access Fundamentals_of_Payment_Systems.pdf
Global Payments 2018
REIMAGINING THE CUSTOMER EXPERIENCE
BCG
Click to access BCG-Global-Payments-2018-Oct-2018_tcm9-205095.pdf
Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies
CEPR
Click to access GenevaP223.pdf
Cross-Border Settlement Systems: Blockchain Models Involving Central Bank Money
Xiaohang Zhao, Haici Zhang, Kevin Rutter, Clark Thompson, Clemens Wan
Click to access CrossBorder_Settlement_Central_Bank_Money_R3-1.pdf
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