It Is High Time International Payments Embrace Cloud
- By Lachlan Colquhoun
- October 24, 2022
If there was a basic business function that needed rescuing by technology, it is the area of global cross-border payments.
To illustrate why it might be best to start with a personal example.
Some months ago, I did some work for a client based in Thailand, and we agreed that the payment would be in U.S. dollars.
I invoiced the client with the work completed, and he kindly said he had sent the funds immediately. However, when I checked my account, it said the transfer had been rejected.
The client, believing that the payment had failed, sent me a second transfer which arrived the next day.
The problem occurred when the client wasn’t refunded the original payment.
On the client’s behalf, I spent around 40 minutes on the phone, much of it on hold, only to be told that my bank couldn’t trace the payment and that perhaps I should try a physical visit to a branch. I did this to no avail.
Months later, the company’s money is kicking around in the international banking system with no bank — the client’s bank, my bank, or the correspondent bank which was re-routing the funds — finding the money or taking any responsibility. It is probably sitting on a spreadsheet as a notification yet to be reconciled.
SWIFT core infrastructure
Fortunately, there is a better way, and unsurprisingly it is based on the cloud, a truly global solution that crosses national borders. It is also enabling a wave of innovation in an area that still functions like it was in the 20th century.
The established network is SWIFT, which went live in 1977 and provided a core network for global financial messaging.
SWIFT is a core financial infrastructure and is currently broadening access to its 11,000-member network with public cloud connectivity, provided users comply with its security program. To maintain SWIFT's connectivity, hardware must be deployed on-premises and in co-located facilities.
“Payment platforms and schemes are increasingly moving to real-time payments, and we stitch these together in a multi-currency wallet”
While SWIFT is likely to remain the dominant network for some time, the fintech industry has also provided many solutions currently being rolled out under banking-as-a-service and payments-as-a-service models.
One of these is U.K.-founded Currencycloud, an embedded solution that uses local payment options or international rails such as SWIFT. It controls the entire payment journey, including automation, fee sharing, and payment tracking.
Mark Ledsham, chief operating officer at Currencycloud, says sending international payments is currently “stressful” for both corporates and individuals. It’s an exercise that is too slow, lacks transparency and tracking, and is plagued with opaque fee structures.
“We package up the fundamentals of international payments behind a series of APIs that are really easy for our clients to develop with so they can deliver a solution which is an order of magnitude better than what they have now,” says Ledsham.
“Payment platforms and schemes are increasingly moving to real-time payments, for example, and we stitch these together in a multi-currency wallet, which means businesses can collect and hold funds around the world, which is really helpful for small businesses.”
Recently acquired by Visa, Currencycloud is an embedded solution that rapidly enables the operations of start-up digital banks or can sit alongside and connect with legacy systems operated by established banks.
Currencycloud has the scale to drive down costs with payment scheme providers and pass these on to customers. It presents itself as a solution that can be deployed much faster than providers looking to develop systems in-house.
24/7 payments are a differentiator
One case study is Atlantic Partners Asia (APA), a financial services group that includes regulated asset management, corporate finance, and payments solutions. APA specializes in Asian currencies, and its pitch to users is that it offers secure and reliable payment services to high net-worth investors, family offices, global private banks and equity firms, and multi-national corporates.
To differentiate itself, APA knew it had to offer settlements 24 hours a day, seven days a week across multiple currency pairs.
The problem is that local banks offered uncompetitive foreign exchange rates, and their systems were slow and not available 24/7. While they often did establish payment channels well — such as New York to Hong Kong or Singapore — they relied on the cumbersome correspondent banking system for payments across more diverse geographies. They also saw APA as competition, so they were reluctant to partner with them.
APA’s business requires access to more than 35 currencies across 180 countries. The company found that connecting to Currencycloud enabled it to connect to local payment rails and avoid much of the cost and complexity of remittances.
Another example is Singapore-based FX and business solutions provider Wallex, which needed to remove the pain points of high exchange rates and transfer fees for its customers.
Wallex was founded on an ethos of low-cost bespoke FX solutions, yet it had to use regional banks to collect funds in global currencies in a slow and expensive process.
It is now able to offer better flexibility. For example, a Singapore-based business working with a U.K., European or U.S.-based supplier can move currencies seamlessly between these countries as quickly as if it were a local transaction. So, if a customer pays in GBP, rather than transfer that money back into Singapore Dollars, they can hold on to it and pay a U.K.-based supplier in GBP when needed. They can convert back to Singapore Dollars when it suits them.
Even for established banks, Ledsham says there are advantages. International payments might comprise only 15% of their payment flows, but this is a lucrative area currently being cannibalized by smaller fintechs.
An embedded solution can sit alongside and connect to networks such as SWIFT. Still, it can offer a better customer experience which can help slow the customer attrition on payments that many legacy banks are experiencing.
“I’d love us to have 100% of the FX payments, but I think banks will still use their correspondent bank network for the big transactions, half a billion or so,” says Ledsham.
“But where we are a game changer is in improving the day-to-day experience of customers who need to move smaller amounts across the world but who are stressing out about the safety of the payments, annoyed at how long it takes and frustrated at seeing what is taken out in fees.”
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].
Image credit: iStockphoto/oatawa