A merchant in Manchester can sell to a customer in Osaka in the time it takes to load a checkout page. Getting paid for that sale is a different matter: the money still passes through correspondent banks and settlement cycles built for a slower economy, and the merchant often cannot tell that the funds are on their way until they have arrived.
The contributed piece below argues that the next gain in cross-border payments will not come from moving money faster across borders but from removing the border from the customer’s side of the transaction, by collecting locally and confirming early, and from applying the same idea to the capital that multinationals shuffle between their own subsidiaries.
David Kašper is the founder of Walletory, a payments company that lets merchants collect through local accounts in different markets, and chief executive across Purple Group, the fintech group he co-founded. The article that follows sets out his opinion.
The global economy has spent the past decade getting so fast that it has become seriously hard to keep up. Consumers are now able to buy products from the other side of the world in seconds, businesses can launch into new markets without even opening an office, and ongoing tech innovation has allowed companies to serve customers across multiple continents almost from day one. So why is it, then, that moving money between those same markets still feels remarkably old fashioned?
What used to be seen as a slight inconvenience is now a genuine working capital dilemma for modern businesses, as well as a customer experience problem and, ultimately, a major barrier to growth. The difficulty is particularly pronounced for merchants selling to all parts of the globe. A company might have customers in Japan, Singapore and Europe, but collecting payments from them can mean going back and forth between different banking systems and cross-border transfers. What looks like a simple payment to the merchant is considerably less simple for the customer. Traditional international bank transfers can involve multiple financial institutions and settlement processes. More importantly, the merchant may not receive confirmation quickly enough to release a product or begin providing a service. Herein lies a really strange mismatch: commerce now increasingly happens in real time, while the movement of money underpinning it often does not.
One answer could be to make international payments feel much more, well, local. This may sound like a contradiction in terms on the surface. But rather than requiring a customer to navigate an international transfer, why not give merchants the ability to collect through local accounts across different markets? A customer in Japan, for example, can make a local Japanese payment rather than having to work out how to send money directly to an overseas merchant. While this may seem like only an incremental change, it could make all the difference.
Once the money reaches the local account, the merchant can receive confirmation through an API. The important innovation is therefore not simply claiming that money magically travels around the world instantaneously. It does not. International settlement still has to take place. The big difference is that the merchant can know much sooner that the customer’s money has been collected. That information can allow it to release goods or start delivering a service rather than waiting for the entire cross-border settlement process to work its way through the banking system.
However, there is a second problem that for some unknown reason receives far less attention: moving money inside multinational businesses. A global, publicly listed corporate goliath can have dozens of subsidiaries, holding companies and operating businesses spread across numerous jurisdictions. Moving capital between them can involve numerous banks, currencies, approvals and international transfers. As a consequence, treasury teams end up spending a copious amount of time managing the plumbing of their own organisations.
With a large international corporate structure, moving money efficiently between group companies has become cumbersome, to put it mildly. However, by putting those companies within the same payments environment there is all of a sudden a completely different model. Funds can be moved between accounts within the group, subject to the necessary approvals, while the underlying payment and settlement infrastructure can be managed simultaneously.
This is imperative because capital sitting in the wrong company or jurisdiction is money that cannot easily be put to work where it is needed. And it has to be said that all businesses need to ensure capital is working as efficiently as possible in the current economic environment. None of this is to say that the established international banking system is disappearing. Cross-border settlement infrastructure will of course remain essential, but the opportunity is instead to build a better layer around it.
Businesses increasingly expect financial infrastructure to work like the rest of their technology: connected and capable of providing information immediately. The next generation of cross-border payments will therefore not simply be about making money move faster. It will be about making borders less visible to the businesses and customers making the payment. Global commerce already works that way, so it is high time the financial infrastructure supporting it caught up.
The post Cross-Border Payments Cannot Afford to Move at Yesterday’s Speed appeared first on The Fintech Times.
