Mind the Gap


Mind the Gap

.....or why cross-border payments today are like the London Underground.


Cross-border payments represented only 5% of transactions by value in 2013 ($22 trillion, versus the $387 trillion represented by domestic payments) but are outperforming the latter in growth, with a projected compound annual growth rate (CAGR) of 8.4% expected between 2013 and 2023, compared with 6.4% growth projected for domestic payments. And it is a valuable income stream: the average fee per transaction is 15 times greater for cross-border payments at $11.14 – as opposed to $0.71 for domestic payment fees.[1]

The growth forecast and the fee potential of cross-border payments should make it a lucrative service offering for banks. But there exists a glaring gap between corporate expectations of how banks should be processing their cross-border payments – and the contrasting reality experienced by many - in particular small-medium enterprises (SMEs).

Having experienced technology-driven innovation in retail and consumer payments, the ‘new generation’ (or should that be the ‘now’ generation) of managers in corporate finance and treasury are hankering for something akin to this speed, transparency and predictability when they are making or receiving payments across multiple currencies and geographies.



Corporate dissatisfaction with the current state of cross-border payments has been widely reported: the length of time taken for funds to clear, difficulties in tracking payment progress, high levels of correspondent banking fees and a lack of transparency into the payments process and into other charges, such as FX fees. The process can be inefficient with critical information lost as payment messages travel across banks and borders, with data being truncated en route.

It seems to be the SMEs who are most vociferous, however. Respondents to a survey into cross-border payments perceived cross-border solutions as “pretty good for large corporates and businesses with their own treasury functions,” but “a problem for small-to-midsized businesses"; it also noted that “frustration was strongest for payments in the sub-$10,000 level, especially in the $500-$2,000 range”.[2]

It is this SME sector that has traditionally been underserved by banks when it comes to payments overseas. The time it takes to clear funds, even low-value payments, is a major problem for them. The ability to send and receive speedy, secure cross-border payments cost-effectively is the life-blood of an SME, where stable, predictable cash flow and access to working capital are critical to maintaining liquidity. SMEs have a high-growth potential. Do banks really want to lose this valuable revenue stream, which could be tempted away by non-bank payment providers? After all, meeting the SME’s cross-border payments requirements now could lead to bigger product/service opportunities later.

That is not to say that businesses at the other extreme of the corporate life-cycle – the established regional or multinational corporations – are operating without a care in the cross-border payments world. These multinationals have increasingly complex payments needs, which demand advanced treasury and cash management support – not always readily available in-house. They also have to demonstrate that they are operating in line with local and global payments standards – including regulatory reporting requirements.

Within these larger organisations especially, perceptions of cross-border payments have changed. Along with other financial and treasury management processes, payments are no longer being seen as just an ‘overhead’; they are expected to be managed to bring ‘positive returns’ to the business.

This higher profile, combined with the higher expectations of today’s corporate payments managers and the very real threat of new providers in the wholesale payments space - has implications for the banks which have traditionally monopolised the cross-border payments business.

They must bridge the ‘gap’ between what is now expected by corporates and what is currently being delivered – if this void is not to be filled by non-banking payment providers; and they should do it before being pushed by regulatory pressure. Cross-border payments are seen to be expensive and according to some in the market, it is only a matter of time before regulators turn their attention on this.



From all the recommendations and advice that have been published, two imperatives stand out: banks and financial institutions must come up with a compelling value proposition; and this must be enabled and supported by the implementation of the appropriate technology.

A recent report [3] by BNY Mellon sets out the bank’s vision for the payments industry in 2020. It surmises that by 2020, the payment will be “much more than just the settlement of a transaction or the mere movement of funds. The report refers to “payment-proximate” activities that can be leveraged by the bank to develop greater value propositions around the payment. Data analytics is one area where, with the right technology in place, banks could provide their corporate customers with significant added value. One example of this may be to offer access to intra-day statements or insight into real-time payments status via an integrated portal.

The report emphasises the need for the bank to have the right technology in place to underpin these payments-linked activities; technology that will enable them to deliver new services and solutions in line with changing customer expectations; to offer higher levels of standardisation and operate seamlessly across countries and products; to provide a global, end-to-end view of payment activity; a real-time view of risk exposures and tracking of payment flows; to give easy access to real-time data so decisions can be made faster and on a more informed basis and to provide the transparency and visibility required by local and global regulations that are only likely to increase in the future.

The opportunity is huge. To be able to fully exploit this opportunity, however, banks and financial institutions need both to address the current cross-border challenges and ensure that their payments solutions are flexible enough to meet future changes in corporate needs and market demands.

Oh, and why are cross-border payments today like the London Undergound?

Because the importance of each lies not in the number of individual transactions conducted - payments made in one case; number of passenger journeys completed in the other – but in the much bigger picture that they underpin: the vital role played by cross-border payments in global trade; and by London Underground in enabling the capital to go about its business smoothly. (Well, most of the time!)


[1] Source: BCG Global Payments Model (2014), quoted in SIBOS 2014 session

[2] Cross Border Payments Perspectives Research Brief, Glenbrook Partners and The Institute of Financial Operations, September 2011

[3]  BNY Mellon, Global Payments 2020: Transformation and Convergence, 2014

Date Modified: 

Friday, December 4, 2015
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