International payments appear to be making a comeback in the UK, but many businesses are facing a number of related challenges, such as tracking them and ensuring all payees pass sanctions checks.
In an age of geopolitical uncertainty, businesses of all sizes have the choice to de-risk cross-border transactions and embrace new tools to thrive, argues Ed Adshead-Grant, general manager payments, at B2B payments fintech Bottomline.
International payments span legal structures, protocols, sanction regimes, time zones and all manner of legacy technology, making them a necessity, but also a perennial challenge in any respects. After all, international payments via banks have a history that dates back to the Venetian Empire’s trading routes. That’s why in October 2021, the G20’s Financial Stability Board (FSB) laid out its vision for enhanced cross-border payments.
The board audited and analysed existing and emerging payment infrastructures, encompassing regional data frameworks, operating hours of payment systems, service level agreements, the interlinking of payment systems and digital currency design. The result is a focus on improving four elements of cross-border payments: cost, speed, access and transparency.
The target, by 2027, is to bring the costs of international payments down to less than one per cent on average with an absolute limit of three per cent, compared to current levels of up to 10 per cent. Additionally, three quarters of transactions should complete within an hour of triggering, and 100 per cent should complete on the same business day.
Enabling payment visibility
The recent Bottomline Business Payments Barometer surveyed 1600 financial decision-makers in Great Britain and the US, across a range of business sizes, on how they expect the payments industry to evolve over the next 12 months.
It tells us that 39 per cent of GB companies have difficulty tracking international payments, so transparency is clearly a key concern. In terms of addressing this, new tools and standards such as the ISO 20022 messaging format, and SWIFT gpi are making international payments more comprehensive, quicker and more traceable.
The ISO 20022 file format is an open standard for global financial information, enabling consistent, rich, and structured data that can be used for every kind of financial business transaction. This creates a common language for payments worldwide, with higher quality data, making it easier to track and monitor payments as they cross borders. SWIFT gpi has quickly become the global standard in payments, enabling banks and larger companies to send and receive funds quickly and securely with full visibility of each transaction.
It is also worth noting that both these initiatives represent a move from batch to real-time processing, which is transformational in itself and will ensure the FSB’s target of one-hour payments can be easily met in the digital age.
Obstacles to international payments remain
Hopefully, these targets and standards will encourage more businesses to trade internationally as the interoperability of systems improve Although 48 per cent of GB businesses are currently making outbound payments, and another 10 per cent plan to start, the proportion of businesses saying they are intending to stop international payments has increased from 20 per cent to 25 per cent.
If GB businesses follow through on their intentions, it is projected that international payments will fall in 2023. That said, adoption remained steady this year, despite the popularity of the same ‘intending to stop’ prediction in 2021. The main reasons for withdrawing from international payments are due to difficulties in managing and tracking supplier payments, and suppliers failing sanctions checks.
Although the Bottomline report was compiled prior to the Russian invasion of Ukraine and the subsequent introduction of sanctions, the report still shows that 68 per cent of GB businesses are willing to take on more responsibility from banks for sanctions scrutiny, with the majority (over 70 per cent) agreeing that payee details should be checked further upstream, that payment tracking is imperative, and that indication of funds going to an anti-money laundering (AML) or OFAC list should be given. .
Incentivising cross-border payments
With obstacles in place, what can be done to encourage more businesses to embrace international payments? The FSB’s programme through the G20 is a great start, however, there are other ways to incentivise trade. The first thing companies should do is explore what options their current bank offers.
Increasingly, we find that larger banks now offer international payments as part of a wider bundle of services. That means SMBs who need international payments are forced to pay for the benefit along with a whole host of services they do not need. That’s where fintech providers are progressively coming into play, offering fast, transparent, and low-cost alternative payment services in a niche area.
When it comes to the reputational risks and fines associated with sanctions, this is another area where ISO 20022 can help enormously. Its richer data, including counterparty and remittance information, will improve cross-checking, increase transparency, and reduce false positives, enabling sanctions to be correctly applied. Seventy-five per cent of GB businesses have a plan for the transition of ISO 20022 over the next three years, demonstrating one viable pathway to more effective global trade.
Another way to ensure international payments are as seamless as possible is to screen data and pre-validate it, so it is as accurate as possible before hitting the ‘send’ button. Largely driven by innovations in retail banking, new developments, such as the UK’s Confirmation of Payee (CoP) and SWIFT’s Beneficiary Account Verification (BAV), enable banks and their customers to guarantee that payments are going to the right recipient using the correct bank account details, by validating the information centrally. Regulators have started to mandate the use of such services and we can expect this trend to continue.
A pathway to peace of mind
There are clearly a range of tools and services companies can embrace to grease the wheels of global commerce and remove the perceived risks associated with international payments, while also enabling faster transactions and more effective sanction applications.
Whether provided by an established commercial bank or specialist fintech vendor, now is the time to ensure that you have access to the best technology to deliver robust, secure, real-time payments – anywhere in the world.