You’re a rising middle-management executive walking into your NYC office, holding a cup of coffee purchased from a street vendor. Right upon booting up your PC, a message from your largest, most demanding client pops up, stating that they want to send wires to multiple vendors – who, of course, all use different banks overseas in different countries (which all have different holidays and use different currencies). The client demands this be done ASAP and wants progress updates on their payments every step of the way.
You set your coffee down and reach for the Tums.
You know that your bank, like most financial institutions, processes business-to-business (B2B) cross-border payments using correspondent banks- a process rife with challenges – making it difficult to effectively manage liquidity while at the same time driving up the cost of delivering payments. Especially for American banks, this is in part due to regulatory requirements, such as Know-Your-Customer (KYC)/Asset and Liability Management checks and time zone differences. A linear process with multiple banks exchanging information and currencies can only be improved so much.
You reach for your phone and imagine having to deal with members of your back office who oversee the correspondent banking process and their daily reconciliation of funds tied up in Nostro accounts. You know that good reconcilers are not cheap, and significant funds held in Nostro accounts that do not earn interest represents a huge opportunity cost, especially as rates rise around the world.
You remember that during your bank’s across-department training, you learned how your bank’s payments sent through correspondent networks present several opportunities to reach for the antacid.
Executing cross-border payments using the traditional bilateral correspondent process lacks transparency because both the originating bank and the beneficiary bank remain unaware of where the transaction funds are at any given moment. Since the transaction is routed across multiple correspondent banks (your bank using correspondent bank B in country X while the vendor getting paid uses bank C, which has no relationship with B, so your bank is forced to route through their correspondent bank, bank D) knowing when payments will arrive or what costs will be incurred is a real challenge.
You remember how over drinks after work a few months ago, your friend from IT told you how SWIFT had introduced its Global Payments Initiative (GPI), which was set to provide visibility into where payments are in the correspondent banking process.
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You thought that transparency into a multi-day process was nice, but it was really treating the symptom, not curing the disease. Intercontinental cash movements still took too long, and there was still a lack of payment predictability, and knowing when the cash would arrive was vitally important. You did work for a bank, after all.
You also knew from the folks in Cash Ops that your bank, as an originating bank, was forced to maintain relationships with numerous correspondent banks to fulfill the many currencies in the countries that your corporate customers sourced from, creating further inefficiencies and reconcilement headaches.
The Future of Cross-Border Payments?
What did your 12-year-old daughter tell you last night at dinner? Rather than wires, new distributed ledger technology innovations were entering the banking universe? That the new distributed ledger infrastructures could enable financial transactions on a private, permissioned, and highly secure network?
Remember how, on the paper napkin, she sketched out a multilateral versus a bilateral settlement approach? With Banks A, B, C, and D on the same distributed ledger, the originating bank no longer must have relationships with multiple correspondents to fulfill payments in different currencies and countries. You wondered how a 12-year-old could understand that through a single relationship, originating banks could deliver payments directly to beneficiary banks in the payment network – that both the originator and recipient bank would benefit, as the recipient bank would get access to the money in real-time. You think she obviously got her brains from her mother as you put the phone down and start to read the day’s business news.
Behemoths Teaming Up
J.P. Morgan and Visa are teaming up to streamline cross-border payments. Visa’s cross-border payments product for financial institutions and corporate clients, B2B Connect, has adopted the use of J.P Morgan’s Confirm product to validate account information. In addition, Deutsche Bank has adopted Confirm, not just as a user but as a founding member. This means that the largest banks in America and Germany are joining forces with one of the largest charge networks in the world to validate account info. Surely, your bank must get in on this, as well.
But you can’t just rush into your boss’s office without having the answers to his questions. He’ll want to know what Confirm is. Confirm allows users to easily, quickly, and securely validate account information before payment initiation. Powered by the Liink network, Confirm has the power to verify more than two billion bank accounts from more than 3,500 financial institutions.
What is the value to be gained by using Confirm and Liink? Leaning back in your chair, you know your contacts in cash operations will love that by validating in advance, the volume of returned payments will be slashed, and operating errors and costs will be reduced. Compliance will love that fraud will likewise be reduced, as pre-validation of account information will allow payers to confirm the instructed beneficiary matches the owner of the account they are paying.
You also know that the tech team will love that API integration with Confirm will allow the validation of account information before cash leaves the door. The validation will be done on a secure peer-to-peer network.
You know that clients and executives such as yourself will love having real-time cross-border payments visibility and quick access to cash.
But you also know that your boss will want a third party they can rely on to help guide them through the regulatory maze, process development, RCSA amendment, policy writing, and API creation and testing headache that such a huge change will require. Well, that’s the easiest answer of all…. Perficient.
This day is going to be a great day, after all. Time to toss the street coffee and replace it with one of the finer coffees from one of the boutique coffee places nearby.