Almost half (45%) of corporates see a bank’s B2B payables and cross-border payments offering as being a very or extremely important factor in the bank selection process.
In its 2017 B2B Payments & Working Capital Management Survey report, it also found that at least 24% of respondents operate in each of the world’s 10 major regions. As many as 67% of corporates operate in more than one country and 33% in more than 20 countries – according to Strategic Treasurer data.
As technology offers evermore payment options and globalisation continues, it is little wonder that treasurers are increasingly looking to upgrade their cross-border payment processes. In fact, the survey found that 37% of corporates were planning to spend $100,000 (£77,676) or more on payments technology over the next 12 months.
This article focuses on four the major cross-border payment methods, looking at the benefits and drawbacks for corporates.
SWIFT for Corporates
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.
Swift recently launched an upgrade of its network, SWIFT gpi (Global Payments Innovation) which SWIFT’s website promises it is “the biggest thing to happen to correspondent banking in 30 years” for the 110+ banks who’ve already signed up since January 2017.
Wim Raymaekers, global head, banking market and head of SWIFT gpi, comments: “While there are a number of payment providers and fintech companies proposing new technologies, we are in a unique position since SWIFT gpi has already been adopted by more than 150 financial institutions around the world.”
“While there are a number of payment providers and fintech companies proposing new technologies, we are in a unique position since SWIFT gpi has already been adopted by more than 150 financial institutions around the world”
Direct SWIFT connections are excellent for multi-banking connectivity, but they also require a significant investment – not just financially, but also in time and resources.
Banks in SWIFT’s network can offer corporates bank knowledge and capabilities, but this can be a lengthy process with plenty of effort to drill-down into the specific level-of-readiness information. A bank may be on the SWIFT network, yet still require connectivity via the lead bank model.
SWIFT has also been criticised for not offering the desired level of transparency. Ed Metzger, head of technology innovation at Santander UK, commented: “The feedback we’ve had from retail, SMEs, financial institutions and corporates have mainly revolved around the uncertainty and transparency of when a payment will arrive with the current SWIFT model.
“This is becoming more important at a time when exchange rates are moving volatility,” he added.
The SWIFT service bureau model is another option. Corporates may choose to retain a third party (vetted by SWIFT) to maintain and manage their SWIFT BIC – which may be easiest for businesses on a growth trajectory who do not want to maintain an extensive IT team to manage treasury operations. The SWIFT service bureau option allows large enterprise groups to have the most flexible setup, with additional services tailor-made to their diversified ERP and/or TMS setup within the company group.
EBICS (Electronic Banking Internet Communication Standard) represents a standardised, bank-neutral transmission protocol that was developed by the German Banking Industry Committee. Companies and banks can use EBICS to exchange financial messages with each other, such as corporate payment transactions, between an organization and a bank, EBICS is an alternative to SWIFT.
Released in 2017, EBICS 3.0 allows banks to provide standardized access for multiple countries on the basis of one standardized and fully harmonized infrastructure and can also be used for clearing access for Single Euro Payments Area (SEPA) payments. While EBICS is currently only mandatory in Germany, other countries including France and Switzerland have adopted the protocol and it has the potential to become a European standard.
While EBICS is not yet a global or even a European standard, adoption is growing – and the price is hard to beat. For banking in Germany, France, and Switzerland, EBICS provides a secure communication channel that can simplify the connectivity process. Using EBICS also offers a higher level of flexibility, as it would be easier for corporates to transfer business from one bank to another.
“It is often the ‘classic’ cash management banks that offer EBICS as a ‘single point of entry so that companies can send their payment orders via one single channel to a group of banks.”
“It is often the ‘classic’ cash management banks that offer EBICS as a ‘single point of entry so that companies can send their payment orders via one single channel to a group of banks,” said Thomas Keim, senior solutions architect at Hanse Orga AG.
“The bank then routes the payment flows via its own internal network to the respective foreign affiliates from where the payment is meant to be executed. Conversely, it also works for the concerted provision of account information,” he explained.
This method has technical, administrative and – last but not least – cost advantages as companies no longer have to support and maintain several local or bank-specific protocols.
Further background information and the benefits of EBICS can be found here.
A host-to-host payment requires a direct connection with each bank and is based on the individual bank’s standard.
“These connections enable the automated transfer and processing of payments with the bank,” explained Kaufmann.
“There is a central interface for each bank, potentially making it easier to connect or transfer data between the corporate treasury management system (TMS) or Enterprise Resource Planning (ERP) system on the back end,” he said.
“There is a central interface for each bank, potentially making it easier to connect or transfer data between the corporate treasury management system (TMS) or Enterprise Resource Planning (ERP) system on the back end.”
Host-to-host benefits to a corporate include straight-through processing in the channel, ability to confidently process as many payments and collections as desired through that channel, automated error trapping, timely reception of statements and intra-day reports.
“Host-to-host connections are available from most banks but may be time-consuming and complex to implement: host-to-host on-boarding can be slow due to having no standardized data standards, formats, and validations,” Kaufmann said.
Transaction banks only offer host-to-host channel banking services to their largest clients (At least $1bn turnover is regularly cited as an entry level, for example). This is because integration is costly: internal resources are required to manage and maintain the channels.
But while it may require some extra work, host-to-host connections can be a good choice if you are working with a small number of banks with high-volume transactions.
Deutsche Bank and Bank of China implemented an interbank host-to-host (H2H) platform to provide cash management services to Bosch China in March 2016. With the launch, Deutsche Bank became the first foreign bank in China to establish H2H connectivity with Bank of China.
Bosch was the first company to use the platform and consequently can execute domestic and cross-border payments in both renminbi (RMB) and foreign currencies, and make account balance and transaction inquiries, whilst maintaining one internet banking platform.
Ripple has made a splash in the cross-border payment scene in 2017 and 2018. It is a payment tool that uses blockchain chain technology to make direct payments from bank to another and its clients included Standard Chartered, Santander and SEB Bank. There are plenty of other competitors moving in to fill this space, for example, Barclays has launched its own blockchain cross-border payment solution called B2B Pay.
As payments go directly from one bank to another, there are no intermediaries, meaning transactions are faster with less hidden fees than other options. Some blockchain tools are able to offer more data and visibility on payments compared to some more traditional cross-border payment options.
According to Strategic Treasurer, 59% of corporates and 55% of banks said the information was important than the speed of a payment.
Marcus Treacher, senior vice president of customer success at Ripple argued it is the only market player that has created a solution that connects everyone in the world.
“We are thinking about how money moves in a very different way. We are creating an internet of value,” he told The Global Treasurer.
“It will work like the internet does. You will be able to download money as data on your mobile phone. It is very fast and accurate, and we are creating a model where money will move inexpensively, safely and securely,” he added.
However, Wim Grosemans, global head of product management, payments and collections, BNP Paribas Cash Management, said that blockchain technology is less suitable for facilitating the high volume of ACH payments.
“Blockchain is never real-time. It is always near real-time,” he said. “We are seeing instant payment initiatives all over the place – they are typically not using blockchain technology,” added Grosemans.