The stage is set for a new era of cross-border payments to take hold that will not only be more streamlined and faster than existing methods but cheaper too.
These advances, however, will also come with a cost. Daniel Mayhew, senior vice president and global general manager of cross-border at FIS, told PYMNTS that the transition would disrupt the card-based system that has dominated that space for decades.
“There is a status quo that’s existed for many years, but it’s starting to change,” Mayhew said, echoing PYMNTS research that predicts more than a quarter of firms in the U.S. and the U.K. will upgrade to receive real-time payments within the next two to three years.
Across the board, and especially across borders, there is a range of payment modalities that are becoming available through which individuals and corporates can send or receive payments.
He pointed to cards (debit and credit), a mainstay of payments, which have fast funding options; wallets such as PayPal; and account-to-account real-time payment schemes.
Instant payments, he said, “are really starting to become a part of this ecosystem of new ways to [send and] receive money across cards and wallets.” But fast funding options have limitations regarding cross-border transactions due to regulation and jurisdictional restrictions — and settlement can be a pain point.
Cross-border transactions done on cards, he said, are premium services that carry premium prices marked by additional fees.
But account-to-account, cross-border real-time payment (RTP) is developing quickly, marked by the ability to use platforms to send and receive payments. He pointed to RealNet, FIS’s cloud-based software-as-a-service (SaaS) platform focused on account-to-account (A2A) transactions that can traverse rails and borders.
“A consumer can pay in local currency or using the local [real-time payments] scheme,” he told PYMNTS. “And as soon as those funds are identified by a platform like RealNet, the funds could be transferred in real time to the receiver’s account in local currency, in their country, at a fraction of the cost of some of the other modalities.” He predicted that RealNet would continue to gain traction, due to scale, with FIS counting more than 1 million merchants and more than 20,000 corporate and bank clients.
Better Cash Flow
One of the main benefits of delivering RTPs is increased cash flow so that businesses can focus on growth.
For instance, take a manufacturer based in the U.K. that’s importing parts from around the world to keep the production line moving — these components require a cross-border payment as part of that procurement process. Getting shipments on time, he said, relies on suppliers being paid on time — sometimes in full.
In another example, he said that an events company would likely need to start collecting payments in a range of currencies as it re-emerges from the pandemic.
Real-time payments, he said, can democratize payments — allowing governments to provide instant funding and support to those who need that money quickly (for example, disaster victims). It also gives rise to financial inclusion. Mayhew said roughly a quarter of Americans are underbanked, and no matter where one looks, significant swaths of populations have been unable to access basic financial services in whatever country. For people who live paycheck to paycheck, being paid nearly instantly can mean they won’t have to tap payday lenders for cash flow.
Constellations And Not Monoliths
Mayhew stated that with any multi-rail ecosystem, a “constellation approach” is key. No two payment systems are exactly alike — he added, “no two are actually identical meaning that there’s an almost limitless combination of ways you can fund, maintain and send a payment cross border. For example, traditional wires from your own account, cash to cash, over debit cards, credit cards, even ATMs.” The platform model, he said, supports all the different systems such as SWIFT or CHAPS.
The job of a platform, he said, is to be as agnostic as can be about payment initiation, but also the end-to-end point of the payment — and to move transactions from receivers to senders in the most efficient way possible.
“It’s about joining the dots of the constellations of the payment ecosystem options that are available and exist today. We need to remove the barriers to cross-border trade and we need to get money moving around the globe and supporting commerce,” Mayhew told PYMNTS. “We need to ensure that for people in need, we remove the frictions to funds — we’re right at the point of change.”