How to fight the friction in Cross-Border payments

International payments are growing fast. Soaring emerging markets, greater financial inclusion and the move from cash to digital-first are generating huge rises in both the volume and value of global transactions. The acceleration is staggering; cross-border payments will surge to more than $250 trillion by 2027 from just $150 trillion in 2017.‍

In this globalized, fast-moving environment, it’s no surprise tackling friction in cross-border payments has been identified as a priority issue by the G20. The G20 recognises the opportunities presented by a more seamless, connected and coherent global financial environment. But it also recognizes that businesses need to adapt fast if they are to ensure the smooth, secure flow of data and payments around the world. The G20 highlights limitations with legacy platforms as a key area, as these can create slow-downs in data processing, leading to harmful knock-on effects of delayed settlements and liquidity issues. And at an individual business level, failure to cope with the increasing complexity and scale of cross-border payments can have implications on costs, productivity and even brand reputation. Consequently, enterprises must consider new ways of working that reduce risk, accelerate operations, and maximize efficiency for the years ahead.

‍Cross-border payments - why are they growing so fast?

‍The international mobility of goods, services, capital and people has intensified. This has dovetailed with the move to a digitalized, always-on world, where individuals and businesses expect transactions to be completed and processed in real-time. To meet today’s customer expectations, businesses must ensure transactions between payer and recipient in different countries are accurate, frictionless, secure and transparent. They must also protect themselves from losses through fraud and human error — the risk of which has grown in line with the market.

Whether cross-border payments are wholesale (usually between financial bodies) or retail (C2C, B2C, B2B) their increased popularity and importance over recent years has been attributed to:

• Increasing trade in emerging markets in Africa, Latin America and Asia
• Migrants sending money via international remittances
• Cross-border asset management and investment
• Expansion in global supply chains
• Growth in international trade and e-commerce
• Consumers demanding smart, intuitive, digital ways to pay
• Greater worldwide accessibility to mobile phones and e-payments

Cross-border payments will continue to grow. WorldPay’s Global Payments Report 2021 says 52% of online purchases will be made with a digital wallet by 2024, while the use of cash has declined by 32% from 2019.

The challenge

As cross-border payments accelerate, businesses face having to sort, manage, interpret process and check ever-increasing volumes of complex data. This is because borderless trade means potentially more intermediaries, time zones, jurisdictions and regulation, all of which can potentially ‘slow the flow’. Enabling, recording and resolving payments can become more expensive if the currencies involved are less common. The inclusion of ‘correspondent’ or intermediary banks adds to the links in the transaction chain, while the transaction process can slow for reasons such as different regulations and security requirements per country or region.

In short, businesses are having to cope with larger and more complex datasets, and are expected to deal with them faster, without sacrificing accuracy or increasing corporate risk.

Reducing friction – a global priority

In 2020 the G20 (an international forum of 19 countries and the European Union) made enhancing cross-border payments a priority. It wanted to reduce the associated frictions and make payments faster, cheaper, more transparent and inclusive.

Most significantly it acknowledged that legacy platforms could be a business’s Achilles’ heel when it came to overcoming the pain points of cross-border payments, and encouraged investment in upgrading systems.

The G20’s concerns included:

• Increased costs and payment lags due to the disjointed regulatory requirements if several sources need to check the data received for fraud prevention and other sanction checks.
• The considerable variation of standard and format in which data is provided across countries and jurisdictions leading to delays in confirming legitimacy of payments.
• Limitations with legacy platforms creating slow-downs in data processing and real-time monitoring leading to delayed settlements and trapped liquidity.

The G20 created a roadmap to lay the foundations for improvements, with ongoing work in 2022 ‘requiring global coordination, sustained political support and investment in systems, processes and technologies’.

Ignored, these problems can:

• Disrupt smaller businesses if their cash flow is interrupted by slow payments
• Limit a business’s competitiveness and customer satisfaction
• Restrict a business’s ambitions if global markets are perceived as too complex to do business in
• Dissuade investors if a business’s processes appear slow and outdated
• Affect overall performance, effectiveness and job satisfaction if complex and extensive data is processed manually
• Make it hard to plan long-term if data is slow to consolidate or hard to access
• Make a business less agile
• Make a business more vulnerable to global socio-economic shocks
• Induce creeping obsolescence if a business’s legacy infrastructure and technology cannot keep up with market demands
• Increase the chances of a company falling foul of risk and compliance frameworks

Adding resilience and accelerating processes

Cross-border payments are the engine of international trade. But like all domestic payments, they need to be subjected to rigorous checks and balances. Amongst this growing scale and complexity, businesses have two choices: continue to work in a labour intensive, manual fashion, and rely on outdated systems that might crack when dealing with more elaborate and intricate data. Or they can invest in automated systems that can help them adapt, reduce cost and stay agile so they can compete in the new environment.

Automatic reconciliation – the sensible way to stay ahead

Automatic reconciliation is a key area for improvement. By automating the checking of cross-border payments, businesses can remove the distractions of mismatched information, fraud concerns and accounting hold-ups. Automation eradicates human error – leaving your people free to concentrate on value-add activities. This could make the difference between realizing your company’s international potential and dwindling in a domestic market.

Automated reconciliation ensures finances undergo coordination at speed – with Aurum it’s thousands of transactions every second. These transactions can be easily tracked and mined by your team with a dashboard of data. Reducing manual checks keeps information up-to-date and accurate while freeing your employees to focus on the urgent and important. Better still, automated systems can deal with both the growing complexity and scale of cross-border payments, while streamlining your internal systems.

Data anomalies, issues or irregularities are easily identified through automation, and reports generated for the relevant individual to action, allowing more agile decision-making and problem-solving. It gives companies greater control of their data, ensuring more secure management and an enhanced real-time picture of client or company finances.

Choosing a third-party solution also ensures the technology is always up-to-date, scalable, and managed by specialists.

How can Aurum help?

For more than 14 years Aurum has been supporting some of the world’s most recognizable brands to save money, reduce risks and streamline operations through automated reconciliation.

In the cross-border payments landscape alone we’ve worked with industry leaders Centtrip Ltd, Libertex, Versapay and VertoFX.

We help put businesses like them in the driving seat with their data, ensuring compliance and control with a quality product tailored for each client’s needs. Our partnership approach also ensures we’re always on hand to remove friction from your processes, and to advise on industry best practice.

If you are interested in finding out more about how we can help your business perform at its peak through faster, smarter cross-border payments reconciliation, book a demo now.

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