Faster, cheaper, transparent. These words are music to any treasurer’s ears and a goal for departments where doing more with less is the mandate. Unfortunately, this is a challenge to achieve when it comes to cross-border payments. Despite the emergence of new technologies and the promise of the Federal Reserve’s Faster Payments Task Force, getting to that sweet spot has been tough. In cross-border payments there are a lot of moving parts that even blockchain and other innovative technologies may be challenged to overcome.
Under current structures corporate treasurers must navigate a byzantine network of platforms and messaging systems to get payments from one point to another. This means they can wait a day or more for debits or credits to appear in their corporate bank accounts. The current set-up is also prone to error, inefficient, expensive and very often unpredictable. What’s more, it’s not very transparent and one of the reasons why payments in the US take so much longer to settle versus just about every other developed economy — and some developing ones, too.
According to Hank Uberoi, chairman of ACH network provider Earthport, it’s not necessarily the fault of technology, which for many is the go-to villain. It’s actually a mix of regulation, disparate data and the number of interactions that have to happen in order for payments to get through. On top of this, those transactions rely on the banks involved. There are just too many potential pinch points to make it straight through.
Earthport, which also offers FX and global liquidity management services, provides companies entry to the world’s largest independent ACH network. The company leverages its strength in ACH and combines it with offerings including regulatory know-how, forecasting capabilities and local intelligence on rules and regulations as well as compliance. Its clients can access all of this through a single interface, and have the ability to deliver payments to any bank account in the world quick and cheap; and most apparently in an auditable way.
For Earthport, this one connection allows companies to deposit money into just about any bank account in the world. It offers a ACH payment capabilities in more than 67 countries, enabling some of the world’s largest financial institutions to seamlessly manage payments globally. It also provides access to global payment services in more than 200 countries and territories.
“We use internal forecasting tools and real-time analytics to ensure we can have our clients’ monies in the right place at the right time to affect their settlement’s through the local payment corridors,” says Michael Gowland VP, treasury at Earthport. The company’s FX and liquidity management services also are tailored to clients’ existing in-house capabilities, which takes the forecasting pressures off the clients, Mr. Gowland adds. Knowing this can help treasuries optimize their liquidity management.
Earthport provides an example of how this works. One of its clients, a credit union, had the challenge of executing a high number of small payments to members around the world. Through Earthport’s ACH network, the credit union could make these payments locally faster and cheaper to members’ local bank accounts. The credit union simply connected via API and funded Earthport in its base currency and Earthport took care of the currency conversion and movement of liquidity into the local payment corridors. The members then could log on to the user interface of their respective banks to execute whatever transaction they needed to do. This was great for the credit union because it accessed a large number of bank accounts from one place, it didn’t need to worry about regulations, Earthport handled forecasting and the FX and liquidity risk, and it realized some cost savings versus a traditional Swift Correspondent option.
As for the credit union members, they were able to transact FX on demand 24/7 via a tailored user interface at competitive prices and saw receipt of settlement direct to bank account faster than traditional Swift Correspondent routing.
And while Earthport currently relies on ACH and its broad reach and expertise to service its clientele, it isn’t sitting idly by as other technologies advance. For instance, since 2014, the company has been in a partnership with Ripple Labs and its distributed ledger protocol to offer real-time cross-border bank payment confirmation. “Blockchain and DLT technology allow the coordination of multiple participants around an event and recorded on a shared system of record,” says Stuart Wilson, head of innovation at Earthport, adding that clients still need a network of banks to make the actual payments work. However, “leveraging Ripple ensures that all parties in the transaction have a pre-aligned agreement to exchange funds, recorded in a resilient, tamper-proof shared ledger.” This allows Earthport to execute the financial transfer with full confidence. “Blockchain technology excels at bringing transparency to agreements between institutions and participants,” Mr. Wilsons says.
For all stakeholders in the cross-border payments space, the evolving technology and regulatory landscape means the payments ecosystem will likely see unprecedented change in the coming years. And the demand for that faster, cheaper, transparent sweet spot will only increase businesses grow and technology advances. There will also be increased demand for safer data and improved product experiences. All of these challenges present great opportunities for service providers.