Recap: Aite Group Examines Cross-Border Payments

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Ripple Labs conducted our first Twitter interview with Aite Group senior analyst Nancy Atkinson to discuss the challenges surrounding cross-border payments. Read the recap below and join us at our upcoming webinar on modernizing near real-time global payments for and with banks.

  • Join us at the Ripple Labs & Aite Group webinar March 31. Sign up here.

Why is now the time to be talking about cross-border payments?

A number of factors make cross-border payments important to follow now: B2B trade is now global for all sizes of companies, workers immigrating for better jobs send money home, and simply the number of transactions and amounts paid grow. Each of these factors contributes to countries’ economic growth and well-being, making cross-border payments critical for governments, their citizens, and their businesses. Now, new entrants to the market are challenging the status quo, and disrupting long-time practices and players.

With that in mind, what are the top challenges to cross-border payments?

Top challenges are the perceived high costs, lack of transparency to track payments, unknown amount and timing of receipt. Frequently, the payment recipient receives a much lower payment amount due to fee deductions taken by intermediary banks. Foreign exchange can contribute to the reduced amount received and high costs also. Country holidays, regulations, accepted working days and times differ and impact clearing and settlement timeframes. Varying payments processing formats adopted by countries inhibit straight-through processing and timing of payments.

Ok, next question. Why are real-time payments being watched so heavily by banks right now?

As mentioned before, new entrants introduce competition, new approaches, and challenges to banks’ payments markets. These entrants not only disrupt the market, but also illustrate opportunities that banks may have missed. Upcoming generations (e.g., Millennials) have higher expectations for speed and automation than have prior generations. Millennials (now ages 21 to 35) are in the workforce and beginning to influence expectations, including quicker processing.

To get more specific, why are real-time payments being watched specifically by central banks and regulators?

Central banks and regulators share focus on economic good and in many cases, consumer protection. A number of real-time payments schemes evolved from government intervention to insist on quicker funds availability. Some were due to the large number of unbanked or underbanked populations of countries. Others were driven by the realization that payments could be made faster and that consumers should have funds access rapidly. Real-time payments can introduce new risks to payments systems that central banks and regulators must address. Real-time payments currently apply to domestic payments. As they become common, the focus will move to international payments, resulting in new challenges (risks, formats, policies and practices) that will arise.

Why should banks be thinking about cross-border payments now?

Between FX and higher costs for cross-border transactions, banks want to maintain/grow those revenues and relationships. Payments are one component of the international bank relationship with its clients. Client ignorance about cross-border trade allows banks to be trusted advisors, building stronger relationships. The threat from non-traditional competitors is very real; banks must adapt and innovate to stay in the game.

Find the recap on Twitter by searching the hashtag #xborderpmts or by going to @RippleLabs.

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