Cross-border payments: supporting the treasurers' juggling act

It is vital that a corporate knows that its bank is firmly in its corner during times of crisis. When Russia invaded Ukraine in February 2022, companies globally suddenly found themselves re-evaluating their positions against the inevitable backdrop of uncertainty. Many corporate treasuries needed to repatriate cash in high-value cross-border payments from Russia, carry out urgent FX risk mitigation and liquidity transactions, and adhere to stricter sanctions.

Anti-fraud, money laundering and other financial crime compliance capabilities have also become more important as crime and malfeasance are rising sharply in an increasingly digitised world. AI is now used frequently to attack companies and their consumers and, simultaneously, as a defence mechanism. The rise of digital marketplaces and potentially of machine-to-machine (M2M) micropayments in an Internet of Things (IoT) automated world may exacerbate crime, if they are not handled correctly. If the players in the financial ecosystem cannot interoperate with one another, companies could find themselves functioning in isolated 'digital islands'.

Frantz Teissèdre, citing Nasdaq's 2024 Global Financial Crime Report, says: "In 2023, an estimated $3.1tr. in illicit funds flowed through the global financial system, trying to launder funds from human and drug traffickers, and terrorists. Last year, fraud scams alone totalled $485.6bn in projected losses globally, so the need for good cross-border AML and anti-fraud measures from bank partners is clear."

"The correspondent banking sector handles $150 tr. worth of transfers each year and it’s not always 'happy flow' either. Some of it needs to be isolated and processed specifically," adds Teissèdre, while stressing the importance of its robust legal and compliance work in preventing illicit funds from entering the mainstream financial system. 

Emerging payment trends and types 

"We also need to be able to cater for emerging payment trends and types at Societe Generale," says Teissèdre, "such as mobile QR code-based transactions, for example, or the increasing use of open APIs as a means of easier connectivity and data exchange, aiding interoperability."

"Open APIs can additionally act as a spur for co-creation initiatives with fintechs to launch new data-based services or liquidity tools, plus there is the potential rise of new blockchain-based networks or CBDCs to deal with in the future," Teissèdre adds.  

This is where the technological and human expertise of a bank can assist, believes Isabelle Poussigues. "We at Societe Generale have helped many corporate clients deal with the Russia and sanctions situation, for instance, because we have knowledgeable staff, relationship managers (RMs), human experience and  high level of expertise," she explains. "Aligning people, process, and technology skills in this way ensures a great service can be delivered to corporate clients."

Data mastery

"Better IT and richer structured data can help deliver the easy, fast, frictionless payments across borders that everyone wants to see," says Poussigues.  It can help meet the ever-increasing regulatory burden as well in a cost-effective, non-disruptive way.

"Our technological capabilities mean we can offer fast transactions, connectivity, data-centric services, transparency, and good liquidity management across time zones, which is important as cross-border flows are increasingly moving towards an instant 24/5-7/365 service requirement," she adds.

This always-on requirement is in line with the Swift GPI project, which is an example of where cross-border services are already catching up with the fast-moving nature of modern domestic payment platforms.

"The high-value cross-border and domestic payment infrastructure worlds  can combined somewhat due to the converging speed and data-centric nature of their offerings, helped by ISO 20022 messaging standardisation," continues Poussigues. 

"The international arena will always be more complicated because of the higher limits, extra compliance, FX and liquidity considerations, plus intercompany loans between subsidiaries and pooling structures at corporates to consider," she adds.  

A bank can fill in any processing, standardisation or compliance gaps that may arise as the interaction between domestic, regional and cross-border fast payment platforms potentially increases. Factors including routing decisions and cost will become more important, especially as different regional initiatives emerge, along with a multitude of other new payment types. Some flow will go on instant payment domestic platforms, some may cross a border on a direct host-to-host network or use Swift GPI, another might use blockchain technology or a QR code... Banks must cater for all different types of flow.  

Connectivity: host-to-host and the IXB initiative

"Direct host-to-host (H2H) payment infrastructure connectivity is proliferating between various countries' modernised platforms alongside Swift's GPI's cross-border links," says Poussigues. This gives corporate banks and their treasury clients yet more immediate processing and cross-border routing options. "Societe Generale can handle this trend, too, as we have long experience of the single euro payments area (SEPA) in Europe and the operational intricacies of connecting independently of Swift across borders."

Asia is particularly advanced in the direct H2H connectivity trend. Indeed, it was pioneered by Thailand’s PromptPay and Singapore’s PayNow domestic infrastructures linking technologically between the two nations to enable instant B2C and QR code-based cross-border payments to be easily and speedily. Many more H2H links have been created since – in India, for example, with its Unified Payments Interface (UPI) now linking to PayNow.

Banks have to cope with regional and country-specific infrastructure initiatives, while also utilising global cross-border payment services, such as Swift's Go, a GPI extended service for low-value SME- and consumer-based international payments, which presents a payments acceptance challenge to treasuries, and its G4C iteration for multi-banked MNCs.

Swift is also involved in the Cross-Border Payments (IXB) initiative, in conjunction with EBA Clearing and The Clearing House (TCH), to try to extend an earlier pilot and connect the EBA Clearing operated euro instant payment system, RT1,  with its US's counterpart, the RTP service. The idea is to facilitate full euro and dollar fast settlements across this vital trade corridor. Other regional gateways may be similarly linked in the future.

G20-inspired integration

Globally, there is also the G20 payments roadmap to consider, which is yet another driver encouraging greater cross-border integration. The G20 is in favour of interlinking all fast payment systems (FPS) around the world to benefit the global economy. At the turn of the decade, it endorsed a roadmap to enhance cross-border payments, developed by the Financial Stability Board (FSB) in co-ordination with the Bank for International Settlements' (BIS) Committee on Payments and Market Infrastructures (CPMI) and other relevant international organisations and standard-setters.

The resultant G20 cross-border payments programme is still active with the aim of addressing long-standing challenges, such as reducing costs, increasing speeds, extending access and enhancing transparency.

ISO 20022 and big-bank back-up

According to Teissèdre: "Key enablers of the comprehensive global service a bank wants to provide, and that a treasury wants to access, are open APIs and structured character-rich ISO 20022 messaging. These crucial tools help meet the drivers for a better and frictionless cross-border payment ecosystem. They both enhance interoperability and the easier conveyance of more information across borders."

"Banks can add their own extra bolt-on data services if they have moved to the more data-rich ISO 20022 standard, as we have. For instance, Societe Generale has many liquidity tools thanks to its early-mover advantage. As a leading bank, we have been fully compliant with the XML-based ISO 20022 messaging standard for years – and even where a bank in a far-flung corner of the world doesn’t have the capability to cater for it, we can provide converter tools. This ensures a frictionless worldwide service for our clients."

This is a vital consideration because, unlike legacy "MT" payment messages which will be withdrawn immediately by the Swift community by November 2025, the reporting/statement messages would not be submitted to this hard deadline, but for a limited time and without being maintained any longer. The delay doesn’t help corporate treasurers wanting a universal service, but the 'plumbing' assistance of a large bank can ensure they receive a seamless service on the front end. 

Such assistance in delivering a ubiquity of service on a frictionless basis, despite any operational or connectivity issues that may arise from small banks or initiatives such as IXB, or direct H2H efforts, is usually available only from a large bank. Such FIs can also meet any new compliance demands. 

As Poussigues comments: "A correspondent bank is often hidden in the background, alongside Swift, Continuous Linked Settlement (CLS) and other such settlement mechanisms. But we deliver an excellent risk-aware service and liquidity maximisation tools."

The co-ordination game

There are challenges for a bank dealing with the drivers towards more integrated and data-centric services on faster cross-border payments, not least in terms of the liquidity impact. As transaction speeds and time zones shrink, recognising the cash productively becomes harder. However, as is always the case, there is a countervailing opportunity.

For example, aligning instant payments of all types, whether on Swift GPI, H2H or on alternative networks and formats, across countless borders with the vast amounts of real-time data available in a digitised world, will give corporate treasurers the potential to repatriate cash every night, based on 24/7/365 instant service levels. They could also theoretically operate a cash concentrated portfolio from one place.

This vision would have numerous benefits including improved liquidity management and reduced FX and other risks for corporate clients. But ISO 20022 and common OpenAPI standardisation are vital if the industry is to get anywhere near this envisaged nirvana.

The corporate treasury itself would also have to have highly accurate cash forecasting, perhaps aided by AI, to ensure it can sweat its cash and still make payments safely as late as possible, without the likelihood of bounce-backs due to a lack of liquidity. Financial crime compliance data would additionally need to be tightly co-ordinated. The assistance of a bank would be required. There are challenges in this scenario, such as: 

• The bank potentially having to hold larger liquidity reserves to smoothly serve the 24/7 needs of its corporate clients  
• How to accommodate interest calculation and intraday allocations in a 365/24/7 real-time world and with transactions flowing instantaneously across different time zones
• Aligning any legacy systems, anti-fraud, AML and sanctions systems is imperative 

But the trend towards making cross-border payments, tracking, data and compliance services as fast and as easy as domestic transactions is clear. “There will always be a difference, but a convergence is happening,” concludes Poussigues. “Banks must help corporates rise to the challenge, even as they do so themselves.” 
 

This article is part of the whitepaper "Shaping the Future of Treasury", published by Treasury Management International (TMI) - September 2024. Click here to download the whitepaper.