Tearing down the borders of cross border payments

The world has opened up and currencies are being moved at a pace unseen in human history. Cross border payments play a positive role in both the economies and politics of countries all over the globe, and banks have for too long held the process of cross border payments hostage.

According to Pierre-Antoine Dusoulier of iBanFirst, “…the cross-border payments market has been dominated by the banking industry, with little room for new entrants, let alone competitors.”

All that is changing, and we have the democratization that technology brings to thank for the change in cross border payments and processes.

Mature, new, and developing technologies like Open Api’s, Cloud Computing, Mobile Tech, Blockchain and Distributed Ledger, Compliance and Regulatory Tech are enabling alternative payers and fintech companies to provide more transparency, shorter settlement periods, lower costs, and generally less onerous service overall.

“We may soon live in a world where not only large corporates, but also retailers, SMEs, and individuals use international payments regularly, using a range of solutions and providers through integrated commerce or trade interfaces.” – McKinsey, A Vision for the Future of Cross Border Payments

How tech tears down the wall of cross border payments

Open API’s – Application Program Interfaces – allow different systems to communicate and interact with each other. Banks and financial institutions can expose their API’s, enabling non-bank companies to initiate cross border payments.

Mobile Technology – The smart phone has changed the universe in so many ways and one of them is to allow non-bank companies to make it easier to offer payments and services to customers. Banks no longer rule the roost.

Blockchain and Distributed Ledger – Blockchain technology enables peer to peer transactions without intermediaries like banks. Smart contracts, built on blockchain, can automate payment processes, and reduce reliance on traditional financial institutions.

Compliance and Regulatory Tech – “RegTech” solutions have emerged to assist non-bank companies to comply with regulatory standards and navigate the regulatory landscape of cross border payments.

“Customer-facing firms must deal not only with increasing standardization, but also with ever-shifting customer demands. Customer expectations will be set by state of the art digital domestic developments and niche players.” – McKinsey, A Vision for the Future of Cross Border Payments.

Creating Trust for Non-bank Companies

Even though the technology exists to allow efficient and effective non-bank cross border payment solutions, more trust on the part of customers is necessary to open the flood gates of widespread change. Here, regulators must understand the value of allowing cheaper, faster, more far-reaching payments to be made by creating the legislation needed to increase the trust factor of a global customer population. And this is happening, as it should.

Three key directives have helped increase trust in fintech’s ability to make secure cross border payments: PSD1, PSD2, and PSD3.

PSD1 expanded the market and ensured regulation of electronic payments in the European Union. PSD2 strengthened security of payments and opened banking application programming to third party providers, essentially allowing the technology to perform as the technology was intended. PSD3 is the directive initiated to improve and expand on the first two and drive home the aims of PSD1 and 2.

In Europe, Payment Service Providers (PSP’s) are required to keep client funds separate from other funds held by the company to ensure that clients are always able to access funds. PSP’s must safeguard funds and are NOT allowed to function like banks in offering traditional banking services. With all the volatility in banking of late, this is a welcome comfort to the customer.

Being a global economy and being that Europe is vital our economy, we can expect the US to follow suit. But Europe has been more proactive in terms of legislation on all technology fronts than the US, for good and for bad. This is to be expected as tech moves faster than political imagination.

New solutions create new opportunities.

It is the nature of technology to find solutions to problems and to chip away at the barriers that long time problems create. Long wait times, high transaction costs, an almost monopolistic strangle hold on cross border payments by traditional financial institutions was a problem just begging to be solved and the ongoing solutions are allowing new entrants every day that can ensure quality of execution.

The new networks will be more efficient, flexible, and secure. SME’s can leverage their offerings and won’t have to depend on employing a massive, expensive financial institution in the payments part of their business. When everyone is more self-sufficient, the system flows more smoothly. The technology has caused freedom of choice, the trust will increase demand, and the walls of cross border payments will tumble down.

Howard Davidson is the CMO at AlmondFinTech

Almond FinTech is a B2B technology company making financial services affordable and accessible to people around the world, regardless of income. Through our multi- blockchain cross-border transfer protocol, we remove financial barriers and deliver transfer and credit scoring tools that empower everyone, everywhere. www.almondfintech.com