The IBOS Banking Alliance Solution for Cross-Border Payments?

Cross-border payments lag domestic ones in terms of cost, speed, access, and transparency. It is typically more difficult to make a payment from one country to another compared to making a similar payment within one country. In some instances, a cross-border payment can take several days and can cost up to 10 times more than a domestic payment.

Enhancing cross-border payments was set as a priority in 2020 by the G20. This work included identifying the challenges associated with cross-border payments that arise from a series of frictions in existing processes and developing a set of building blocks to address them.

The Key Frictions in Solving Cross-Border Payments:

1. Fragmented and truncated data formats

Payments are made by messages sent between financial institutions to update the accounts of the sender and recipient. These payment messages need to contain sufficient information to confirm the identity of parties to the payment and confirm the legitimacy of the payment. Data standards and formats vary significantly across jurisdictions, systems and message networks.

For example, some formats only allow Latin characters, and some formats allow more data than others, meaning names and addresses in other scripts have to be translated, leading to divergences in precise spellings. This makes it difficult to set up automated processes, causing delays in processing and increased technology and staffing costs.

2. Legacy technology platforms

A significant proportion of the technology supporting cross-border payment systems remains on legacy platforms built when paper-based payment processes were first migrated to electronic systems.

These platforms have fundamental limitations, such as a reliance on batch processing, a lack of real-time monitoring, and low data processing capacity. This creates delays in settlement and trapped liquidity. These limitations affect domestic operations but become even more of a barrier to achieving cross-border automation of payments when different legacy infrastructures need to interact with each other. The requirement to interface with legacy technology can act as a barrier for emerging business models and technologies to enter the market.

3. Limited operating hours

Balances in bank accounts can only be updated during the hours when the underlying settlement systems are available.

In most countries, the underlying settlement system’s operating hours are typically aligned to normal business hours in that country. Even where extended hours have been implemented, this has often been done only for specific critical payments. This creates delays in clearing and settling cross-border payments, particularly in corridors with large time-zone differences. This causes delays and also means banks need to hold enough cash to cover the unknown costs of the eventual foreign exchange rate, which fluctuates during this time, driving up the overall cost of the transaction. This is known as trapped liquidity.

4. High funding costs

To enable quick settlement, banks are required to provide funding in advance, often across multiple currencies, or to have access to foreign currency markets. This creates risks for the banks that they will need to put aside capital to cover; which means that capital cannot be used to support other activities. The uncertainty about when incoming funds will be received often leads to overfunding of positions, which increases costs.

The IBOS Cross-border Banking Alliance

Cross-border financial transactions, where the payer and the recipient are based in different countries, can cover both retail and wholesale payment types, including remittances.

Cross-border payments can be made in many different ways with the most prevalent currently being e-money wallets and mobile payments along with more traditional methods such as Bank transfers and credit card payments.

The world is seeing an increase in international mobility of goods and services, as well as people. The value of cross-border payments is estimated to increase with projections for 2027 possibly reaching $250 trillion (from $150 trillion in 2017).

Contributing factors to this projected growth include diversification of supply chains, asset management and global investment flows across borders, e-commerce growth, and migrants sending money via international remittances.

IBOS is an international banking alliance that provides connectivity services for key corporates looking to expand beyond their borders. With some of the biggest commercial banks from across the globe as its members, they offer effective and thorough cash management in regions where your local bank does not offer access.

Working with corporate banks across Europe and America, IBOS are open all hours.  Whether you’re refocusing on your bank’s core domestic market and looking for a global partner to help with your international business, or you need support providing effective and thorough cash management across multiple regions, becoming an IBOS member benefits both your organisation and your corporate clients.

Benefits include:

Uniform, high-quality cross-border banking provided by all IBOS members

• Unified client onboarding and service processes make partnerships between IBOS banks seamless
• Dedicated multi-lingual teams in each bank can provide efficient support and assistance with local issues.
• Access to a wide network with clear processes, quality checks and escalation procedures in place to ensure issues can be resolved quickly and efficiently

Access to an international network of banks and affiliates

• Find the best partners internationally from a pool of nominated affiliates that other members work with
• IBOS offers banks access to the best service at the best price, anywhere in the world
• Greater opportunities for business deals through an expansive network in each country
• Save on the costs of international agreements by utilising the network of local IBOS members