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Liam Dempsey, assistant treasurer at Canada’s Vermilion Energy, described areas where the global company faces cross-border-payment challenges. The challenges include paying and receiving payments in multiple currencies related to its derivative hedging and notional-pooling programs and paying employees overseas.
“Ex-pat employees around the world have local accounts in local currencies, and we need to fund them with the correct amount, net various fees,” Dempsey said, as part of a panel at the AFP 2021 Annual Conference entitled Re-thinking Treasury and Payments for 2025. “So we would like to see an improvement in transparency.”
He noted the uncertainty about when payments from customers around the world will arrive, and that they often arrive in Canada late in the day. These late-day payments are often past the cutoff time to invest the funds—a lost opportunity.
As corporations push to stay competitive in a globally integrated economy, their cross-border payments still face legacy challenges that can result in delays and unexpected fees. Cross-border payment networks including SWIFT, SEPA, card networks, and Fintechs are each seeking to provide customers with greater visibility into the payment’s routing and handling, as well as certainty about sending and receiving the correct amount on schedule. Those elements are increasingly important as internet commerce continues to grow, but also as companies stretch their sales, operations, and supply chains overseas—employees and suppliers alike increasingly demand timely, accurate payments.
“The payment systems have been trying to differentiate themselves by providing more transparency, reliability, and predictability on how the payment will flow, and how much money will actually get credited to the beneficiary,” said Tim O’Donnell, managing director at Accenture.
Even before COVID, consumers had high expectations operating in a digital economy. Unfortunately, there is a gap between what consumers expect and what businesses can deliver. Rapid advances in technology, global supply chains and the rise of gig workers have accelerated ecommerce as well as consumers’ expectations of immediacy, creating friction when payments are unexpectedly delayed. A key for businesses to remain competitive in the digital economy is being able to send payments across borders with transparency and certainty.
Payment-service providers compete on payment speed, reliability, and pinpoint accuracy.
Global Commerce Fuels Need for Faster Payments
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Susan Dominguez, director of product at Mastercard, says institutions that partner directly with established local financial institutions which provide access to the local payment clearing system is an effective way to achieve on-time and transparent payments. Those institutions are well-acquainted with the domestic rules and requirements, providing clients upfront with the pertinent rules and requirements.
“A client that partners with an organization with access to local financial institutions that has detailed knowledge about the data, documentation and registration requirements can incorporate that knowledge into its own payment platform and the payments it sends,” Dominguez said. “It’s essential to have access to a library of requirements in different markets.”
That approach is especially helpful in the more exotic markets that tend to place more rules and requirements on cross-border payments. Indeed, in those instances it is even more important to work closely with local payment-service providers who understand their markets and regulators.
“This will ensure that corporates sending payments to these markets understand the requirements and limitations,” Dominguez says, adding some markets may place limits on the purpose-of-payment or require registration or specific documentation. “Understanding requirements and any limitations upfront are key to success in these markets,” she said.
A Different Approach to Cross-Border Payments
Ultimately, the goal is to connect payment recipients globally, enabling automation and a more seamless experience so payments occur faster and with fewer errors. In countries that already have instant-payment systems, a strong provider should be able to offer real-time delivery of funds, accessing those systems through its local financial-institution partners. The number of countries with real-time payment systems is continuously increasing.
“Each of those markets has its own rules that banks must abide by, such as delivery times, or no deducting funds from payments,” Dominquez says. “So payments are going over rails that have rules and are understood by the payment vendor.”
Cross-Border Payments in Real-Time
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A key challenge is certainty. It is imperative for corporates to understand when a payment will be available to their suppliers, as well as the exact amount that a supplier will receive. Too often, there are breakages along the payment path that may require another payment to address the difference. The uncertainty and delays can cause friction in the relationship between buyer and supplier, making it difficult to secure payment discounts and receive competitive pricing.
Straight-through processing of payments offers a solution, but achieving it is challenging for enterprises. Corporates must understand all the payment requirements upfront to ensure compliance when submitting payments, thus avoiding submissions that can result in rejections or delays. However, few corporations have the expertise and resources to keep up with cross-border compliance requirements.
The managing director of treasury and trade solutions at a global bank noted that to achieve transparency into where payments are in their journeys as well as reliability and certainty of payment, necessitates addressing regulatory, operational and technology challenges. The parties facilitating payments must understand local regulations and communicate with local regulators and influencers, requiring “boots on the ground,” he said.
Having local expertise is vital operationally as well, for example, to ensure that foreign payroll payments arrive on time and in full value, since local-payment banking practices differ in every market. The banker added that payment-related technology is ever evolving, requiring diligence by all members of the payment value chain. Payment technology platforms must be able to accept and record the expected data elements, operate on the proper exchange protocols, and screen for tax and regulatory purposes. In some countries, he said, that requires connecting to six or more clearing systems, all with different API nuances, cut-off times and data elements.
“The last piece is how to make this interoperable across borders,” the banker said. “How do you knit together the regulatory, operations and technology considerations in a way that incorporates different languages, time zones, protocols and payment-systems at different stages of development.”
“Ex-pat employees around the world have local accounts in local currencies, and we need to fund them with the correct amount, net various fees.”
A lost opportunity
to invest
the funds
Uncertainty and delays can cause
Late-day payments are often past the cutoff time
relationship.
friction in the buyer and supplier
address: regulatory, operational
To achieve transparency you must
and technology challenges.
