In the world of international banking, cross-border payments have long been plagued by many challenges. The traditional bilateral model of correspondent banking relationships is arguably outdated and inefficient, causing headaches for treasurers, accounts payable and accounts receivable teams, as well as for financial institutions around the world. However, a fresh wave of fintech innovation is set to shake up the space as multilateral payment platform models gain popularity.
Solutions include innovative multilateral, cross-border payments platforms that offer an alternative – one that addresses the unpredictability that was the unfortunate hallmark of the existing model.
The old bilateral model of correspondent banking relationships worked by relying on intermediaries to facilitate cross-border payments. However, this system was fraught with multiple challenges: high transaction costs, slow transaction times, and a lack of transparency on timelines and deductions made by the intermediaries.
This complexity transformed reconciliation of charges and application of customer credit, a problematic and time-consuming exercise. It also made it difficult to identify and address issues such as fraud and errors.
By using a shared platform, financial institutions can communicate directly with each other, thus reducing the need for intermediaries whilst streamlining the payment process for the benefit of businesses and their treasury back-office teams
Businesses are not overly concerned about what infrastructure is used to make their payments; they merely want predictable fees, fast and secure settlements, transparency of payment status and robust data associated with their payments. According to a cross-border payments study, it was reported that nearly 82% of surveyed banks view visibility of payment tracking as one of the most important features when assessing their international payment service.
A multilateral model for cross-border payments can help address many of the challenges that arrive with the traditional bilateral model. By using a shared platform, financial institutions can communicate directly with each other, thus reducing the need for intermediaries whilst streamlining the payment process for the benefit of businesses and their treasury back-office teams. The end results? Faster transaction times, lower costs, and greater transparency.
Examples of successful multilateral payment platforms in the financial services industry include ACH and RTGS platforms operated by various regulators around the world. It also includes the Visa B2B Connect platform, which uses distributed ledger technology (DLT) and tokenisation to facilitate secure and efficient transactions for the benefit of businesses engaged in cross-border commerce.
By allowing financial institutions to communicate directly with each other and eliminating the need for intermediaries, such platforms offer reduced costs and faster transaction times, enabling institutions to process a higher volume of payments more efficiently.
Real-time tracking of payments within the network and automated reconciliation also make the payment process much faster and transparent. It also allows for better monitoring and identification of critical issues such as fraud and errors.
“Visa B2B Connect is an innovative solution, that has enabled faster and more predictable transactions, supported by a service model that benefits our business and corporate clients,” says Oscar Sanz-Paris, deputy CEO and head of CIB, CQUR Bank, Qatar. “The process is transparent and through a single connection we provide our corporate customers greater global reach. The solution is ideal for our clients and ultimately good for their business growth.”
Representing a major step forward for the world of cross-border payments, multilateral platforms bring an enhanced payments experience through finality, predictability and transparency of the flow while reducing cost, ensuring data security and delivering alternatives; something not previously available to businesses around the world. In an increasingly digital and globalized world, this allows all participants in the transaction chain to stay competitive.
Vishal Virmani is head of Visa B2B Connect for Central and Eastern Europe, Middle East and Africa (CEMEA)
