Cross-border trade is a proven way to build a business fast. Build a great product, find the right customers, and watch the bottom line grow. Cross-border trade continues to increase, with cross-border payments estimated to grow from $150 Trillion in 2017 to $250 Trillion in 2027.
The accelerating pace of technological change will drive this growth in B2B cross-border payments even further, which could be problematic for the current fragmented cross-border payments infrastructure worldwide.
The global financial system is struggling to keep up with this growth. This will impact the ability of banks, payment providers, companies, and others to provide the service they want to offer their customers at a competitive cost, hampering businesses' ability to grow at the pace that they wish.
Let’s explore some of the issues in more depth and see how technology can help address many of them.
Why does a Streamlined B2B Cross-border Payments Framework Matter?
An efficient and effective cross-border payments framework is essential because it supports and enables global trade. Companies can buy inputs, goods, and services that help them meet their customers’ needs and grow their business.
In principle, a cross-border payment should be as easy to send as a domestic payment. Still, the reality is very different, which has the potential to slow global economic growth.
This is why the Bank for International Settlements (BIS) and the US Financial Stability Board (FSB) are working with the Committee on Payments and Market Infrastructures (CPMI). The committee aims to harmonize payment models worldwide by standardizing cross-border payment regulation. This will enhance cross-border payment compliance, promote growth, reduce costs, and eliminate trade friction.
While an ideal development, it will take time for the proper cross-border payment compliance framework to be implemented, and institutions and companies need to do something sooner to remain competitive.
Why are Cross Border Payments So Challenging to Manage?
The global financial system comprises a patchwork of different jurisdictions, laws, regulations, standards, and currencies. Banks fill the gaps by providing services that help companies settle payments in other currencies by transmitting funds to correspondent banks in the currencies they need.
The most developed services center around the major currency pairs, for example:
- USD/EUR
- GBP/EUR
- AUD/USD
- USD/JPY
The settlement of payments in Brazilian Reals, Vietnamese Dongs, or Ukrainian Hryvnias, for example, is more complex. Settlements in these currencies might involve two separate settlements—one in a primary currency like the US Dollar or the Euro—and a second in the destination currency, which is a longer and more costly process.
In addition to managing this complexity, banks, payment providers, companies, and others need to master more recent regulatory developments, including, for example:
- Anti-Money Laundering (AML)
- Know your Customer (KYC)
- Know Your Business (KYB)
- Terrorism Finance (TF)
- Politically Exposed Persons (PEP).
All this complexity presents significant costs and burdens for service providers and their customers, including greater compliance workloads, high funding costs, long transaction chains, and potentially the cost of maintaining legacy platforms.
Unsurprisingly, companies are looking for ways to enhance their B2B cross-border payment services using new technologies and capabilities, ideally ones that can provide quick wins. They are also aware that they will likely need to have CPMI compliance processes in place to align with CPMI regulations in their counties, which will be introduced in due course.
Let’s explore what some of these quick wins might be.
Streamlining KYC Processes
KYC standards and processes are on the frontline as authorities worldwide seek to disrupt international crime by limiting criminals' ability to use the global financial system to move funds from one jurisdiction to another to evade criminal sanctions.
KYC compliance requirements mean that you perform a series of checks to ensure that your customers are who they say they are, are not involved in money laundering, sanctions evasion, and are not politically exposed.
In the context of delivering B2B cross-border payments, this is incredibly challenging.
Service providers must access large volumes of data from various sources, often in different formats – databases, data feeds, websites, etc. – and then use real-time analytics based on defined risk profiles for money laundering, TF, etc., to screen payments and meet their KYC standards.
Developing, managing, and maintaining a KYC environment is challenging, given the constrained resources and budgets that businesses need to work within. Here, automation is critical, whether it be systems integration, reporting, or building dashboards and report profiles that help companies understand their KYC position.
But remember, KYC isn’t just for Day 1 onboarding. It is an ongoing activity, and service providers need the capability to maintain the KYC effort without creating a significant operational, technology, or cost overhead.
Supporting KYB Programs
Related to KYC is KYB. Service providers must be able to identify companies that they do business with using a unique business identifier, which many governments are now implementing. This ensures that providers know who they are dealing with instead of a company with a similar name, which might result in payment errors, or worse, be used for AML, TF, fraud, or other purposes.
This process needs to be automated, accurate, and up-to-date if it is to be effective.
Automating AML Processes
AML represents a different challenge in that businesses must capture financial information and financial flows, approve payments, or highlight issues that must be investigated and clarified.
This can relate to specific bank accounts, institutions, or countries. AML monitoring capabilities also need to capture unusual cash flows for an account or sudden changes in income or payment profiles.
Automation ensures that issues are flagged quickly, with a minimum of false positives that slow the customer onboarding process and ongoing relationship management. AML is a continuing process, so AML efforts must be maintained and adapted as business needs or regulatory requirements change, for example.
Managing the End-to-end Customer Experience
Another quick win can be managing the onboarding process to make it as smooth as possible despite the need for AML, KYC, TF, and PEP checks as part of the cross-border payment management process. This can stretch from the initial customer offer through the compliance checking process to the final steps of the onboarding process. At the same time, it is essential to proactively monitor for issues and friction points that can slow the onboarding process.
The Business Value of Streamlined Cross-border Payments Compliance
Compliance isn’t simply a question of being compliant or not being compliant; there’s business value, too. Compliance is non-negotiable; however, how you best achieve it is negotiable. Having a flexible and robust cross-border payment compliance regime allows you to offer an excellent customer experience. It also helps you introduce new products and services, confident that you have the capabilities to support a successful launch. It also ensures you can provide reliable service efficiently and cost-effectively.
Learn more about how OnBoard can help you efficiently and cost-effectively deliver a powerful platform for cross-border payment compliance.
