The promise of embedding payments in cross-border commerce is a multitrillion-dollar opportunity, Amit Agarwal, Global Co-Head of Payments and Receivables, Treasury and Trade Solutions (TTS) at Citi, told Karen Webster.
But for financial institutions (FIs) and various providers, capturing that opportunity is a challenge — and that’s putting it mildly.
“Cross-border payments,” Agarwal said, “inherently have more points of failure compared to domestic payments.” Lag times are commonplace as money sits in far-flung accounts.
Compliance is an ever-present issue as companies navigate different regulatory regimes, and fraud is always top of mind as millions of dollars can change hands during a single transaction.
As he noted, “There are only so many finite things in a payment,” adding that the “dimensions have not changed much in the past five or even 10 years.” And a number of those dimensions have been seeing steady improvement with the aid of technological advances, touching on everything from the speed of payments, transparency, visibility and data integrity.
But through the past several years, he said, there’s been a notable shifting of the business models of the clients that the bank serves — a roster that spans everything from large multinational corporates to small enterprises and some of the largest governments in the world.
“The velocity of payments is increasing,” Agarwal said, “and the number of participants in the ecosystem is growing exponentially. Now you’ve got millions of micropayments that are happening in very short periods of time.”
Gone are the days when cross-border transactions were a “side consideration” for companies, where payroll was made, predictably, on the 15th of the month, every month, and where high-value supplier payments were periodic, and several days’ settlement was the norm.
“Payments were a byproduct of the business,” he said, “but now payments are a business.” The potential is there to do things differently, to create new products and platforms on top of products, with payments in the mix to help transform healthcare, automotive and finance and any number of other verticals.
“Whether it’s B2C or B2B,” he said, “supply chains are getting shorter.”
No matter the segment of industry, no matter where they operate, these clients are going through a period of what Agarwal termed “generational disruption” in their businesses, which are increasingly pivoting to online channels. And the shift, he said, is giving rise to new expectations of payments — especially cross-border transactions — as buyers and suppliers interact with one another and marketplaces help match supply with demand.
There are still frictions that get in the way of seamless money movement across borders. The field is growing ever crowded with firms and products seeking to address those pain points. PYMNTS Intelligence reported earlier this year that only 23% of smaller businesses, for example, say that current cross-border payment solutions are “very or extremely satisfactory.”
Agarwal noted that the bank recently published its “Citi Global Perspectives and Solutions” report, which found that more than 40% of banks have lost at least 5% of cross-border market share to FinTechs. FIs, Citi has found, need to form partnerships in order to maximize 24/7 availability and reliability of cross-border payments.
As he noted, the partnerships are critical as “There are many pieces of the jigsaw puzzle that have to come together to create a better experience — and if payments are not embedded, the rest of the experience is not going to be possible.”
The rise of embedded payments and platforms, he said, demands that providers think about the “payments experience” itself — not just about whether to provide ACH, wire or instant options, but where to provide those options and when. Each market is different, he said, and in Asia, by way of example, instant payments are not enough: providers need to offer data-rich notification through APIs, debit, and boost security throughout the process.
“The risk of fraud, financial crime, and money laundering,” Agarwal said, “are only increasing.”
As FIs intermediate those data flows, he added, harnessing artificial intelligence (AI) and other advanced technologies can be a key line of defense to ensure compliance. And across the industry, he said, providers and networks have been investing in innovations and speed to improve cross-border flows. He added that 24/7 clearing, launched last year by Citi, moves U.S. dollars anywhere around the world around the clock regardless of where the counter-parties are located across time zones, continents and countries. There are currently over 100 clients using this service today.
“That’s a major innovation,” he said of the network newly in place, “given the fact that more than 70% of global trade has been dollar-denominated.” Throughput, he said, is running on the hundreds of millions of dollars on a regular basis, he said.
Looking into 2024, Agarwal said, the “whole infrastructure around liquidity management will have to evolve,” and interoperability will have to take root across various domestic real-time schemes. That interoperability will be market-driven in terms of innovations and initiatives.
“Technology is probably the easiest problem to solve today,” he said of interoperability, adding that any solutions “need to be compliant with all of the regulations. We’re still at the foothills of the interoperability conversation.”
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