In the evolving world of cross-border payments, don’t put all your eggs in one basket
Banks should diversify their cross-border payment strategies and embrace alternative networks – but remember that SWIFT remains a vital partner.
It’s getting harder to compete in the lucrative business of cross-border payments. As new payment networks spring up to capitalize on the need for speed and ease, the industry is innovating at a rapid pace. To position for market success, it’s important to understand the role of these emerging players and how to best leverage them.
It’s no secret that banks play a pivotal role in facilitating cross-border payments and are eager to take advantage of the continually attractive transaction fees, FX margins and growth opportunities associated with value-added services.
At the same time, they are under immense pressure to provide real-time, frictionless capabilities at low cost. As the complexities and demands of cross-border payments intensify, having the right technology infrastructure in place is fundamental to be able to compete and win in the long term.
Who do banks rely on for cross-border payments?
SWIFT has long been the dominant network for facilitating cross-border payment flows and, with over 11,000 global member institutions, the central pillar of global financial transactions. However, the pool of network providers is widening.
Alternative payment players such as Visa Direct, Mastercard Move, Thunes, Nium and Wise are rapidly gaining share as they use technology and value-added services to capitalize on the changing demands of consumers and businesses. They are raising the bar by catalyzing industry innovation, resulting in faster transaction processing times, lower transaction costs, and higher security and transparency standards. As the regulatory environment continues to evolve and support alternative networks, their growth is likely to accelerate.
Banks now have a wide range of networks to choose from to enhance their cross-border capabilities and improve the service they provide to their customers. To successfully navigate the increasing complexities of this landscape, they should continue to use SWIFT alongside these newer entrants.
Although some alternative networks have developed expertise in specific areas, SWIFT still provides a range of compelling and attractive services. Additionally, SWIFT enables banks to have a direct relationship with their correspondent bank, reducing their exposure to a single third-party for all cross-border business. This direct relationship also means banks can leverage the abilities of their correspondent to create bespoke services for their customers. Crucially, banks can cater to a broader range of client needs by using both SWIFT and alternative payment networks.
So, rather than viewing alternative networks as a threat to SWIFT’s ubiquity and reach, a combination of both can be leveraged to provide a robust and flexible cross-border payments offering.
The technology piece in cross-border payments
We know that to support the capabilities of multiple payment networks (and meet changing client demands and expectations), many banks need to modernize their operations. With regulatory standards constantly evolving in the cross-border space, the ability to remain compliant at a viable cost is critical for achieving and maintaining market success. ISO 20022 becoming the dominant global messaging standard – replacing older formats such as SWIFT’s MT messages – is a case in point whereby banks around the world have been forced to make major changes to their underlying systems.
At Temenos, we therefore continue to focus on delivering solutions that help banks modernize to support the agility required to be successful in the modern digital cross-border payments business. We support the latest SWIFT-based services as well as multiple alternative networks, helping our clients navigate industry developments with our cloud-native, API-first platform. In this way, banks, payment service providers and fintech players can make the most of what newer networks have to offer as well as leverage SWIFT’s own innovations – and not put all their eggs in one basket.