Tony Craddock
Director General of the Emerging Payments Association
Why have cross border payments been perceived as slower, more expensive and more opaque than domestic payments?
Imagine someone trying to send physical cash from a town in England to a village in a developing country. The money must pass through different intermediaries and banking systems.
This is a complicated process because the payer and the payee are based in different countries, and the law, the payment methods and technology available often varies. The processes involved must also be robust enough to enable money to be transferred safely and securely.
Cross border retail payments also involve more risks to manage, complexities to navigate and rules to comply with than domestic payments.
Nevertheless, the industry is trying to reduce the amount of friction so people keep more of their money and receive it faster. Technology will drive change.
How has the mobile phone impacted cross border payments?
When we talk about financial inclusion globally, the mobile phone been the most influential game-changer in cross border payments in decades.
Around 40 per cent of the world’s population do not have a bank account but many of these people do now have a mobile phone.
Those living in developing economies might not always have the same smart phone as people in the West, but the devices they do have are good enough to enable cross border payments to take place.
Smart devices are fuelling growth but the mobile technology must still ensure payments are trackable and secure. We must avoid money laundering and stop funds being moved around to support criminal activity such as terrorism. The sender and the recipient must always be identifiable.
For payment service providers, the wider adoption of smart phones does provide huge opportunities to reach additional retail customers in new markets. What is exciting, is that retail payments from overseas will boost local economies.
What other technology is helping to grow the cross border payments sector and make it more efficient?
Mobile leads the way, but various internet applications are also making things easier for users, especially in jurisdictions where access to traditional banking is low and there is a need for more financial inclusion.
We are seeing wider adoption of e-wallets and e-money technology, for example, while blockchain/distributed ledger technologies and digital currencies are growing in popularity. However, the proportion of payment service providers offering or accepting currencies such as bitcoin is still relatively low.
The PayTech sector must come up with payment systems that are more modular, flexible and efficient to maintain and develop. This will enable them to compete more effectively with the traditional banks that can struggle to adapt their own, more complex, legacy systems.
Customer expectations around using cross border payment services are rising; what impact is that having on the sector?
As customers, we all want simpler and cheaper ways to pay for goods and services around the world.
The consumer has the power these days, and is used to quick and easy payments in their own country.
When it comes to cross border payments they want choice and to be able to compare the cost and speed of payments from different providers in various countries.
The industry is responding. We are already seeing more consistency in the type of payment technology used in different jurisdictions.
There has been an increase in the use of card payment systems, but these are not always the best option in jurisdictions where cash is still king or many sellers do not accept card because of the costs involved.
We are also seeing more traditional players reinventing themselves to compete in a fintech world and meet customers’ modern-day expectations around cross border payments.
BFC Bank, for example, was founded as Bahrain Financing Company in Bahrain in 1917 and has developed an online portal that is not constrained by legacy systems. The bank is helping SMEs and payment service providers with international payments.
Is the cross border payments sector becoming saturated because so many new players are entering the market?
No. What is brilliant about the UK is that it is a market where competition is encouraged and where we see plenty of investment to help entrepreneurs and start-ups disrupt the payments market and solve problems.
We must also remember that the financial services industry is international and the UK is the best in the world when it comes to payments and fintech.
The playground nowadays is global rather than just the UK, and there is so much opportunity for growth because international governments want to improve financial inclusion.
What impact could the threat to correspondent banking have on the cross border payments market?
Correspondent banking has been under pressure since the financial crisis because banks have looked to de-risk and are assessing the strategic agreements they have globally. However, if banks do reduce the number of partners they have around the world it could damage the cross border payments market and hold back financial inclusion globally.
Many banks have an irrational fear about being fined by regulators for not being able to authenticate who is receiving the money, and this concern threatens to reduce payment services in the developing world.