The rise of instant cross-border payments: Boon or bane for banks? 

Real-time payment (RTP) platforms such as Singapore’s PayNow have revolutionised how we send money to people and businesses and have proliferated particularly rapidly across APAC in recent years.

But while these domestic platforms have thrived, cross-border instant payments – increasingly important for businesses and consumers in the Covid age – have been found wanting.

This is now beginning to be addressed as a combination of openness, collaboration and innovation from central banks, financial institutions and non-bank players has set the stage for fast, simple and inexpensive international payments to become a reality. However, in a field that has seen non-bank players driving innovation and taking market share, banks need to ensure that they are taking the right steps to avoid becoming irrelevant. 

Why APAC is the hot spot for real-time payments

The APAC region has traditionally been a pioneer in terms of fast payments technology, with Japan launching its Zengin payment system over 40 years ago. Eleven countries in APAC now have active real-time payment networks – including Singapore’s FAST network, which was launched in 2014 – whilst five other countries are getting their own networks ready for launch. APAC has also taught the world how to harness mobile apps, QR codes and contactless technology to make instant payments a simple and convenient process, establishing them as the preferred payment methods for many consumers and businesses. 

However, whilst simple, fast and free domestic payments have become the norm across APAC, the same cannot be said for international payments. Sending money between countries has typically meant long processing times and high transaction fees, with fees in ASEAN often being well above the UN’s Sustainable Development Goal of 3 per cent, according to the Asian Development Bank. This is far from ideal in a region where an estimated 320 million people rely on money sent from abroad by family members, and at a time where SMEs are seeking to trade more internationally. 

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Fortunately, a number of developments over recent years have resulted in real-time cross-border payments systems starting to become a reality. Progress in APAC has been fast and just this year Singapore and Thailand connected their domestic real-time payments systems to allow cross border payments – a world first – whilst initiatives were launched to connect Thailand with Malaysia, Indonesia and Vietnam, enabling businesses and consumers to receive instant QR code payments.

Singapore’s MAS has also inked agreements to link the country’s real-time payments infrastructure with Malaysia and India. There is also progress from SWIFT, the network that facilitates most international payments today, which has introduced its Global Payment Initiative (gpi). The SWIFT gpi introduces a new set of rules which address some of the issues of international payments by ensuring transparency of fees, end-to-end payment tracking, and confirmation of credit to the recipient's account.

As part of the initiative, SWIFT recently launched ‘gpi Instant’, a service that facilitates fast international payments by connecting SWIFT’s high-speed cross-border payments rails to countries’ domestic real-time payments networks, following a pilot which involved two APAC banks – DBS and Commonwealth Bank of Australia.  

A key enabler of these new developments is the adoption of a global standard for exchanging electronic messages between financial institutions, called ISO 20022. This has been a game-changer because all payments are sent via electronic messages containing various information in a particular format. All participants within a domestic payments network use the same ‘language’, but these languages vary from country to country. ISO 20022 provides a central dictionary that enables banks around the world to understand each other, which means the user experience enjoyed in domestic real-time payments can be replicated internationally.

Can banks weather the fintech storm when it comes to payments?

The banking landscape in APAC has been revolutionised by the introduction of digital banks, which have been steadily eating away at traditional banks’ revenues by focusing on innovation and customer experience. The recent developments in cross-border payments have opened the door to similar disruption from fintechs and Big Tech players. 

For instance, Google Pay has made a foray into the US$470 billion workers’ remittance market via partnerships with Wise and Western Union to facilitate transfers from US to Singapore and India via the Google Pay app. With 280 trade corridor country interactions planned by the end of the year, this initiative highlights the scale of the threat and some of the key challenges incumbent banks face when they are pitted against alternatives that promise to offer lower fees and more convenience for consumers and businesses. If banks do not take action to remain relevant and add value, they risk becoming a redundant part of the process. 

Instead of remaining hostage to disruption, there are multiple opportunities to be seized if banks want to stay relevant in this rapidly evolving space. First, with ISO 20022 expected to support 80 per cent of transaction volumes and 87 per cent of transaction value worldwide by 2025, banks need to focus on overhauling their existing legacy systems to support the new standard. With benefits ranging from the potential for increased revenue, improved compliance and increased operational efficiency, there is no good reason for banks to delay. 

There is also another huge opportunity for banks to collaborate with corporates that want to offer cross border payments services under Banking as a Service (BaaS), a new model which enables non-banks to build banking offerings on top of an established bank’s regulated infrastructure. To avoid being left behind, banks must collaborate with these fintechs, technology and service providers to take advantage of new cross-border payment rails and develop innovative new services that provide added value to the customer.

Through a combination of central bank-driven agreements, standardisation and technological innovation, real-time cross border payments are a reality. The benefits are many, both for consumers and businesses, and the potential for non-bank players to find new revenue streams means the proliferation of new agreements and services will continue at a pace. With more opportunities to deepen, expand and monetise transactional relationships, it’s a no-brainer that this will be the way forward for banks, with fast movers gaining from the first mover advantage.

The writer is regional head, payments solutions consulting, at Finastra.