[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]
International Payments – The Changing Landscape [NACHA Payments]
Synopsis from Conference
goods and services overseas. In terms of volume, international payments
are estimated to represent approximately 8% of total payments and they
will continue global growth at a rate of 10.2% annually. As nations'
economies become increasingly interdependent through trade and
investment and as funds and people become more mobile globally, the
need to move money across borders efficiently, securely, inexpensively
and in a timely way intensifies. Using compelling statistics and trends,
speakers discuss the five most significant influences of international
payments which include: government-led initiatives and mandates like
SEPA; the upswing in outsourcing driving operational efficiencies;
emerging transnational systems reducing the dependency on corresponding
networks for payment; the increase in managing security of risk and
liquidity management; and the expansion of multinational banks and
corporations. Shifts in payment trends, such as remittance and open
account trade payments, are also discussed.
My Observations & Comments
Three trends are driving increasing focus on International
Primarily around trade but also government transactions. Ten
percent/year growth in international trade, 7.8% within the Americas.
By one estimate, cross border payments make up 8% of total payments.
[The speakers haven't posted their slides to the conference archive so
I can't confirm the source of these figures, I will update this if I
can get a hold of them and their sources. For now this is what I've got
in my handwritten notes.]
& Regulatory Mandates
Regulatory mandates and government-led payment efficiency initiatives
are driving bank and vendor solutions for International payments. For
example, SEPA and PSD in Europe, FasterPay in the UK, Basel II, and the
Patriot Act in the USA.
Multinational companies pressure their bankers to provide truly global
solutions, just as many of the largest banks become global themselves.
Operational efficiencies are sought by multinationals and financial
institutions alike through outsourcing. And increasingly, large banks
are able to clear International payments internally.
Trade Finance as an Opportunity for Financial Institutions
2007 US Trade statistics: Export = 1.132 Trillion vs. Import = 1.953
Trillion. There are 7 states with exports greater than $40 billion. We
are experiencing record exports due to the weak dollar.
Traditionally international trade was conducted via Letters of Credit (see diagram here)
whereby intermediary financial institutions absorbed the risk of
conducting business with far off, unfamiliar trading partners and often
provided funding to suppliers. Today, most international trade is
conducted on open terms, via purchase orders. Open trade reduces costs
and shortens the time frame (assuming payment terms are short). But
suppliers/exporters assume the risk and may have a hard time finding
SWIFT's Trade Service Utility
was developed to enable banks to "reintermediate themselves" by
delivering value-add trade services to support open trade worldwide.
[Fifty banks participate worldwide, but the uptake has been relatively
Remittances as an Opportunity for Financial Institutions
A second, growing opportunity for banks to expand International
transactions is Remittance services. Consumers working overseas send
money home at ever increasing rates (research by Aite
suggests that global remittances will reach $456 Billion by 2010). The
top four remittance destinations are China, Mexico, the US, and India.
institutions dominate the market (Western Union, MoneyGram, Euronet,
and Xoom) but the speakers suggest that banks can compete effectively
by offering lower transaction fees, better exchange margins, while
expanding their customer base. One
suggestion was to target the employees of banks' corporate customers,
offering a direct deposit option for payroll that would fund an account
(or prepaid debit card) in another country.
Inexplicably the second half of this presentation was devoted
to BofA's payments hub strategy. It was interesting, but I won't cover that here, as it does not pertain to International payments.