Glenbrook recently conducted two surveys to develop a detailed understanding of the ideal cross-border payments solution from the perspectives of both payments professionals and payments initiators. We are publishing the results today to coincide with Sibos, the annual international banking conference taking place this week in Toronto. Our research was sponsored by Earthport LLC.

• In March 2011 (Phase 1), Glenbrook Partners conducted a survey of payments professionals, which sought to consider strengths and weaknesses of solutions in the market, as well as characteristics of the ideal cross-border solution. [A brief summary of these results were published previously.]
• In August 2011 (Phase 2), Glenbrook conducted a follow-up quantitative survey and qualitative interviews to gather the detailed perspectives of corporate payments initiators. The information gathered in Phase 1 informed the hypothesis and line of questioning for Phase 2.

Phase 1 Recap: Unmet Needs Drive Opportunities for New Payments Solutions

The Phase 1 Survey generated responses from more than 200 bankers and other payments professionals around the globe, who shared their views on unmet needs and opportunities for further innovation.

Payments professionals perceived the biggest cross-border payment challenges as time required for funds to clear, difficulty tracking payment progress and in-payment reconciliation, and lack of foreign exchange fee transparency. Respondents perceived large corporations, particularly those with their own treasury functions, to be well served by existing solutions. They perceived challenges for smaller businesses, particularly for those making payments of less than $10,000, especially those in the $500 to $2,000 range.

Phase 2 Highlights: Blueprint for Increasing Payments User Satisfaction

The Phase 2 Survey was made available to members of the Institute of Financial Operations, who largely act in the role of payment initiators. More than 60 responses were received. In addition, Glenbrook Partners conducted phone interviews with a subset of respondents to obtain more nuanced perspectives on cross-border payments practices.

In general, the Phase 2 findings validated the findings from Phase 1. The perceptions of payments professionals were closely aligned with the views of payments initiators—though we were surprised at the magnitude of challenges reported even by those companies with mature treasury and payments functions.

The recent corporate payments practitioner survey and interview findings confirmed numerous opportunities for improvement. Changes in cross-border payments could deliver three main benefits: reducing costs (65%), improving payments quality (55%), and improving relationships with suppliers (49%). In addition, the following themes recurred:

• The need for security is a given.
• Cost reduction is a major objective for companies of all sizes—though transaction fees are a bigger consideration than exchange rate impacts.
• Existing solutions are seen as fragmented and cumbersome; they contain multiple process irritations that must be addressed manually, increasing costs.
• Simplified reconciliation is a frequent wish-list item.
• An easy-to-use, cross-border ACH solution continues to generate interest.

Implications for Payments Providers

Analysts often refer to payments as a commodity business. And while many sectors of the payments industry show the unmistakable hallmarks of such—standardized features, price-based competition, low margins—this isn’t true for cross-border payments. In fact, most providers in this space enjoy relatively attractive profit margins and do not use price as the primary basis for competition.

The solution providers in this space tend to fall into two groups: (1) banks using international correspondent banking relationships and (2) non-bank providers using proprietary networks to serve end users, but tapping into banking networks for financial settlement. Recently, this latter group has grown considerably with regulation of the new category of PIs (payments institutions) within the Payment Services Directive of the European Commission.

Our research findings are relatively clear: The market is voicing concern over current practices and prices while showing interest in new lower-cost alternatives. A host of products and services—many of them ACH-based—are emerging. Incumbent providers will need to evolve to meet these needs.

We think the opportunities are considerable—one could argue that this is today’s largest unsatisfied opportunity in the payments industry. But we suspect that incumbent (bank or non-bank) providers will be caught on the horns of a classic strategic dilemma. Will they follow the market, and risk reducing revenues? Or will newer players, at less risk for loss of current revenue, gain significant share? We suspect that the smarter incumbents will approach this problem through more sophisticated segmentation.

Fully synthesized results of both Phase 1 and Phase 2 are published in our new report, Cross-Border Payments Perspectives available for FREE download below.

Download the Research Report

Glenbrook Research Report
Cross-Border Payments Perspectives
By Erin McCune and Carol Coye Benson
September 20, 2011
This report is 42 pages long and contains 21 figures

Click on this link for your FREE download.

Note: If you have any trouble with the download process, do not hesitate to contact me directly for a copy of the report.