Yvette Bohanan, Elizabeth McQuerry and Joanna Wisniecka scratch the surface of global payments in this inaugural episode of Fanning the Flames, a shorter segment of Payments on Fire®. 

While promoting the upcoming Global Payments Insight Workshop on May 18-19, they discuss what is happening around fast payment systems, cross-border payments, and how fast payment systems are starting to go cross-border, leaving their domestic boundaries behind.

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Yvette Bohanan:

Hi everyone, Welcome to Payments on Fire, a podcast from Glenbrook Partners about the payments industry, how it works, and the trends in its ever-changing evolution. My name is Yvette Bohanan. I’m a partner here at Glenbrook and cohost of Payments on Fire, along with George Peabody.

 

Yvette Bohanan:

Today we are taking 15 minutes to explore a topic that is near and dear to our hearts at the moment, cross-border payments. We’re calling this short segment format Fanning the Flames.

 

And in this inaugural episode of Fanning the Flames, we’re going to talk about global payments, cross-border payments and what’s going on. 

 

After decades of status quo, the cross-border payments are in a state of relatively speaking, rapid transformation.

 

Yvette Bohanan:

And in fact, enough is happening globally that we’re focusing our May Insights Workshop on global payments and this topic around fast payment systems, cross-border payments, and how fast payment systems are starting to go cross-border, leaving their domestic boundaries behind.

 

And so we wanted to take a moment and just sort of talk about what’s happening and what we’re observing as payments professionals in the industry. So with that, let me introduce to people who are with me. 

 

Yvette Bohanan:

Glenbrook colleagues Elizabeth McQuerry and Joanna Wisniecka. Elizabeth, one of the partners here, has worked on many, many cross-border engagement for Glenbrook. 

 

She has a long history in dealing with all sorts of topics of a global nature, so Elizabeth, thanks so much for joining us.

 

Elizabeth McQuerry:

Great to be here, thank you.

 

Yvette Bohanan:

And Joanna, recently joining Glenbrook after many years in payments. All sorts of interesting experience in the US and abroad.

 

With your expertise in strategy and policy and product and program management, you have a very concrete view of this topic, I would say.

 

Joanna Wisniecka:

Thanks, Yvette. Looking forward to the conversation.

 

Yvette Bohanan:

Okay, me too.  Alright so let’s get going here, let’s dig in. Elizabeth, I’m going to begin with the question about what is the cross-border payment, we have a lot of folks out here that could be new to the industry, and why do they matter.

 

Elizabeth McQuerry:

Well, that’s a fun one, Yvette, because we think about cross-border as country to country and that’s, of course, the foundation here. 

 

There’s also, is this a cross-currency payment as well, is there going to be foreign exchange.  

 

And I think one of the things that really makes cross-border very interesting and challenging at the same time, is that you to go from one country to the other country. There’s no simple highway. There’s no direct route for payments to happen because we don’t have a truly global payment system like we have domestic payment systems.

 

Elizabeth McQuerry:

You have to find a way to bridge one system to the next and typically it also creates yet a third transaction between the providers that are connecting those two systems. 

 

So an end to end cross-border payment can be any number of actual transactions between counter parties but I think the minimum number is three.

 

Yvette Bohanan:

Okay, and if we’re talking about this and we’re talking about improvements, we often hear the term modernization efforts. How do we simplify this from at least three to, are we talking crazy here, one.

 

Yvette Bohanan:

Can we break the barrier? And a lot of these modernization efforts have been within the boundaries of a country, a domestic payment system, so an architecture that operates within one country.

 

And the theme there in modernization is always about faster. The need for these payments to move funds faster between one party and the other.

 

Yvette Bohanan:

So in the realm of cross-border taking those concepts one step further and thinking about this minimum of three steps or three transactions, what are you observing Joanna as you look across this whole landscape. 

 

Joanna Wisniecka:

Yeah so maybe before I answer the question of what are we seeing in terms of modernization and innovation, let me tackle the question of why innovate. Why modernize in the cross-border payments. And you’ve highlighted a couple things here already. As Elizabeth rightly pointed out, fast payments innovations, those are largely focused on domestic payments.

 

And those innovations there in domestic payments have  truly been transformative. We’re actually seeing the focus on payments going faster and innovating turning into cross border. 

 

Despite significant enhancements that we’ve seen in the space and the user experience, they do continue to suffer still from some pain points. 

 

Joanna Wisniecka:

And some of those pain points are higher costs, of course, the longer processing times and lack of transparencies, where’s the payment in this chain of three or potentially more legs. 

 

And financial services industry players are certainly paying attention to this and they recognize these pain points and they’ve taken steps, practical steps to respond with solutions. 

 

Let me talk about a couple of themes around the modernization or innovations.

 

Joanna Wisniecka:

For one, fintechs have focused on innovating, I’d say what we refer to as innovating at the edges, with an eye to the end users.

 

And a few newer examples of those include Wise, used to be called Transferwise, PayPal, World Remit, Remitly, and there are a few others.

 

And their solutions typically focus on establishing local banking relationships, so accounts essentially, in several geographies and they orchestrate cross-border payments through that structure.

 

Joanna Wisniecka:

Those innovations, again, the end users we’re talking about here tend to be individuals and small businesses, and they typically offer lower rates than the traditional solutions that are typically provided by banks. And they really pride themselves, as we see in a lot of their marketing, on transparency in both the fees and the speed of the transactions to making them faster.  

 

And then second, an example is SWIFT. SWIFT is a messaging system that’s the really the communication backbone for correspondent banking.

 

And that’s undergoing, and has already undergone, quite a bit in terms of modernization.

 

Joanna Wisniecka:

The most remarkable example and successful and transformative again of these is called GPI. And that stands for global payments innovation, aptly named.

 

And at its core, GPI allows users, and the users are banks and corporates, to track cross-border payments very closely along their potentially complicated journey from end to end and dramatically speed up the process from initiation to completion, in addition to fee transparency.

 

I’m going to pause there. We could get into all of these topics in significantly more detail. 

 

Joanna Wisniecka:

We’re really just scratching the surface here and

we will actually explore these topics, cross-border payments, as Yvette  mentioned, in much more detail in an upcoming May Insight Workshop.

 

May 18 and 19 we’ll talk about the foundations of cross-border payments and the innovations we’re seeing in the space, including these payments going faster.

 

Elizabeth McQuerry:

Can I complement on that Joanna, because a lot of the things that you shared with us makes me really focus in in my mind on consumer to consumer payments and there’s so many frictions there, even today. I mean a lot has improved, but when we think about improving, modernizing, domestic payment systems and that focus on speed that I think is definitely there is huge on the consumer side.

 

But also, what about the information layer. I don’t want to lose track of that because a lot of the payment system modernization we’re seeing also is about getting more information into the payment. 

 

Elizabeth McQuerry:

Of course, that’s what ISO20022 can do, and that makes it much more attractive for business-to-business payments, makes it easier to do the reconciliation on a number of levels.  

 

I think really important changes that we’re seeing today are really just beginning to scratch the surface for B2B payments so there’s a lot more to come in this space.

 

Yvette Bohanan:

B2B, the largest and I mean largest by value of any of the use cases out there for cross-border. It just dwarfs everything else. So these efforts implicating that particular payment domain is a big deal.

 

Okay so just to recap we’ve got domestic systems modernizing. Things are getting faster.

 

SWIFT has been innovating with GPI.

 

Big incumbent fintechs, Wise, and all of the, we could go on and on a list as long as our arm of fintechs in the space, looking at transparency, looking at certainty of fees.

 

Yvette Bohanan:

This notion of ISO20022 coming in with more data rich transactions embedded with the payment and the importance of that. This is, just like you said Joanna, like we’re just touching on the highlights here. 

 

But if you think about this for a second, my final question for you is where is this taking us. What do we see happening in the near term. Like we netted this out, what are we really thinking. 

 

Yvette Bohanan:

Hmm, this is where things are headed, this is where the pucks headed near term. What’s on your mind when you watch all of this space. Elizabeth, do you have any thoughts. 

 

Elizabeth McQuerry:

The pucks clearly, I’m forgetting my Bobby Orr references here, I know there’s a good one if I could just find it. But clearly if you wanted to skate where the puck is going, the puck is clearly going towards instant payments on a multi country basis. So we’re going to find we’re already exploring ways to bring the improvements, modernization in domestic payment systems more aligned into cross-border multi country arrangements. 

 

And that’s a real Holy Grail to find ways to circumvent, or not circumvent, but overcome the challenges of a cross-border payments.

 

Elizabeth McQuerry:

Even if you don’t have cross currency, you still got multiple jurisdictions. One payment system to the other, unless we’re talking about Europe that has a unified payment law, but there’s very few examples of that around the world. 

 

And this is really going to be quite interesting, at the same time that we’re having crypto currencies and central bank digital currencies in the space.

 

Elizabeth McQuerry:

You sort of thought, maybe, five years ago that we were going to get to a place where cross-border would be modernized and improved and then there’d be a resting period of what’s going on in the space, but I think we’re actually only gearing up for more transformation.

 

Yvette Bohanan:

Okay. Well with that, we’re going to call it and say thank you Joanna and Elizabeth. I hope that you both consider grabbing the mic and talking a little bit more about this on a couple more Fanning the Flames episodes.

 

We’d love to hear more thoughts in this space and I can’t wait to hear what you guys are teeing up for the two day workshop coming up. 

 

Yvette Bohanan:

Thank you both. I hope this was informative to all of our listeners and we look forward to connecting with you again on a future podcast. Take care. Bye. 

 

Elizabeth McQuerry:

Thanks, bye.