- The two big payment clearing companies in the U.S. and Europe — The Clearing House and EBA Clearing — have locked arms with financial services communication cooperative SWIFT to develop a faster, more effective international payment system, the companies said in a joint press release this week. While saying they’ve reached a positive "proof of concept" following the trial, they did not provide a timeline for the rollout of the new service.
- With many of the biggest banks and financial institutions in the world backing them as shareholders, the three companies aim to bring cross-border payments up to speed with domestic payments, which have been streamlined in recent years. By contrast, cross-border payments have been mired in slow-moving bank processes that often make it difficult to know when payments will be completed.
- With the technological aspects of the new system developed, legal safeguards for anti-money laundering and bad actor sanctions must now be added, said Steve Ledford, senior vice president of product strategy and development at The Clearing House (TCH). “We’ve identified what needs to be done — we just need to do it now,” Ledford said in an interview. “We’re very optimistic that we can move this forward pretty quickly,” he said, declining to provide a timetable.
The full-court press by the clearing companies and their big-bank owners emerges at a time when a slew of fintech startups are introducing new ways to improve the speed and efficiency of payments. Many of them aim to speed up payments sent by people to relatives and friends in other countries, whether that’s to share wages, make college tuition payments or respond to a financial emergency. Others are focused on business-to-business payments for compensating overseas suppliers and vendors.
Immediate cross-border payments (IXB) — as the new effort from The Clearing House, EBA and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) is called — synchronizes “settlement in one instant payment system with settlement in the other” and converts real-time messages between the systems, according to the press release. Initially, the service would only be available in U.S. dollar and Euro payments, but could ultimately be expanded to other currencies, the release said.
“The process was designed to be currency agnostic,” Ledford said, but the settlement step has to be completed in the course of the transaction, too. The fact that settlements will be synchronized should take some uncertainty out of the process, he said. “It will make payments move faster,” he said. “They’ll be more tightly linked, more tightly coordinated.”
Eleven banks contributed to the design, and seven — Bank of America, BBVA Group, Citi, HSBC, Intesa Sanpaolo Bank, JPMorgan Chase and PNC — participated in the proof of concept. The experiment “shows that existing regional instant payment systems can be leveraged for cross-border payments and could provide financial institution participants of all sizes with access to a solution for cross-border payments without the need to build and connect to a separate network,” the release said.
An expected feature of the new system will be its ability to handle cross-border payments all day, every day. “We believe this will help create a highly efficient and streamlined model for market infrastructure inter-linkage, which has the potential to provide end-users with a vastly improved instant, 24/7, real-time cross border payments experience,” Melissa Tuozzolo, Citi's industry head for payments financial market infrastructure, said in the release.
In testing the IXB service, Ledford said each transaction took less than 10 seconds. There are "exceptions" to standard processing that slow some cross-border payments, he said. Some cross-border payments can take days to be completed, a TCH spokesman said.
Rival fintech startups are busy trying to eliminate such obstacles, and have received multimillion-dollar investments to deliver new cross-border payment tools. Two upstarts focused on payments between individuals include Remitly, which is backed by card giant Visa, and card company Sable, which is partnering with Wise to target its cross-border payment services at expatriates.
Meanwhile, other startups are simplifying cross-border payments for business-to-business uses, too. Payment and card-issuing company AirWallex aims to streamline currency conversions, perhaps removing intermediary conversions to reserve currencies like U.S. dollars and eliminating bank fees in the process, Toshi Kameoka, AirWallex’s head of strategy for North America, said in a recent interview.
Legacy payments players have felt the pressure, from competitors and customers, and are responding with cross-border payment upgrades. Goldman Sachs partnered this year with both Visa and global payments processor Fiserv, in separate agreements, to make headway on cross-border payments.
Both the legacy players and their new rivals agree that cross-border payments should not be weighed down by cumbersome, slow protocols when technological tools from payments players such as Zelle and PayPal's Venmo have made domestic payments faster and easier.
Ledford said the new TCH-EBA-SWIFT effort is being driven at least partly by rising fintech competition.
“There’s a lot of interest in cross-border payments, especially since so much has been done on the domestic payments side,” he said.