ROUNDTABLE: THE JOURNEY TOWARDS FRICTIONLESS CROSS-BORDER PAYMENTS

always identified friction in cross-border payments as the problem that reduced efficiency and had an impact on the customer experience.

Stuart Keenan, Vice President, Receivables Product Head for Middle East North Africa (MENA) at Citi, said that from a corporate perspective, the

Exchange weighed in saying that though their business is predominantly run through a brick-and-mortar model, the digital platforms are witnessing an increase in volumes over the past two to three years, especially for the mid to high consumer groups. Despite the digitalisation drive, Raipancholia said

Sá highlighted that the enrichment of data and reporting is a key priority together with speeds. “Timesaving in terms of reconciliation and the enrichment of data in all the reporting is what is key from the corporate side together with the channels that cover all the corporate segments from mobile main trends include the growth of instant real-time payment schemes worldwide, how they are enhancing cross-border payments and the choice and types of payments.

Consumers have high expectations and the new innovative technologies are raising them even further driven by the growing demand for seamless interactions, security at every step and easy access to purchase information. With SWIFT Go, banks are providing instant and frictionless cross-border transactions while enhancing transparency and endto-end digital strong security.

While responding to a question about the growing trends in the GCC payments landscape, Onur Ozan, Regional Head - Middle East, North Africa and Turkey at SWIFT said countries are introducing instant payment schemes “one after another in our part of the world” including Bahrain’s Fawri+ and Saudi Arabia’s newly introduced SARIE while the UAE has embarked on a journey to build its stateof-the-art instant payments clearing and settlement rail.

From an exchange house perspective, Rajiv Raipancholia, the CEO of Orient that the demand for brick-and-mortar locations and exchange house branches remains high among less educated expatriate communities. applications to APIs, SWIFT and online banking,” she added.

Ana Rita de Brito e Sá, the Lead –Product Management Cash Management & Escrow at Abu Dhabi Commercial Bank added by saying that from a corporate banking perspective, areas of concern include interoperability speed, high charges, frictionless on the end of the flow and the payment journey.

Kapil Arora, the Head of Correspondents & Banking Relations at Al Ansari Exchange believes the current operating environment is ripe for collaborations. “The customer experience, the customer journey, the user experience and service delivery can be enhanced with transparent collaborations between banks and their correspondents, between

– Kapil Arora

exchange houses and fintechs and between banks and exchange houses,” said Arora.

Arora said that non-banking institutions such as exchange houses are highly dependent on the banks for different kinds of services and processes while noting that some banks within the UAE are

Driving growth

Globalisation, digitalisation and the rise of e-commerce have changed the way consumers around the world shop, creating a truly global marketplace. Despite the economic headwinds originating from multiple sources, crossborder payments revenues are on track border payments typically take place between financial institutions, governments and multinational nonfinancial companies while retail crossborder payments are typically between individuals and businesses. EY said that traditionally, cross-border payments flow via the correspondent banking network collaborating with the exchange houses with a keen focus on enhancing service delivery and the customer experience in international remittances. for solid growth over both a five-year and a ten-year horizon.

Sanjay Rakesh, the Head of Corporate Banking and Shared Services Operations at Zand said that a frictionless customer journey can be achieved by leveraging data analytics. Drawing from his experience at a Singaporean bank, Rakesh said that extensive data analytics into cross-border payments, type of payments, the origination, the beneficiary and the amount that the central bank sends to the beneficiary to settle the cross-border transaction gave them in-depth insights that helped augment customer experience.

The cross-border payments landscape is becoming increasingly competitive and customers’ demands for fast and seamless experiences are higher than ever. The standardisation of cross-border payments can help global financial institutions eliminate many of the factors causing friction and SWIFT’s shift to the richer file format of ISO 20022 will enhance cross-border payments for banks and their correspondents.

“From a market infrastructure point of view, obviously, we see that instant payments and interoperability are among the key trends and models that will drive growth, for obvious reasons,” said Faisal Alhijawi, the Chief Strategy & Development Officer at Buna. The growth of cross-border payments has translated into the emergence of several different use cases including cross-border bank transfers, merchant payments and alternative payment methods, corporate disbursements, and e-commerce.

This sturdiness stems partly from the fact that, unlike some other facets of the financial services sector, payments affect just about everyone and every industry daily. “If you put the ingredients of frictionless into cross-border payments by reducing cost, making the payment instant (24/7) and complementing and enriching it with overlay functionalities through APIs, it is definitely a great driver for growth.” said Alhijawi.

There are two main types of crossborder payments. Wholesale cross- which most front-end providers use to settle the payment.

However, over the years, we have seen new back-end networks emerging to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.

Afzal Khanani, Head of Retail Operations at Abu Dhabi Islamic Bank, said that the prolonged pandemic is driving growth in payments volumes, ‘mainly domestic’, thanks to the UAE central bank which is helping banks to deliver instant experience.

Two main pain points are affecting service delivery in cross-border payments with retail customers more concerned about experience and pricing while commercial customers are worried about compliance issues. “One is the compliance issues where the customer is stuck if the payment is debited from his side, but correspondent banks are dealing with their internal compliance requirements,” Khanani said while noting that SWIFT can address the issue by a validation kind of functionality.

Bestani concurred with Khanani saying that there is a lot of competition around the cost of pricing while asking the bankers who attended the roundtable whether they are ready to reduce prices knowing that this will have an impact on their profits.

Khanani said that there are five main corridors where remittances go from UAE: India, Pakistan, Bangladesh, Saudi

Cash and liquidity management charges contribute around 45% to the total charge value, Dutta quoted a McKinsey study while posing a question on whether SWIFT or regulators are working to ensure that operational costs come down.

To reduce friction in cross-border payments, Jacob Pinto, the Crossborder Payments and Currency

Correspondent banking vs fintechs

Correspondent banks are financial middlemen that act as go-betweens in cross-border payments. Crossborder payments are supporting the development of digital economies and are driving innovation all while functioning as a stable backbone for global economies. Jayesh Patel, the CEO of Wio Bank said

Arabia and the Philippines and banks charge customers in this mass market varying services fees ranging from AED 15 to AED 20.

“I believe a big portion of the cost in our charges are the intermediary charges on the correspondent banking charges,” Gautam Dutta, the MD and Head of Cash Product Management & Innovation at First Abu Dhabi Bank weighed in. Dutta said that the charges emerge either from payment operation charges, foreign exchange transaction charges, liquidity management charges, network management charges or overhead charges.

Bhupesh Sharma, the Head of Transaction Banking at Abu Dhabi Commercial Bank said that cross-border payment charges are ‘definitely’ coming down as the industry is evolving. “BUNA can bring the cross-border cost correct to the bare minimum and I believe that innovative technologies and different platforms are joining the payments ecosystem forcing to give up high charges,” said Sharma.

Clearing Lead at HSBC Bank Middle East said that friction in international payments can be eliminated by upfront verification of account details in realtime—payment pre-validation. He said that HSBC implemented SWIFT validation so “we do not even let the payment leave our customer’s account without validating the accuracy of the recipient account.” that fintech firms and new innovative technologies are bringing efficiency to the payments ecosystem.

From a cost perspective, Pinto said that SWIFT rails are fast enough to the extent that “the majority of transactions go within seconds if there isn’t friction.” Pinto said that financial institutions can leverage structured data to increase efficiency in the cross-border payments process such as On-Behalf-Of (OBO) and final beneficiary information.

The adoption of faster, cheaper, more transparent and inclusive crossborder payment services could spur widespread benefits for people and economies worldwide while supporting economic growth, international trade and financial inclusion.

Fintech companies take away the unnecessary legacy steps that come with existing payments rails to enhance end-to-end customer experience, said Patel. The Middle East region has always been viewed as innovative and a leader in payments and finance—spearheading the move to a less cash-reliant society while encouraging consumers to embrace different ways to settle payments.

The emergence of new technologies has shaken the banking sector and new payments initiatives such as Buna—a payments platform that seeks to deliver the Arab world’s most cutting-edge, crossborder payments system, encompassing multiple currencies and payment types.

From a compliance perspective, Finali Fernando, the Regional Head of ProductGlobal Payments Solutions at HSBC Bank Middle East said to facilitate compliance with global standards in the markets that we operate in and ensure compliance with regulatory requirements, some costs are being incurred and “yes correspondent banking fees are high.”

In response to calls for the reduction of cross-border payment charges to increase market share, Fernando said that these are conversations that banks always have with customers. “There are correspondent banking caps that were introduced and I believe they came sector predicted that fintechs will take over banking and banks will disappear. However, over the past years banks caught up with fintechs, he added saying that what “we are witnessing currently in the financial services sector is less of competition but more of collaboration.”

Zand’s Considine concurred with Bestani saying that the Dubai-based Shariah challenger bank is still in ‘build mode’ which provided by the tech enablers to create a superior end-to-end customer experience.

Considine highlighted that neobanks are agile, flexible and can adapt easily since they do not come with any legacy hangover of infrastructure and processes. “So, as we are building Zand we are defining what we need as a bank so that we are in a position to meet customer needs and requirements more efficiently into effect earlier in 2023 so there is standardisation taking place in the payments sector,” she said.

Spurred by the outbreak of the pandemic, innovation is coming faster than ever before in all aspects of banking including cross-border payments where a key trend is a new focus on retail customers and small to medium enterprises.

Bestani said that over the past five to six years, the financial service has afforded it the ability to go down both routes—payment channels around the traditional correspondent banking and partnership with several fintechs.

Customers have choices, and so far, they are often finding better crossborder experiences outside the traditional banking channel. Still, traditional banks in the UAE have a real opportunity to evolve into concierges or curators of the best of the fintech world and maximize the tools than a traditional correspondent bank,” he added.

Rathore argued that incumbents are the backbone of correspondent banking while fintechs are providing the technology umbrella or the connectivity umbrella.

Within countries, the new ways to access digital financial services have made the payments ecosystem very efficient, inexpensive and more inclusive. “The fact is that conventional banks are the providers of the payment rails while fintechs are introducing technology solutions that allow customers to connect to legacy bank rails more easily,” Rathore said adding that in the process fintechs are “actually helping to increase adoption of payment types.”

From a cost perspective, Huny Garg, the Senior Account Director at SWIFT said that fintechs are leveraging technology to deliver low-cost solutions for international payments for individuals, small businesses and corporates.

Promising work is currently underway in correspondent banking networks to boost cross-border payments as part of a broader strategy by G20 countries to augment the global economy. However, progress on this front has been much slower as moving money from one country to another remains slow, expensive and inconvenient. payments originating from Taiwan banks to beneficiary banks in other markets.

Iso 20022

“Today, one of the main challenges is about the compliance, about the quality of data and about risk management on who we are dealing with,” Osama Rahma, the Head of Business Development at Emirates Investment Bank said adding that the new innovative technologies will allow the financial services sector to address the friction in cross-border payments.

Traditional banks are tapping emerging technologies, including blockchain, to enhance cross-border money transfer processes. JPMorgan Chase adopted blockchain technology in 2021 to enhance money transfers between financial institutions globally including

The adoption of ISO 20022, a globally developed methodology for transmitting data that provides a consistent messaging standard for payments, by financial institutions is expected to bolster the acceleration of cross-border, cross-currency instant and business-tobusiness payments in the next five years.

Hamayoun Khan, the Head of Transaction Banking at Commercial Bank of Dubai said that the adoption of ISO 20022 will unify current practices based on fragmented standards and provide the financial services industry with highly structured and enriched data for end-toend customer experience.

ISO 20022 is emerging as a common language and model for financial messages across the world. SWIFT projected that 80% of global, high-value payments by volume will be processed through this standardised messaging system as major currencies are adopting it.

“With structure and dedicated fields for payment details, ISO 20022 creates communication efficiency and offers universal messaging language rather than managing multiple market systems that speak different languages,” said Khan.

Dutta argued that though SWIFT is providing a communication network interoperability standard and the ISO 20022 standard, the endpoints continue to be on the legacy platform with processes that limit the amount of automation. “We are continuously being plagued by the processes that we need to adapt to support the payment operation in a near real-time manner,” he added.

Shirish Wadivkar, the Group Head of Wholesale Payments & Trade Strategy at SWIFT joined in, saying that ISO 20022 it is a data and messaging standard. Wadivkar highlighted that the messaging standard uses ISO 20022 while the data center is independent of the messaging communication and can be wrapped in an API layer and exchanged.

SWIFT said that from November 2022, it expects ISO 20022 to revolutionise the way its community exchanges payments messages—a move that is set to unlock numerous opportunities for financial institutions including boosting operational efficiency, enhancing customer experience and enabling innovative new value-added services.

A vision for the future

Globally, countries are working to connect fast payment systems, resulting in lower transaction costs for cross-border payments. A promising path is multilateral cross-border payment platforms that combine new forms of CBDC with new innovative technologies.

The International Monetary Fund said that these platforms could shorten transaction chains and improve security as central bank money would be available for settlement. Last October, CBUAE said that project mBridge with the central banks of Hong Kong, Thailand and China demonstrated faster, cost-effective and secure cross-border monetary settlements using central bank money.

Bestani said that initiatives in the market such as project mBridge are aimed at augmenting cross-border payments and basically making them more efficient. He said that the growth in correspondent banking is being driven by financial institutions’ quest to make payments more efficient and frictionless.

A platform based on a new blockchain— the mBridge Ledger—was built by the central banks to support real-time, peer-to-peer, cross-border payments and foreign exchange transactions using CBDCs.

The Saudi Central Bank (SAMA) and CBUAE also launched Project Aber in 2020—a joint CBDC that showed that central banks can leverage distributed