A Seismic Shift in Cross-Border Payments: Impacts on Relationships Between Companies and Banks

With globalization accelerating and supply chains stretching across the globe, cross-border payments have become a critical piece of infrastructure, akin to the lifeblood of a company. While domestic payments have come to be immediate and low-cost through digitalization, cross-border payments retain major issues in terms of convenience. There is rapidly growing momentum for change on the level of global society as a whole to address this present state of affairs, which has been termed “slow, expensive and opaque.”
Swift (Society for Worldwide Interbank Financial Telecommunication), which is at the center of cross-border payments, has put forward a new platform strategy called the Swift Transaction Manager (TM), and new payment platforms making use of blockchain technology have also emerged, primarily overseas. These changes in the cross-border payments market will bring about a variety of benefits for companies in financial and accounting terms (see Figure 1).

In the coming sections, we will go over the true nature of these seismic changes occurring in the cross-border payments market and the genuine financial and accounting impacts that these will have for end-user companies. Finally, we will present some guidelines for how companies should engage with their current banks to best enjoy the fruits of these changes.

Swift has, to date, contributed to improving transparency through the provision of “Swift GPI,” which makes it possible to track the progress of money transfers, and through support for the ISO20022 format, which incorporates a greater amount of structured information. However, to meet the even more ambitious goals put forward by the FSB, Swift has changed course to adopt an even deeper platform strategy. At the core of this strategy is Transaction Manager (TM).
The previous Swift system resembled a game of Telephone, in which money transfer orders passed through multiple intermediary banks, and where lost or deteriorated information could give rise to delays or a lack of transparency. TM fundamentally transforms this structure by creating a centralized platform that functions as a "single source of truth” for each individual payment transaction. By having all relevant banks constantly share up-to-date and complete information on TM, the system dramatically streamlines the payments process as a whole (see Figure 3).

The benefits of TM for companies will be tremendous. The Payment Pre-Validation feature, which validates beneficiary data before sending funds, prevents money transfer errors, thus improving the productivity of finance departments. Real-time “end-to-end tracking” enables applicants to move to post-payment transaction lifecycles. For the beneficiary side, it enables increased precision in cashflow predictions through the ability to perceive the timing of the receipt of funds, as well as more streamlined management of working capital. “Case management” promotes prompt, active problem solving when handling occasions where problems arise that involve a significant amount of waiting for messages from banks, where appropriate (see Figure 4).

TM achieves greater speed in payments by preventing errors in advance and accelerating processing of payments, and achieves overwhelming transparency by constantly sharing the same information among all stakeholders. This makes it a solution that truly tackles the FSB’s targets head on.

Discontinuous innovation that is not just an extension of existing systems is also proceeding at the same time. Here we will present prominent examples from both the public and private sectors.

A BIS Innovation Hub led system that has come closest to being put into practical use, and has even reached the minimum viable product (MVP) stage is the mBridge shared platform for multiple central bank digital currencies (multi-CBDC).
This system involves the participation of the central banks of China, Hong Kong, Thailand and the UAE, among others, and allows the direct exchange of CBDCs issued by the respective countries’ central banks over DLT. It has been reported that, by avoiding the intervention of a correspondent bank and exchanging value directly, the system shortens settlement times from days to seconds and has the potential to reduce costs by as much as half (see Figure 5).

One initiative that is garnering attention from among those aiming to revolutionize payments with approaches that differ from simply deepening existing infrastructure is Partior, a platform established under the leadership of the private sector.
Partior is a global payments network based on blockchain technology established by J.P. Morgan, DBS and Temasek, with Standard Chartered joining subsequently. Partior, led by major global commercial banks themselves, rather than any particular central banks, represents an ambitious experiment in attempting to solve cross-border payment issues at the root.
At the core of this platform is the “tokenization” on the blockchain of deposits held by commercial banks, rather than CBDCs issued by central banks. The deposit tokens of different currencies issued by participating banks are instantly and simultaneously exchanged on Partior using smart contracts (“atomic swaps”). The system thus achieves 24-hour, 365-day-per-year real-time payments, eliminating intermediaries, as with mBridge (see Figure 6).

mBridge and Partior differ in terms of their central actors (central banks versus commercial banks) and the types of digital money they employ (CBDC versus tokenized deposits), but the ultimate benefits they produce for companies are shared as per the table below (see Figure 7).

These new-generation platforms have the potential to reach levels relative to the FSB goals that cannot be reached through extension of existing systems from the points of view of “cost” and “speed.”
Their impacts to corporate global fund management would also be tremendous. For example, eastbound money transfers, such as those from Japan to the USA, currently tend to see funds reach the beneficiary late. In addition to the physical time difference, factors suggested to be behind this include failures to perform straight-through processing (STP), the automated processing of money transfers, in intermediary banks and beneficiary banks, and false positives in anti-money laundering (AML) processes at applicant banks and intermediary banks.
This would be subject to automatic and real-time processing using tokens on new-generation platforms. There would thus be the potential for massive benefits from the point of view of corporate cashflows, as funds would arrive quickly even in the case of money transfers between countries with time differences.
The technology could mean the advent of a future in which even companies with complex accounts across multiple countries on account of the slowness of funds arriving could manage their funds from a single global account (wallet), if 24-hour, 365-day-per-year real-time payments could be achieved in cross-border payments.

This Insight has covered the details of the changes occurring as approaches to solving the challenges involved in cross-border payments, and the benefits of these changes. It also investigated the future that will be created by these changes, based on the insights we have developed through supporting a wide variety of financial institutions.
The seismic shift in global payments presents major opportunities for companies. Progress in the form of making payments “faster, more cost-efficient and transparent” goes beyond merely streamlining operations and reducing costs. Instead, it directly contributes to genuinely improving corporate value in the form of optimizing working capital, improving global supply chains and generating new business models.
To reap the benefits of these changes, however, companies will have to be proactive in taking action for themselves. It will require companies to clarify the issues faced by their finance and accounting processes, and to build relationships with banks based on new standards, as described in this article.

ABeam Consulting boasts know-how from both the banking and corporate perspectives, cultivated through an extensive track record of support for cross-border fund management and DX for numerous domestic and international financials and non-financials. If your company is revising its approach to cross-border payments or fund management based on the changes described in this Insight, please do not hesitate to reach out to us for a consultation.