As global trade expands, so do companies’ global payments. That can be challenging given the complexities involved in making payments to recipients in other countries, including differences in payment systems, formats, and regulations, as well as different currencies. But banks and other payments providers are working to make paying globally easier for corporates.
“Payment schemes are generally geared domestically,” said Ather Williams, head of global payments in Global Transaction Services at Bank of America Merrill Lynch. “There are different payment formatting requirements with each payment scheme.”
Given the differences in formats, “a lot of information gets dropped on the floor on the way, and that becomes a reconciliation problem for the beneficiary,” Williams said. “And if [the payment] is high-value and has to bounce through a series of correspondent banks, the beneficiary may not receive the full amount because of fees or taxes.
“Just reaching all the end points where you want to send money can be a challenge,” he added.
Alfred Nader, vice president of corporate strategy and development at Western Union Business Solutions, said U.S. companies’ global payments made “a huge shift” from checks to electronic methods of payment over the last 10 years.
Now he sees another shift occurring. Companies accustomed to using SWIFT messages and wire transfers to rapidly send payments to overseas recipients are starting to use slower, cheaper methods instead.
“A lot of companies are realizing that the cost associated with sending these types of payments is not worth it,” Nader said. In the last few years, it has become much more common for companies to use international ACH to make global payments, rather than sending them via wire transfers.
The decision on which method to use comes down to the timing of the payment. “Do the funds really need to be there tomorrow? If they do, you need to send a wire transfer,” he said. “But if there’s flexibility about when the funds need to get there, why not send it the easier way?”
Western Union gives its clients access to SWIFT and to many other networks, including the large domestic clearing networks, Nader said.
In December, Bank of America Merrill Lynch announced an agreement with Earthport, a payment services company based in the U.K., that gives the bank access to Earthport’s links to clearing networks around the world.
The partnership targets payments of less than $10,000, rather than the high-value payments usually made via wire transfer or through correspondent banks, said Williams, pictured at left.
B of A Merrill is able to make many global payments directly through its branches in other countries, and if a payment is destined for a country where it doesn’t have a branch, it uses wire transfers and its network of correspondent banks. Williams notes, though, that such methods can entail charges by the various banks involved.
“For a $100,000 payment, that’s okay,” he said. “If you’re sending $10 to a developer, that doesn’t work.”
While it makes sense for payments for smaller amounts to be made using low-value networks such as ACH, that can be difficult because “there’s very little interoperability between ACH networks” in various countries, Williams said.
B of A Merrill already has connections to more than 35 low-value clearing networks around the world, and the partnership with Earthport gives the bank access to such networks in many more countries.
“Earthport has connections into the local low-value clearing systems in 60 markets around the world,” Williams said. “Earthport was a good way for us to reach that next level of countries in an efficient matter.”
Although the cost varies by country, “on average an ACH payment is ten-fold less than a wire,” he added.
BNY Mellon is rolling out a new global payments infrastructure that the bank says will allow it to provide companies with payments more quickly and flexibly, as well as making it possible to supply them with more data about those payments.
“We will be able to process all payments types and currencies in this one processing area,” said Laura McGortey, a managing director and product line manager for the bank’s foreign exchange payment services. She compared that to a traditional bank setup in which different types of payments are on different platforms, with U.S. high-value payments on one, U.S. low-value payments on another, and euro high-value payments on a third.
Having a single platform allows the bank to build in decisioning logic that aids companies in making payments. For example, McGortey described a situation in which a treasurer is making a cross-border payment to a beneficiary that needs to receive the full payment, rather than having the amount reduced by fees charged by various intermediaries.
The platform could offer the treasurer that option, perhaps at a different transaction fee, she said. "There's a lot of decision logic that we pre-establish with the client, and then as they make the payments, we can ensure the appropriate type of charge indicator is included."
Consolidating all the payment types on one platform makes it easier to provide the data about payments that treasurers need so that they can fine-tune their cash management. “It improves the visibility to intraday positions, which then allow our clients to manage their payment flows accordingly,” McGortey said.