Published: August 01, 2014
There are many anecdotal stories about bottles washing up on coastlines around the world containing long-lost messages and valuable treasures years after they were sent. Presumably, the person who dropped the bottle in the first place had no expectation that it would reach a particular destination and when. But are treasurers paying any more attention when making their business-critical, time-sensitive international payments?
When making a payment, every treasurer expects the beneficiary will receive the right amount on the correct value date. Indeed, this is generally relatively straightforward in the case for domestic payments or cross-border payments between liberal economies with a comparable payments infrastructure. The challenge comes, however, when making payments in currencies or markets where regulations are more restrictive or the local clearing infrastructure is less automated. In these situations, the risk of payment failure is high unless the processing bank brings specific local and cross-border expertise, responsive customer service and robust, secure processing capabilities.
As companies of all sizes continue to expand their geographic footprint and engage in more complex activities in challenging markets, the scale and complexity of their international payment requirements is increasing. Acquisitions of Asian companies by European and North American multinational corporations, and vice versa, FX transactions in more exotic currency pairs and growing trade corridors between regions such as Asia and Africa, China and the Middle East, and Europe (such as Germany) and Turkey are all creating new trade and investment flows. In many instances, the difference between the financial infrastructure, regulatory environment and payments culture of the origin and destination countries may be substantial. The challenge for corporate treasurers and their banks is how to navigate complex cross-border payments requiring specific formatting, processing and controls whilst maintaining a high level of straight-through processing to avoid error or delay and maintain competitive pricing.
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As the case study in Box 1 illustrates, making international payments can be complex, with multiple steps that require specialist local knowledge and a proactive approach to transaction processing and customer communication. Payment failure or delay is not an option, with significant risk of major financial and reputational damage. In addition to navigating regulatory issues, as the case study outlines, there are a range of situations where working with the right bank can make the difference between payment success and failure.
Although the regulatory framework for the use of RMB is changing rapidly, with greater opportunity to use RMB internationally, there are many currencies in emerging markets, such as VND, which are more restricted, and where BNP Paribas can offer specific competence and advice. For example, where a company does not have a bank account in a particular currency, or where the currency is non-tradable, BNP Paribas provides a range of options to avoid financial, operational and regulatory complexity for the customer. In this case, the bank may debit the payer’s account in a tradable currency such as USD or EUR and pay the beneficiary in the relevant local currency based on an agreed rate of exchange. This avoids a proliferation of local currency accounts, eliminates ‘trapped’ cash and simplifies currency risk management.[[[PAGE]]]
The integration between BNP Paribas’ payment processing and FX platforms is a major advantage when dealing with foreign currency payments, particularly in complex currencies, by avoiding fragmented flows and facilitating bespoke cash pooling arrangements where local regulations permit.
In the case of FX settlement, particularly for spot deals, there is no scope for delayed notification of incorrect or incomplete payment instructions, that could result in missing value dates and failure to receive the corresponding foreign currency amount. Corporate treasurers rely on their banks to achieve a high level of straight-through processing for payments of all types, including those that have different settlement instructions, in order to minimise scope for error or delay. BNP Paribas has developed enormous processing capacity for international payments worldwide, with a focus on security, resilience, automation and transparency. This is integrated with electronic banking tools (such as Connexis and host-to-host or SWIFT-based connectivity) to give customers visibility over transaction processing whilst ensuring payment success by minimising manual steps.
As new trade corridors develop between Europe and emerging economies (e.g., between Germany and Turkey), international payments between countries where the payment infrastructure in the source and destination locations differs considerably is becoming more important. Once again, local knowledge and expertise, and direct access to the local clearing system are essential. In Turkey, for example, not only does BNP Paribas offer direct clearing system access and considerable local expertise, but it has a strong retail presence and an extensive in-country branch network. This enables companies to centralise payments and collections processing in the country of their choice, whilst leveraging BNP Paribas’ network to achieve efficiency in local and international payments and collections.
Secure, automated international payments, often in challenging countries and currencies, is becoming a growing priority for companies of all sizes as they expand their geographic footprint and increase the complexity of transactions in emerging markets.
Failed payments can result in major financial and reputational damage. To avoid these failures, the processing bank must provide a combination of operational efficiency and local market competence. BNP Paribas is a global leader in international payments with substantial processing capabilities, direct clearing system access, a proactive approach to customer communication. With considerable local expertise in each market in which the bank operates, complex transactions can be managed accurately and promptly, whilst respecting local regulations and customs. It is not a matter of chance or good fortune that an international payment reaches the correct beneficiary on time and for good value, but a precise and well-managed process undertaken by an expert bank.
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